There are no easy answers for Spain these days. The government set up Sareb as a bad bank to purchase problematic real estate and loans from the country’s overloaded banks. It is a complicated maneuver. Set up with no money of its own, Sareb issues government-guaranteed bonds to banks, which can then use those bonds as collateral for ECB loans. Sareb has acquired €50 billion in assets this way already, including as much as €14 billion this week. Separately, Bankia reported a loss of €21 billion in 2012, which I understand is the largest loss ever by a European bank. Meanwhile, the country’s Supreme Court overturned a 2011 decree that erased the criminal record of a Santander executive. The court ruled that the constitution permits the government to pardon, but not vacate, a criminal conviction. The executive in question will apparently have to give up his work in banking, though the current government is in the process of drafting a law that might give banking regulators enough discretion to allow him to remain on the job.
An election in Italy was so inconclusive that it had people talking about a new crisis in the euro zone. The new government’s hands are tied, observers say, and new elections will surely follow soon. In the meantime, though, the government may be unable to respond to events and avoid a crisis. With low population growth, Italy is facing a pension imbalance ten or twenty years ahead of other European countries, and the government’s inability to fix that problem is the defining issue in Italian politics right now. If Italy can solve its problems, though, its solutions might provide a model for other countries to imitate.
Tonight, the bigger story is in the United States. Austerity spending cuts that were legislated in a roundabout way two years ago went into effect tonight after a two-month delay, and observers and politicians alike claim to be surprised that it came to this. The actual cuts do not take effect instantly, as federal government layoffs and furloughs take weeks to do, but suppliers and contractors have been laying off workers for several weeks already. Next week, perhaps half a million pink slips could go out. A recession is expected, and reduced income in various quarters will make it harder for borrowers to repay their bank loans. There is good news in that connection, though: consumers already cut back spending in February out of a sense of caution. Consumers’ reduced spending reduces the risk of not meeting obligations, but it also reduces the economy as a whole, compounding the effect of the government’s spending cuts. In theory, Congress could act to reverse the spending cuts, but it will likely focus first on the more difficult challenge of a budget for the coming fiscal year.
U.S. credit unions are adapting well to a surge of customer interest. They collectively recorded their largest net earnings ever in 2012 as they added 2 million new members.