Spain bailout
Hubris is a Greek word. It should resonate in Spain, which is learning what it feels like to be Greece. When the eurozone sovereign debt crisis began, ministers in Madrid proudly affirmed that Spain was not Greece. Yet, in its first six months, Mariano Rajoy’s government has had to pull out all the stops to avoid asking for a Greek-style sovereign bailout. It is not winning. Austerity measures imposed on a frail economy are too pro-cyclical, and the EU’s relaxation of Spain’s deficit target to 6.3 per cent of output this year brings little relief. Yet, seemingly, the stronger Madrid’s policy responses to Brussels’ commands, the greater the disconnect with investors. The yield on Spain’s 10-year bond remains about 7 per cent, and the spread over Bunds is at an all-time high.
The 7 per cent number is not, in itself, unsustainable in the sense it is routinely portrayed to be in the same breath as, say, Italy. Spain’s average funding cost, after all, is still 4.1 per cent, at an average maturity of 6.4 years. But that does not mean a bailout is unthinkable as soon as the autumn. Assuming Madrid has fulfilled 69 per cent of its medium and long-term funding needs, as it maintains, it still faces €27bn of maturities in October. Thursday’s auction was woefully weak – Spain had to issue costly shorter-dated debt, adding to maturity logjams. Spain also needs to find an extra €12bn of bailout funding for its regional governments (even after raiding €18bn from the lottery.) Finally, as bad loans hit 9 per cent of banks’ advances, lenders’ capital needs may be more than thought.
Madrid is optimistic it can get by; it had €44bn in the kitty in April. But past performance has been an unreliable indicator. Mr Rajoy has so far failed to get ahead of investors. He should nab some of the €100bn bank bailout for the sovereign coffers, as already envisaged in Germanys’ vote on the bank bailout.
Tour de France
Mamils will rejoice. Not only should middle-aged men in Lycra and other fans of pedal power get to celebrate the first British winner of the Tour de France this weekend, but those with real cash can now splash it on Aston Martin’s new £25,000 bicycle. By contrast, Bradley Wiggins’ Tour-beating machine only cost about £10,000 – but who is counting?
Actually, taxpayers arguably should be. British cycling’s stunning success over the past eight years (since Wiggins won his first gold in Athens) makes it the ideal case study for what a sport can do when the money starts to flow. For the Beijing and London Olympics, British cycling received a combined £48m in government and lottery funding – more than three times what it received for Sydney and Athens together. It has paid off: a haul of three golds from 2000 and 2004 turned into eight in Beijing – half of all the bike-related golds, and nearly half of Britain’s golds.
Since then, Mark Cavendish has won the World Championship and more than 20 stages of the Tour, most recently yesterday. And, short of falling off, Wiggins will wear the yellow jersey on the Champs Elysées tomorrow. Based on cycling’s most front-pageworthy achievements (say, days in Tour de France yellow, Tour stage wins, road and track world champion golds and Olympic golds), that works out at about £550,000 per piece of headline-grabbing glory. For each UK taxpayer (lottery funds account for about half), the whole enterprise works out at 75p.
The stated goal of UK Sport (the distributor of cash) is “world-class success”. Job done for cycling. The reason for wanting to win is “inspiration”. Again, that is hard to measure, but membership of British Cycling (serious cyclists, not including the growing commuter army) has trebled since 2004, mostly since Beijing.
Allez! Wiggins and Cav.
Fender bender
Nirvana’s Kurt Cobain would have shot himself twice if he had known that in 18 years his photo would be on an initial public offering filing. Luckily, his date with the suits has been postponed as Fender pulled its $150m IPO on Thursday.
The maker of fretted instruments, amplifiers, drums and bongos blamed poor market conditions. Economic weakness was listed as a risk in the regulatory document.
But Palo Alto Networks and Kayak had successful IPOs last week. Perhaps there are other reasons why Fender pulled the plug. Its filing also cited as risks the popularity of music featuring guitars and drums, music and song sales generally, as well as the ability to entice young Yngwie Malmsteens to play guitar in the first place. Perhaps a soggy global economy is also becoming quieter.
The above article is published in Financial Times.
7th August 2012
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20th August 2012
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