Translated material
Euromusor
Who is the last for the default?
The size does not matter: the Spanish economy is the fourth largest in the Old World, Cyprus is one of the smallest. However, both go to the bottom. The Moody's agency decided to synchronous decrease in their ratings because both states are not able to independently cope with their debt burden and, figuratively speaking, are now standing with an outstretched hand. Unless the size of the requested loans is different. The Spanish government is going to use the financial assistance of the EU in the amount of € 100 billion. Cyprus authorities are still ready to be satisfied with € 5 billion. Moody's warned investors about increasing risks in relation to these two countries and, in addition, issued a negative forecast for their near future.
With outstretched hand
After long backstat negotiations, the Spanish government officially requested assistance from the EU “for the recapitalization of its banks,” as the Minister of Economy of Spain Luis de Gindos announced on June 9. On the same day, the European authorities notified Madrid of a positive decision. De Gindos suggests that the conditions for providing assistance should be very profitable for Spain - much better than market ones.
What will this money go for? The weakest link in the Spanish financial system - banks * * The New Times wrote in detail about this in No. 18 of May 28, 2012. The International Monetary Fund (IMF) held a series of stress tests, according to the results of which it revealed: in order for the country's banking system to retain stability, it is urgent to pour about € 40 billion into it. Spanish Minister of Finance Christobal Montoo believes that the amount is not astronomical: “European institutions must find the possibility of recapitalization”.
Another € 60 billion according to the IMF plan will be needed by the Economy of Spain as a buffer - to restore confidence in the financial system. The Eurogroup said that funds can be taken from the Provisional Fund for the Financial Stability of the Eurozone (EFSF) or from the permanent stabilization fund (ESM), which should start work in July.
“The figure of € 100 billion seems to be inspiring and quite realistic, this is an attempt to solve the problem,” said Edmund Shing, head of the Barclays strategies development department. However, many independent experts are convinced that the agreed money will not be enough. Economist JPMorgan Chase & Co. David Mucky believes that Spain may take € 350 billion. “Spain is Rubicon,” warns Nicholas Spiro, who is quoted by Bloomberg, warning the managing director of Spiro Sovereign Strategy. “Limited measures to save Spain are not able to regain confidence in the market, but fears may well fuele that more ambitious help will soon be needed.”
“€ 100 billion is about one fifth of the Spanish budget,” Pavel Filippenkov recalls the managing director of the Trad-Portal IR. The expert fears that one tranche may not be enough to help the Spanish financial system. If we conduct analogies with Greece, then she has already received assistance in the amount of its GDP (€ 240 billion in the amount of GDP € 280 billion. - The New Times), which means that Spain will need at least € 500 billion.
All these risks are extremely embarrassing investors who decide on the purchase of new Spanish bonds. “There is a realization that Spain is going to increase its debt to GDP,” the Air Force reports the words of Paul Zemsk, the head of the Investment Management assets management department. “They borrow more and more money, making nothing for economic growth.”
It is no coincidence that Spain’s expenses for borrowing increased to the highest level from the euro launch in 1999. “The profitability of Spanish bonds is now very high,” says Anton Safonov, an investkaf analyst, “and after the Eurogroup agreed to the allocation of financial assistance € 100 billion, it has grown to 6.86 %. At the same time, 7% is a critical level, after which the country's economy will no longer be able to serve its duty. ”
Meanwhile, the experts of the Moody's rating agency are sure that by 2015 the Spanish public debt will reach 95% of GDP, including funds planned for reception, while the country will be in the recession throughout 2013. The head of the IMF Christine Lagarde called on European leaders to take decisive measures to assist Spain, since "the financial stability of the region is crucial for solving global problems." In the meantime, in addition to the IMF, the Banking Sector of Spain is evaluating the European Commission, the European Central Bank and the European Banking Supervision Service. The assessment should be completed by June 21, after which Spain will be given recommendations that she will have to follow in exchange for help.
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Saving their offshore assets, the "owners" of Russia allocate funny, by their standards, money to support the Cyprus economy
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Cyprus paid two steps of his sovereign credit rating (according to Moody's) for the fact that the authorities of this small island state with a population of 830 thousand people decided to seek financial assistance to the European Union and Russia. The head of the Cyprus Central Bank Panicos Dimitriadis explained that the government from the nose until the end of the month needs an amount of € 1.8 billion. It is so much to save from the collapse of the second largest bank of the country - Cyprus Popular Bank.
However, financiers who know about the state of affairs in the Cyprian economy firsthand are convinced that € 1.8 billion is only a small fraction of the amount of funds that may be required in the near future. Cyprus is a problem economy, the budget deficit of which, according to the World Bank, a year ago amounted to 5.3% and continues to increase. As well as the level of public debt, which is about 61%. By themselves, these figures in the current European realities do not seem so terrible. Worse than another: the financial system of Cyprus is closely intertwined with the drowning economy of Greece. Specialists estimate the entire loan portfolio of the island banks in one way or another at more than € 22 billion, which is almost equal to the GDP of the Republic. If Greece does not stay in the European Union, then Cyprus can simply lose these funds.
Hence the hope of Cypriots for the European authorities. “There is a probability of developing a crisis in Cyprus according to a Greek scenario, but the European Union primarily helps countries with small economies - such as Greece or Cyprus. To save these countries, large financial injections are not required. Therefore, most likely, the European Union countries will support Cyprus so that he does not go bankrupt and does not spoil the EU image, ”said Igor Indrixons consulting company Indriksons.
However, the main hope of the Cyprus authorities is to help from Russia. In any case, Pavel Medvedev, an adviser to the Chairman of the Central Bank of the Russian Federation, confirmed that the Cyprus authorities turned to Russia for a loan of € 5 billion (the Ministry of Finance does not officially confirm such an appeal.) We are talking about an intergovernmental loan, which is given on a softer, preferential conditions, which could offer the country the external debt market. “I am inclined to think that the issue of a new Cyprus loan will be resolved positively,” Medvedev said, clarifying that the final amount may be lower than the requested.
It is significant that the Russian government is not the first time to help Cyprus. At the end of December 2011, the Deputy Minister of Finance of the Russian Federation Sergey Storchak announced that Russia and Cyprus signed an agreement in Moscow on the provision of a loan by € 2.5 billion in Moscow. Moreover, on very preferential terms: at 4.5% per annum for a period of 4.5 years. What is characteristic: then this also happened against the backdrop of a decrease in the credit rating with Cyprus agencies by Standard & Poor's and Moody's agencies. However, the Russian authorities of “garbage” ratings were not afraid either then or now, although it is obvious that in connection with the new problems of the island’s economy, the prospects for the return of the Russian loan are becoming more and more vague. What is such generosity connected with?
“We don’t want to earn a percentage,” Pavel Medvedev explained, “but we want to look more respectable in the eyes of Europeans.” However, independent financial experts surveyed by The New Times believe that the matter here is not at all the respectability of large Russian offshores in Cyprus. The largest Russian oil, metallurgical and other companies are registered in this country. And they all keep their money in Cyprus banks. “In order for Cyprus banks to go broke, Russia is not interested in in any way,” said Andrei Chernyavsky, consultant “2k Audit - Business Consultations/Morison International”.
Between Russia and Cyprus, agreements to avoid double taxation are concluded, Cyprus has very low dividends taxes, the expert adds. “Compared to what problems the Russian economy can threaten the bankruptcy of Cyprus banks, the creation of a positive image of Russia in Europe is a far from a priority task,” Chernyavsky emphasizes.
“A significant part of large Russian business is controlled precisely through Cyprus offshore,” the director of the Institute of Globalization Problems Mikhail Delyagin describes the scheme. - Suppose an entrepreneur has an offshore company in Gibraltar. The account of this company is located in a Cyprus bank. And if Cyprus banks collapse, then this businessman will be left without money. Therefore, saving their offshore assets, the “owners” of Russia allocate funny, by their standards, money to support the Cyprus economy. ”
“Cyprus ranks first among countries that invest in the Russian economy * * According to the results of the first quarter of 2012, Cyprus leads in terms of investment in the Russian economy among all foreign countries - $ 69 billion. We are well aware that these are our people invest money in our economy. Therefore, allocating Cyprus loan, Russia creates conditions that guarantee calm for the capital on the island, ”explains Igor Nikolaev, director of the Department of Strategic Analysis of the FBK company.
If Russia agrees to the allocation of € 5 billion, then the total debt of Nicosia to Moscow will amount to about 30% of Cyprus GDP and is unlikely to be returned in the foreseeable future. “If there was a series of defaults in the eurozone, it is very likely that it will be impossible to return the loan issued by Russia,” Nikolaev said.
Meanwhile, Russian assistance to Europe may not limit himself to Cyprus credit alone. Not so long ago, Deputy Prime Minister Arkady Dvorkovich said that Russia is ready to invest $ 10 billion in the European currency, using the IMF mechanisms. “It looks very strange,” says Igor Nikolaev. - At the end of March, the Russian Federation itself took $ 7 billion in the foreign market. It turns out that now we are “joyfully” ready to give the world the entire amount that we occupied and add. Why was it then to occupy? "