Constitutional Crisis in Spain; Pro-Referendum Parties Win 87 of 135 Seats

Spain takes a giant step towards a full-blown constitutional crisis as Catalans overwhelmingly elect candidates promising a break-up vote.

Catalonia has delivered a sweeping mandate to political parties pledging to hold a referendum on independence in elections that place the northern Spanish region on a collision course with Madrid.

In a vote billed as �the most decisive elections in the history of Catalonia� by Artur Mas, the region�s president, pro-referendum parties won 87 of the Catalan parliament�s 135 seats.

Following weeks of intense debate about Catalonia�s future relationship with Spain, turnout was 69.5 per cent, the highest for a Catalan regional election in nearly 30 years.

The vote comes amid pressure from various regions around Europe for more independence, including proposals for a referendum on the issue in Scotland in 2014.

Spain�s central government has said any move to push ahead with a referendum on independence for Catalonia, which has an economy the size of Portugal�s and makes up about a fifth of Spanish output, would be illegal and against the Spanish constitution.

Catalonia has built up a debt pile of �42bn, the largest of all of Spain�s 17 regions, and is currently locked out of international capital markets. Earlier this year the region was forced to request an emergency �5bn credit line from Spain�s central government to avoid defaulting on payments.

Messy Politics

The ruling (Center-Right) Converg�ncia i Uni� party which favors a referendum actually lost 12 seats in the election, from 62 to 50. However, it lost those seats to more radical pro-independence groups.

Artur Mas, leader of Converg�ncia promised a referendum but will have to align with even more radical groups to produce one according to CNN.

Artur Mas, president of the region's parliament, promised a referendum on independence for one of Spain's most important regions if he won re-election.

But after the election, Mas has a more difficult task because his center-right Convergence and Union coalition lost 12 of its 62 seats, a strong setback for a party that was hoping to gain a simple majority in the 135-seat legislative body.

The Catalan Republican Left party was the big winner in the elections, winning 21 seats, according to the Catalonia elections web site, which reported 98% of the votes had been counted.

The Catalan Republican Left party also backs independence, and the two parties could form a majority in parliament on the independence issue.

They, however, differ on most other issues, especially economic policy.

Voters in Catalonia, the most powerful economically of Spain's 17 regions, heeded the call that these would be historic elections, even if independence wasn't on the ballot Sunday. They voted during a deep economic crisis in the eurozone countries, especially in Spain and in Catalonia. Voter turnout was the highest in 24 years for Catalan elections, officials said.

The Spanish government in Madrid vows to block any self-determination referendum, arguing that the constitution does not permit a region alone to decide its independence.

Last September 11, an estimated 1.5 million people -- 20% of Catalonia's population -- filled the streets of Barcelona, the Catalan capital and Spain's second-largest city, demanding independence.

A survey earlier this month by the Catalan government's polling center showed 57% of Catalans would vote for independence, a 6% increase from last June and a 14% increase from a year and a half ago.

Judging from the election, I suspect the percentage who would vote for independence is much higher.

A showdown with Madrid looms.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

450,000 Businesses Shut Down in Italy; Non-Performing Loans Jump 15.3%, Write-Downs 21.6%

Here are a couple of interesting economic links from Italy courtesy of reader Andrea. The translations from Italian are a bit choppy, but the gist of the articles is easily understandable.

Non-Performing Loans Jump 15.3%, Write-Downs 21.6%

From Thompson Financial News: Non-Performing Loans Jump 15.3%

Non-performing loans amounted to approximately 117.6 billion, 1.8 billion more 'than in August and 15.6 billion in more' than in September 2011, marking an annual increase of 15.3%.

With regard to loans net of write-downs at the end of September totaled 67.2 billion, about 1.5 billion more 'than a month before and almost 12 billion more' than in September 2011, with an annual increase of 21.6%.

450,000 Businesses Shut Down in Italy in Three Years

La Stampa reports 450,000 Businesses Shut Down in Italy in Three Years.

In just three years, from 2010 to 2012, about 450,000 companies closed with a loss of over 300,000 jobs, while the Italians caught up in terms of wear [usurious loans] increased to 600,000.

These are the data provided by Sos enterprise-Confesercenti usury-day. In particular, wear Italian capital Rome and Naples are confirmed.

It is "wear submerged, chameleon, now violent now` hit and run 'which marks a difference between the demands of incredible help and legal reality." [Bankruptcy looms]

The President of Confesercenti Marco Venturi pointed out that "the rest of the bank lending to businesses fell by 6%, rising instead both protests, particularly in the South, both failures, especially in Lombardy and the north-east. Do not forget that over the years has formed an army of 5 million people who for various reasons - bad payers, protested - is effectively excluded from the banking system and therefore must satisfy all its needs for cash."

The fact that more businesses shut down than jobs lost in those businesses says that many of the businesses are shell corporations. However, the implied stress is very real.

For more from Andrea regarding Italian bankruptcies, please see Reader Comments on Italy's Insane Labor Rules

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Parallel Universe; Pin the Tail on the Scapegoat; Losing by Winning

A curious thing happened in the complete collapse of the EU budget negotiations. Actually several curious things happened.

1. UK Prime minister David Cameron was not the scapegoat.
2. Supposedly multi-national bickering was a good thing (when heading into the summit it wasn't)
3. German Chancellor Angela Merkel offered ridiculous platitudes as to what the breakdown means

Pin the Tail on the Scapegoat

Please consider Blame flies over budget �bazaar�.

It took Europe�s leaders two days to discover they could not agree on a �1tn budget but less than half an hour before the blame game started over who was responsible for the latest grinding episode of euro-stasis.

David Cameron accused Jos� Manuel Barroso, European Commission president, for �insulting the European taxpayer� by failing to offer a single euro of cuts to the proposed �63bn budget for running the EU bureaucracy.

Some diplomats blamed Angela Merkel, German chancellor, and Fran�ois Hollande, French president, for failing to patch up their strained relations to provide a lead in seeking a solution. Others said Herman Van Rompuy, the EU president and chief negotiator, showed a lack of urgency and imagination in the way he conducted the talks.

But perhaps the most surprising element in the post-mortem was how little blame was attached to David Cameron, Britain�s prime minister, whose promise to defend his country�s rebate and call for steep cuts had caused alarm in Brussels.

Europe�s leaders seemed determined to present Mr Cameron as a constructive partner in the negotiations � rather than the isolated, veto-wielding eurosceptic portrayed by many European newspapers this week.

After his isolation at a summit in Brussels last year over a new fiscal pact, Mr Cameron wants to get back into the fold as he tries to win friends for future fights on issues such as a proposed banking union and a possible renegotiation of Britain�s EU relationship. But his decision to hold out for a better budget deal will be welcomed by Tory MPs at Westminster, as will his hard-hitting attack on Mr Barroso, whom he accused of living in �a parallel universe� in refusing to countenance cuts to the EU civil service.

Merkel's Platitudes

The Financial Times discusses Merkel the Conciliator.

Ms Merkel came to the summit in Brussels insisting that it would not be �the end of the world� if there were no agreement. She left on the same note, perfectly relaxed, insisting that everyone had made substantial progress. They had got a good basis for a final agreement early next year, and no one had been isolated, she said.

There was a sense of palpable relief in the German delegation that David Cameron, UK prime minister, had not been tempted to wield his veto.

�It is not a question of a single country,� she said after the meeting was halted. �We agreed that only if we decide unanimously can we agree on a reliable financial basis.�

The worst possible outcome, she declared, would have been to struggle to reach a deal on the seven-year financial framework, and to fail.

The alternative � of running the EU on annual budgets based on the existing allocation of spending � �would very much weaken the growth prospects in Europe�. It would particularly hurt the prospects of the new member states in central and eastern Europe, who under the seven-year plan will get a greater share of spending.

What a Crock

Merkel is allegedly breathing a sigh of relief because more than one country objected to Barroso's budget?

Supposedly we are to believe that 24 agreements out of 28 possible is better than 27 agreements out of 28. Please be serious.

I am also laughing at Merkel's platitudes "The worst possible outcome, she declared, would have been to struggle to reach a deal on the seven-year financial framework, and to fail."

Apparently it is better to throw in the towel and quit rather than try, because that is exactly what she said.

Losing by Winning

Cameron raised the EU's bluff and Merkel promptly folded.

The problem is the UK would be far better off by having a straight up or down vote on the EU by British citizens (which I am sure would be rejected), and sadly that outcome was avoided.

Instead, Cameron has decided to wimp along instead of doing what needs to be done: having a national referendum on UK membership in the EU.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

"Honorable Returns" and "Social Requirements"; More on Gift Cards

Earlier today I received a nice email from Mike "In Toyko" Rogers regarding my post Do Gift Cards Make Any Sense? Is it Time to Ban Christmas Presents Altogether?

Mike writes ...

Hi Mish,

In Japan, even though Christmas gift giving is not customary, we do have a custom called "O-Kaeshi" (Honorable Return).

What "O-Kaeshi" means is that when you receive a gift, then you are obligated to give one back. The Japanese take it to extremes as when a gift is given then another is returned and then another given back for the one that was given back and the cycle continues.

I have put my foot down and told my wife and our friends to "Stop!"

It's really absurd when a Japanese visits a foreign country and then feels obligated to buy some souvenir junk for the folks back at home (I mean, how many Hawaii refrigerator magnets - that are made in China - do we really need?)

When I tell the Japanese that we are to "stop it" (and I can because I have an executive position at work) they seem to always be relieved. Cultural and social pressures are not to be under-estimated.

Anyway thinking that you have to buy presents for the aunt you don't like or cologne for the uncle you don't even really know not only a waste of money, but philosophically inane.

It's Better to buy gold or silver for the immediate family for yourself.

Thanksgiving is a better holiday than Christmas away because, at least, there's no "socially required" gift giving.

Mike

More on Gift Cards

Reader "EM" writes ...

Hello Mish,

The one circumstance under which gift cards make sense for both buyer and seller is if the card is offered at a discount to face value.

For example, I have long been using my local coffee ship's gift card in lieu of cash there because I can buy a $100 card for $86. When it runs low, I just add another $100, again at a cost discount of 14%. The store owner gets more of my business than otherwise because I spend more when I feel I'm getting good value, and I enjoy the discount and the convenience of not having to worry about having cash in pocket.

Aside from this usage, though, gift cards are a complete racket.

Cheers,
EM

Mike and EM are both correct.

That said, I will point out there is nothing wrong with gift giving as long four conditions hold.

1. Exchanging gifts is genuinely mutual as opposed to a social necessity or obligation
2. The act of exchanging is not an emotional chore
3. No one is financially burdened
4. The gifts are appreciated and generally usable

I wonder what percentage one or more of the above is violated.  I also wonder when it will be commonplace to discount gift cards.

Although I seldom see gift card discounting now, I suspect it will not be long before the practice is rampant. Once one major store offers discounts, the others will all follow.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Eurozone PMI In Steep Decline as Services Suffers Worst Month Since Mid-2009

With the markets giddy over the "success" of people spending more money than they can afford on gifts that make little practical sense, other inquiring minds note the Markit Flash Eurozone PMI� shows Eurozone sees ongoing steep decline as services suffers worst month since mid-2009.

Key Points

Flash Eurozone PMI Composite Output Index at 45.8 (45.7 in October). Two-month high.
Flash Eurozone Services PMI Activity Index at 45.7 (46.0 in October). 40-month low.
Flash Eurozone Manufacturing PMI at 46.2 (45.4 in October). Eight-month high.
Flash Eurozone Manufacturing PMI Output Index at 45.9 (45.0 in October). Two-month high.

The Markit Eurozone PMI� Composite Output Index was little-changed in November according the flash estimate, up fractionally from 45.7 in October to 45.8. October�s reading had been the lowest since June 2009 and, for the fourth quarter of 2012 so far, PMI data suggest the strongest contraction of output since the second quarter of
2009.

PMI vs. GDP



Summary

Activity has now fallen in 14 of the last 15 months, with the exception being a marginal increase seen in January. Output fell sharply in both the manufacturing and service sectors and, while the former saw the rate of contraction ease slightly, the latter saw business activity fall at a rate not seen since July 2009.

The ongoing drop in output reflected a further steep deterioration in new business, which fell at one of the fastest rates seen since mid-2009. A sharper
rate of decline in the services sector was partly offset by manufacturers reporting that their rate of loss of new orders had eased slightly to the weakest for eight months.

The plight of the service sector was also highlighted by companies� expectations for activity in the year ahead dropping to the lowest since March 2009. Sentiment dropped especially sharply in Germany, but improved slightly in France.

Forward-looking indicators in the manufacturing sector also pointed to ongoing weakness in the coming months. The amount of goods purchased for use in production fell steeply, causing stocks of purchases to contract at the same pace as the
near-three year record seen in October.

Service Activity Plunges in Germany

The Markit Flash Germany PMI� shows Sharpest fall in services activity for almost three-and-a-half years, but manufacturing downturn eases in November.

Key Points

Flash Germany Composite Output Index(1) at 47.9 (47.7 in October), 2-month high.
Flash Germany Services Activity Index(2) at 48.0 (48.4 in October), 41-month low.
Flash Germany Manufacturing PMI(3) at 46.8 (46.0 in October), 2-month high.
Flash Germany Manufacturing Output Index(4) at 47.7 (46.3 in October), 2-month high.

Summary

November data indicated that the combined output of the German private sector dropped at a broadly similar pace to that seen in the previous month. However, this masked divergent trends in the performance of the manufacturing and service sectors, with the former posting a slower drop in output compared with October while the latter registered its fastest contraction since June 2009.

Another overall reduction in German private sector output reflected an ongoing contraction in new business volumes. Lower levels of new work have now been recorded in 15 of the past 16 months. Manufacturers and service providers indicated broadly similar rates of decline but, as with output, there was a divergence in momentum compared with that seen in October. Service providers posted the steepest decline in new business for three months, while the drop at manufacturers was the slowest since March. The latest drop in new export orders received by manufacturers was the least marked for six months, which some firms linked to support from stronger demand in China.

Shrinking new business volumes in the service sector contributed to a steep drop in expectations for activity over the next 12 months. The index measuring service providers� business expectations was the lowest since March 2009.

German private sector employment dropped at the sharpest pace since January 2010. A softer fall in manufacturing staffing levels was offset by the most marked decrease in services jobs for three-and-a-half years. Meanwhile, backlogs of work in the German private sector dipped for the seventeenth successive month in November, suggesting an ongoing lack of pressure on operating capacity.

Comment

Commenting on the Markit Flash Germany PMI� survey data, Tim Moore, Senior Economist at Markit said:

�The picture emerging from November�s survey is that the Germany economy will end the year with a whimper rather than a bang, as troubles in the eurozone continue to weigh on domestic business and consumer confidence. ... November�s survey suggests that the near-term outlook remains bleak for both manufacturers and service providers. Stocks of purchases across the manufacturing sector, which can be a useful barometer of confidence in the demand outlook, dropped at the steepest pace for three years � despite a slower fall in new work. Meanwhile, in the service economy, the year-ahead outlook was reported as the weakest since March 2009. The survey panel noted widespread worries that client budgets will be cut in 2013, alongside expectations that the euro area crisis will further undermine the German recovery.�

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Do Gift Cards Make Any Sense? Is it Time to Ban Christmas Presents Altogether?

Here is the "Black Friday" question of the day from Martin Lewis at the Telegraph: Is it time to ban Christmas presents?

Is it time to ban Christmas presents? Across the country people are growling at the enforced obligation to waste money on that they can't afford, for people who won't use it. Festive gift-giving has lost its point, risks doing more harm than good, misteaches our children about values and kills the joy of anticipation of what should be a joyous time.

Before you think this is just curmudgeonly bah humbug, this rant isn't about presents under the spruce from parents or grandparents to children or spouses. It's about the ever growing creep of gifts to extended family, colleagues, children's teachers and more.

The next year, I polled 10,000 people on whether we should ban presents. Seven per cent said ditch all of them, 30 per cent said to all but children, and a further 46 per cent said limit it to the immediate family. Fewer than one in five supported giving beyond that.

Social convention says give a gift to someone, or their children, and you usually create an obligation on the recipient to buy back, whether they can afford it or not. If that obligation is something they will struggle to fulfill, you actually let them down.

Gift giving misprioritizes people's finances.

Christmas presents are a "zero sum" game, as people usually swap gifts of similar value. Look at it as a simple equation:

 David gives Nick a �40 blue tie for Christmas; Nick gives David a pair of �40 designer orange socks.

The net result ... Nick has spent �40 and got a blue tie; David has spent �40 and got orange socks.

Effectively, you pay to receive someone else's choice of object. Fine if people have wealth, but consider Janet and John. Financially, everything's bonzer for her, so she decides, generously, to buy gifts for all and sundry. In her cousin John's case, it's a pair of �25 funky cufflinks. Yet he's skint, in debt, and has three kids but pride obliges him to buy her something of equal value.

Without the gift giving obligation, would John have really chosen to prioritise spending �25 to receive cufflinks? Instead, perhaps he'd have replaced his children's shoes or repaid some debt. Worse still, maybe he borrowed more to buy Janet her gift.

In other words, giftswapping skewed John's priorities. He would've been better off if Janet hadn't bought him a present.

Final thought

Some will say my view is unromantic, and others more bluntly call me Scrooge. However, this isn't about stopping festive fun, it's a challenge to pressured, blithe and habitual gift giving.

When buying's a chore, a thing to tick off a list, does that really help our pockets or our souls? Spending your time making tokens others appreciate, or even just being more considerate, is more in keeping with the spirit of winter festivals. Perhaps the real gift is to release someone from the obligation of buying you a present.

Banning Goes Too Far

Certainly banning voluntary actions goes well overboard. We do not need more ridiculous regulations telling people what they can or cannot do.

That said, it is certainly a sad testimony that every year people trample others to death, rushing to get the latest hot toy for their kid, when the toy will be forgotten or abandoned days or even hours later.

Gift Cards

Gift cards are popular, but what the hell is the point?

I give you a $50 gift card to Kohls and you give me a gift card to Home Depot? Is there any point to this madness?

Getting a gift card to a place I shop certainly is better than getting something I have to exchange (or throw away), but how is a gift card better than just getting $50 in cash. Yet, if I give you $50, and you give me $50 what is the point?

The obvious answer (yet one that few see), is there is absolutely no point at all.

Christmas Is For Kids

Young kids cannot shop for themselves, nor do they have any money, so I suppose a case can be made for getting children presents, provided one does not break the bank to do so.

Matter of Practicality

Other than shopping for kids, the whole Christmas charade makes no practical sense whatsoever.

Yet every year, the vast majority acts like a herd of lemmings, rushing around wondering whether or not Aunt Martha or Sister Suzie will like will like the gifts we bought them.

I actually like shopping. However, I hate crowds and I hate shopping under pressure.

Instead, I buy gifts for people that I am sure they will like, whenever I see them. Frequently my Christmas shopping is nearly finished by June.

This way, shopping is a joy, not a chore. And gifts from the heart are always more appreciated.

For everyone else it's high time to be practical.

Call the Whole Thing Off

If all you are going to do is exchange gift cards, or worse yet buy any damn thing just to get Aunt Martha, Sister Suzie, or cousin Louie something they may not need and/or could not afford to buy on their own, then why bother?

There is no need to ban Christmas, but there is certainly a need for common sense, and common sense suggests the best thing to do is have a "family gathering" suggesting to call the whole Christmas exchange charade off.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

EU Budget Laugh of the Day "No One Is Discussing Quality"

For now, the EU budget talks have collapsed. One major problem is cross agendas. All 27 nations have to agree to budget changes, and disputes are many.

The BBC reports hours of hard bargaining await.

Countries that rely heavily on EU funding, including Poland and its ex-communist neighbours, want current spending levels maintained or raised.

The UK and some other net contributors say cuts have to be made. At stake are 973bn euros (�782.5bn; $1,245bn).

France objects to the proposed cuts in agriculture, while countries in Central and Eastern Europe oppose cuts to cohesion spending - that is, EU money that helps to improve infrastructure in poorer regions.

They are the biggest budget items. The Van Rompuy plan envisages 309.5bn euros for cohesion (32% of total spending) and 364.5bn euros for agriculture (37.5%).

German Chancellor Angela Merkel says another summit may be necessary early next year if no deal can be reached in Brussels now.

In a speech to the European Parliament on Wednesday, the EU Commission President, Jose Manuel Barroso, complained, "No one is discussing the quality of investments, it's all cut, cut, cut."

UK Prime Minister David Cameron has warned that he may use his veto if other EU countries call for any rise in EU spending. The Netherlands and Sweden back his call for a freeze in spending, allowing for inflation.

Any of the 27 countries can veto a deal, and the European Parliament will also have to vote on the MFF even if a deal is reached.

Failure to agree would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.

If that were to happen it could leave Mr Cameron in a worse position, because the 2013 budget is bigger than the preceding years of the 2007-2013 MFF. So the UK government could end up with an EU budget higher than what it will accept now.

"No One Is Discussing Quality"

Barroso complains "No One Is Discussing Quality".

I for one am happy to discuss quality. There isn't any.

The agricultural subsidies are a joke, primarily aimed at propping up inefficient farms in France at the expense of higher costs for everyone. Those subsides should be cut to zero immediately.

And precisely why should the UK or anyone else contribute to infrastructure building in Poland? At what cost? Who determines quality?

Questions abound.

Pray tell, what is the basis for Barroso's statement "it's all cut, cut, cut"?

Point blank, there isn't any. There has never been a cut in the EU's budget in history and Barroso is actually bitching about a freeze at a time the Brussels' nannycrats are imposing huge austerity programs on Greece, Spain, Portugal, and Ireland.

Best Case Scenario

The best case scenario is the talks collapse, the EU raises the budget, and in response the UK tells the EU to go to hell and exits the EU.

We can hope.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com