Currency Update - Is Spain in Trouble?

Published on 01/12/2010 in Your Spanish Home

Doom and Gloom seems to have been the order for 2010 particularly when looking at the current economic situation.  How many times have we read terms “Financial Crisis, Economic Downturn and Credit Crunch, Quantative Easing”  Then of course the most recent terminology “Stress testing”, phrases we are all now familiar with.

Spanish banksYes 2010 has been an interesting year particularly for the pound against the euro, sentiment rather than economic factors seemed to have influenced exchange rates.  The exception being the time following the election in the UK.

We have seen a considerable swing in the value of our pound from a 12 month interbank low of 1.095 to a high of 1.235. This in turn has had a dramatic impact upon budgets. For example if you were transferring £1000 at the peak it would be worth 1235 euros compared to the low of 1095 euros, that’s a massive 140 euro difference during the 12 month period. It has certainly been a stormy ride, some good news however that during the last 5 weeks we are better off with exchange rates by some 6 cents compared to the low in October this year.

Back at the time when the election was taking place in the UK, the big fears in the market was the Greek debt situation which seemed to run for sometime without anybody really knowing what the true level of the debt was. Strange how the tale also rings true today but with a different country. Of late we know it has been Irelands  turn, whose next,  Portugal, Spain?   Spain in particular is saying it will not need a bailout, I think it’s a question of lets wait and see.

With all the woes in the eurozone our pound should have seen some strong movements valuing our pound higher  and getting us more euros, strangely however it has not had the impact we all hoped for. The concern is the level of Britain's banks' exposure to the Irish debt and the need for taxpayers to once again contibute.

Even though Spain is being optimistic, one of the problems lurking around the corner is the fact that recent changes introduced by the Spanish Central Bank in September threatens to reverse the recent trend of slowing property prices. It may very well be that come the New Year we will see the banks flooding the market with properties they hold on their books.  Why? 

Under the changes, banks must now make provisions for bad loans after just 12 months rather the current 72 months, which will provide a strong incentive for lenders to dump properties more quickly.  The new rules also force banks to value properties more realistically which gives them further incentive to sell.

So will this mean the euro will weaken? Unfortunately the answer is not that simple and we will have to wait and see.

For the expat transferring funds there is some way of protecting your money and that is to talk to our preferred currency partner Moneycorp.  They can advise you when to transfer and also offer a range of options that will enable you to fix a rate so you know what your budget is for the coming 12 months.  

Give Moneycorp a ring on 951 319 700 or email michael.campbell@moneycorp.com  When contacting Moneycorp please quote Eye On Spain.

Written by: Moneycorp

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For more information about how Moneycorp can save you money when sending money abroad, please visit the dedicated Eye on Spain/ Moneycorp website.




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Comments:

Kevin said:
02 December 2010 @ 18:09

Part of Spains problem is that their government is very greedy! When you buy a property in Spain and you do not live there they try and take as much money off of you as they possibly can. For instance, the 'Wealth Tax'! We got stung for that the first year. As the 2nd year came up, they requested this 'Wealth tax' again. I did some research and discovered that this is an eligal tax and refused to pay any further payments. I sent them the links and information to check this out and requested a refund of any monies paid to date. I was told that I would have to take them through the courts to get any payments back.
I would love sell up and invest in my own country and at least have a fighting change for many of these made up expenses placed upon foreign investers.
I would never buy another property in Spain.



Clive said:
02 December 2010 @ 00:10

There is another reason that people were put off buying
property in Spain the land grabs
and properties declared illegal
This has not yet been dealt with which is a disgrace for a supposed first world country in the EU
and it is surprising the EU have taken no action against Spain
under the human rights act



Mutley said:
01 December 2010 @ 21:16

Brian has made some very astute points.

Spain has a very serious issue which has not yet been addressed - namely to get to grips with the dire situation of its banks and other financial institutions- the UK and the USA faced up to these problems early unlike Greece and Ireland and the effect of this lack of action by Greece and Ireland is there for all to see. Spain has still to deal with those issues and there has been a real reluctance on the part of the Spanish banks and other financial institutions to recognise the huge losses which they are carrying. There are literally thousands of interest only mortgages where not only the principal but significant interest arrears are being carried and have been for the past 2 years or so. A very big problem on top of the repossessed properties. There will almost certainly have to be a bail out of the Spanish banks - it will be a catastrophe for Spain and the Euro.



Jack said:
01 December 2010 @ 20:20

Let's see, the problem is too much borrowing. The solution? Borrow more. What could be simpler?

Those are my principles, and if you don't like them... well, I have others. --Groucho Marx



Roger Cummiskey said:
01 December 2010 @ 18:38

The simple answer is yes.

Spain has announced plans to sell off stakes in the country's airport authority and national lottery as part of moves to improve public finances.

Companies will be allowed to take a stake of up to 49% in the Aena airport authority, the government said.

The state lottery will also see a 30% stake sold off, and a special payment for the long-term unemployed is to end.

Spain's budget deficit hit 11.1% of GDP last year, and the government has pledged to cut it to 6% in 2011.

This will not be nearly enough but is simply the first in a very painful slide within the Spanish economy.



Marbella Mary said:
01 December 2010 @ 18:37

Just a few points: the strength of the euro against the £ has very little to do with the price of Spanish real estate. Very often it is the £ which has shown signs of weakness, usually immediately after Mervyn King makes a downbeat comment about the UK economy, thus stoking fears of yet more quantitive easing.
The situation in Spain is not as dire as the markets may think.
The yield on Spanish bonds in the last week Treasury sale was 5.5%, only two points above that of the UK. Spanish debt is around 60% of GDP, beow both that of Germany and below the EU average. Last year's budget deficit of 11% should fall to 6% by next year, although Spanish household debt is above the European average.. The big banks are strong and the multinationals are increasing their exports.
But markets are irrational and prone to panic and the poor prospects for future economic growth are a major cause of apprehension. There is an urgent need to free up the labour market and introduce measures to encourage innovation and competitiveness.
One huge mistake was to encourage the development of the Costas as the Florida of Europe. The vast majority of British immigrants to Spain are not high-net-worth individuals. Many are existing on low incomes and their plight is of course exacerbated by the falling value of sterling and low interest rates.
Lasting prosperity can never be built on the back of a construction boom, as Ireland, the U.S. and even China are discovering.
The evidence of that is there for all to see: the thousands of unsightly, poorly built developments that disfigure the landscape and the even more unsightly unfinished concrete shells dotted around.
It would seem that the smaller Spanish banks - the cajas - have yet to disclose the full amount of their exposure to unsound loans. This could come as a bombshell when all is revealed.
Finally, it must be remembered that all Government 'bail outs' are not gifts but loans, loans which will ultimately bring a net profit to the taxpayer.
An example: Britain borrows at 3.5% and has lent to Ireland at 5%
plus, thus earning a sizeable amount for the British taxpayer.
Of course Eurosceptic populist newspapers such as The Daily Mail and The Express will try to pass off these loans as handouts - after all, they rely on the fact that most of their readers will take what they read at face value and not dig deeper to find what really is going on.
I think the signs are that the euro is in for a choppy ride but will survive - Germany and France have invested too much capital in it both literally and figuratively to see its demise.
But then...who in 1988 thought the Soviet bloc would collapse like a house of cards?
We live in interesting times.



Brian J Deller said:
01 December 2010 @ 18:29

About a year ago we read in the Press of there being in Andalucia alone 800 000 homes standing empty, unsold with many newly built and many also unfinished. From our balcony across the valley we can see a big, empty new urbanisation as well as many other empty casas in the area. The banks have a big problem because such homes standing empty will deteriorate quickly and will them be worth even less so it is in the banks' best interests to off-load them as quickly as possible but when we look in the windows of the estate agents the asking prices for sales homes are the same as 2 to 3 years ago. But as jobs are lost and the economy dips again, many will loose their second , many their first homes with a big mortgage (80 to 100% mortgages not so long ago for over priced homes) so people such as ourselves will be able to comfortably buy a home without the need for a mortgage. Sad for thsoe who bought at the height of the boom yers but as was predicted by such as myslef, inevitable after the banks breaking their own rules in te years gone by, even buying up the USA Sub-Prime debts calling them on their balance sheets, "assets" as accountants do when they expect the debts to be paid off.
A recent TV news report from the USA showed detached homes in Detroit being offered for a $1 each as the local councils had much expense but no income and the houses were being wrecked by squattters and drug addicts. The Banks need to act before that happens here and they have to finally take the losses for which they have been mainly responsible.


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