News Summary Blog 5

http://finance.fortune.cnn.com/2013/05/30/spain-economy-bankia/


1.  This week in Madrid shares in the nationalized Spanish lender Bankia fell by almost 21% when the bank issued 11.5 billion new shares. The issue of shares was in an attempt to boost the banks depleted capital base. In addition to this, the banks share price went down by 50% last week. Since opening in 2011 the bank has lost 80% of its share value. It is a surprise that this sale went so wrong because it was looking as if the Spanish banking system was beginning to improve. This failed sale has made Wall Street question the state of the spanish banking system as well as Spain's entire economy. Investors are beginning to question whether or not Spain has been lying about recent numbers that have been collected in economic data. If it is found that this has happened, the validity of the Spanish market, as well as the rest of europe, would be in serious question and all confidence will be lost. This lack of market confidence could ultimately be fatal for the euro. The Spanish government has said that the GDP deficit has been cut by 7%. If that is true it is odd that this sale didn't go through and suggests that the Spanish government is not doing as well as it has been reported. Countries with solid economic statistics attract more capital and pay lower interest rates than those who "play games" with investors. This could put the rest of Europe at risk because if investors don't trust what is being said, they will stop listening to them. This would make it difficult to borrow from markets in the future.

2.  This issue relates to class because this failed sale could cause the euro to become fatal. The value will depreciate and the euro will be worth less. This issue has the potential to effect all of europe, not only Spain. Investors will stop investing in European markets so the demand for the euro will decrease causing the price to decrease. Like the article said, inorder to have investors investing in an economy there has to be a strong market. This is currently not the case and if it is not fixed the value of the euro will only continue to go down. The depreciation of the euro will cause the economy to continue to be in a crisis because it will not be worth anything.

3.  The failed sale of shares led to investors being skeptical of Spain's current economic condition. If the economy was improving, like the government has reported, there is no reason for the shares to fall 21%.  There is the possibility that this failed sale has nothing to do with the government making up numbers and have everything to do with Bankia itself. However, this is unlikely because of the size of the role bankia plays in the Spanish government. Bankia encompasses 10% of the nation's deposits and 10% of its mortgages. A solution to this problem could be for an outside group to come and determine the status of Spain's economy. A solution the article gives is for the Spanish government to step up and start making the necessary changes needed to improve the economy, or they can continue to play games with the markets in an effort to buy themselves some time.