Nine of ten PYMES (small to medium-sized businesses) have reported problems accessing credit according to a report on Q3 financing issued by the ICO and the Cámaras de Comercio. In August, sales of mortgage loans plunged 5%. These figures confirm what the banks have already pointed out. Banesto proposed that it would lower its credit rates to 7% by next year, and Santander will drop theirs to 3% within two years.
Spain is one of many countries with a heavily-indebted private sector. Now we are suffering from a correction and a most resources are tied up in real estate assets that need cleaning up before activity resumes.
The situation could worsen if banks have to recapitalize or losses on sovereign debt have to be provisioned. Thus, cleanups would need to be shelved and lenders could only resort to shrinking their size. That is, reduce credit by having a higher percentage of basic capital and create solvency. That throws us into another recession where we wind up in another viscous circle of unmet expectations.
As Botin affirmed yesterday, the root of the problem is firmly planted in the eurozone. "If the sustainability of public debt or the financial system is generally in doubt, we could enter an unstoppable downward spiral of sovereign debt and banking failures." What are we trying to protect Europe from, and why? The Germans? zeal could send Europe in two different directions? or even break the continent.
