Spain Lifts Estimates of Deficit, Unemployment; Greek CDS Trigger in Limbo

Devan Biswas
02 Mar, 2012
New York City

European markets fell after Spain said it will miss its deficit target and European leaders reiterated the March deadline to finalize the size of the rescue fund. Spain estimated higher than expected economic decline of 1.7% and larger than expected deficit of 5.8% and unemployment above 24%.

[R]6:45 PM Frankfurt – European markets fell after Spain said it will miss its deficit target and European leaders reiterated the March deadline to finalize the size of the rescue fund. Spain estimated higher than expected economic decline of 1.7% and larger than expected deficit of 5.8% and unemployment above 24%.[/R]

European markets edged lower after Spain warned larger than expected deficit target in the current year and oil was in focus on conflicting reports of a pipeline explosion in Saudi Arabia.

German bund increased to 1.39% after the announcement from Spain and on the final day of the 2-day European summit that ends today.

Spain’s Prime Minister Mariano Rajoy said that his country is expected to miss the deficit target set by the European Union and will base its fiscal budget in 2012 on a deficit target of 5.8% of gross domestic product. The country also set its spending in the current year to 118.6 billion euros, 5% lower than in 2011.

The unemployment is expected to jump from 22.9% to 24.3% in the current year as the government cuts its spending and housing market continues its four year old downward spiral.

The announcement came after an EU summit in Brussels and Rajoy estimated that deficit will fall back to 3% in 2013 but will be ahead of its earlier promise of 4.4% to other nations in the union.

The government’s deficit in 2011 jumped to 8.5% instead of the target of 6% of gross domestic product.

Economy Minister Luis de Guindos said that the economy will shrink 1.7% in the current year, higher than the estimates by the EU and the Bank of Spain and will shrink at least in the first two quarters before recovering in the fourth quarter.

European leaders plan to decide on the size of the rescue fund as early as by the end of this month. Herman Van Rompuy, the president of the European Council and French Prime Minister Nicolas Sarkozy independently reiterated the deadline.

The plan opposed by Germany for now, is to combine the €250 billion in the temporary EFSF or rescue fund with €500 billion in the permanent ESM facility.

The two leaders emphasized the urgency after the European Central Bank president Mario Draghi told leaders of the European Union that the central bank’s recent two liquidity injections are not going to be repeated.

On Thursday, the International Swaps and Derivatives Association said that the Greece’s debt swap scheduled to start next week did not trigger the swaps linked to Greek bonds but that could change at a later date.

Stock Movers

Sara Lee Corporation ((SLE)) gained 4.8% or 99 cents to $21.38 after the food processing company said it will spin off its Coffee & Tea business and list it on an exchange in Amsterdam that may be valued as much as $4.55 billion and shareholders will receive a special dividend of $3 a share.

Banks were in focus and traded lower after Spain said it will miss its deficit target.

Societe Generale increased 34 cents to €25.40 and UniCredit SpA decreased 1cent to €4.12.

Barclays Plc surged 7 pence to 258 pence in London trading and Deutsche Bank decreased 16 cents to €35.76.

Auto stock closed higher.

Volkswagen AG increased 63 cents to €130.50 and Daimler AG increased 16 cents to €46.22. Peugeot SA added 6 cents to €14.53 and Fiat Industrial SpA gained 11 cents to €8.31.