Spain is Blowing Up, with Santander Right in the Middle of It

February 17, 2010 (LPAC)—While attention focuses on Greece, the financial system of the real sick man of Europe, the British outpost Spain, is blowing up, just as Lyndon LaRouche has pointedly been insisting.

Today, even as Economics and Finance Minister Elena Salgado lied that the Spanish government had not used, and never would use, derivatives to cover up its debt as Greece had, Spanish daily ABC revealed that the government has been hiding an astounding 21% of the country's public debt, because it does not include the debt and liabilities of public sector companies in the official statistics. Add those government obligations in, as a study by the opposition Popular Party did, and Spain's public debt increases by 200 billion Euro ($275 billion), to total 700 billion Euro ($962 billion), or 65% of GNP, as opposed to the government's claim of 47%.

That's just the public debt. The Spanish corporate sector is another bubble, a Wall Street Journal posting reported on Monday. According to the Journal, while Spain makes up 10% of the Euro-zone economy, Spanish companies accounted for more than a quarter of the increase in corporate debt in the Euro zone as a whole between 1999 and 2008. And that doesn't include the 27.7 billion euros in liquidity injections (i.e., debt) Spanish banks took from the European Central Bank between mid-2008 and late 2009, as reported in EIR's explosive Feb. 12 study, "The "Santander Syndrome:" London's Sucker Game."

As for Spain's "Ponzi scheme housing market," as UBS termed it in a note to investors on Monday: by the Wall Street Journal's calculation, household mortgage debt stands at 58% of GNP in Spain (as compared to 36% in France, and 37% in Germany)—and that, in turn, does not include the $450 billion "real estate developer" debt bubble which is blowing up, as rates of loan defaults in Spain, which tripled between July 2007 and March 2009, continue to increase. Germany's Handelsblatt and Spiegel Online warned today of the great danger of Spain's real estate sector coming down, with altogether EU300 billion in debt, much of which is held by banks as real estate collateral for loans made to clients. The loans not being repaid, and the banks have a big problem to handle. For example, Spain's number one bank, British front Banco Santander, alone, is sitting on EU5 billion of such collateral, they report.

The government is already racing to bail out the savings banks ("cajas"), which hold over half of the assets in the whole financial system—and have some 70% of their loans in real estate. The government set up a "Fund for Ordered Bank Restructuring" (FROB) last June to finance the consolidation and restructuring of the savings bank sector. Finance Minister Salgado insisted again today that this restructuring must be completed, "ASAP... to consolidate a more solid financial system."

Spain's oligarchic, tourism- and services-based economy is disintegrating under these bubbles. INE, the official statistical agency, today reported that services, making up more than 60% of the economy, fell by 13.6% in 2009, while industry, making up 12% of GNP, fell 21.7% in 2009. Yesterday, the Labor Ministry released a study advising that nearly 40% of the unemployed in Spain — and 19.5% of the workforce is officially unemployed — have very low chances of getting a new job, with unemployed industrial workers the worst off.

Thus, should it come as a surprise, that today BNP Paribas sold off 20% of its share holdings (from 3.12% to 2.49% of the total) in Banco Santander, the British-Spanish bank which Lyndon LaRouche has been warning is, in a word, bankrupt.

THE OCTOPUS KNOWN AS BANCO SANTANDER.