Spain’s problems are swept under the rug… for now


“If I didn’t see it, it didn’t happen.” “What you don’t know can’t hurt you.” “Out of sight, out of mind.”

I haven’t figured out which phrase best embodies the way European leaders are viewing Spain’s economic worries, but all three encompass the main notion that Spain’s problems have been swept under the rug to be dealt with at a later time.

Just over a week ago the eurozone finance ministers agreed to lend up to US$125 billion to Spain’s banks in the hopes of better capitalising them and avoiding a financial contagion.

The amount being lent is significantly higher than anyone had predicted and speaks to the seriousness of Spain’s woes. The country, which is heavily reliant on housing growth to drive employment and grow retirement savings, is dealing with an unprecedented amount of doubtful commercial real estate loans that could be as high as US$220 billion according to the Bank of Spain.

In just the last few weeks we’ve seen large Spanish provinces pleading with their government for funds to cover their debts and the nationalisation of Spain’s fourth-largest bank by assets, Bankia. Bankia possesses more toxic CRE loans than Spain’s other banks, but this does not by any means signify that Spain’s larger banks by assets, Banco Santander (NYSE: STD) and Banco Bilbao Vizcaya Argentaria (NYSE: BBVA), are free of potentially toxic assets in their portfolios either.

While this move will certain allay recent worries that the eurozone was in an inevitable death spiral, it shouldn’t.

For one thing, the move doesn’t do anything to boost Spain’s economy. When people wake up tomorrow they’ll still be dealing with an unemployment rate of 24.4% and falling housing prices. Finance ministers can throw all the money they want at Spain’s banks, but it does nothing to fix the country’s broken economy.

More important, when was the last time we saw a eurozone nation fixed by its throwing money at its banks? EU leaders tried that with Greece in May 2010 by throwing US$147 billion at its ailing economy. In February of this year, Greece received a second bailout package of US$170 billion and a resolution to its mess still isn’t clear. Ireland received US$113 billion in November 2010, and is currently mulling the need for a second bailout in 2013 when its original bailout funds will run out. Portugal needed a US$97.5 billion bailout in 2011 to avoid catastrophe, but things may still not be that rosy, with Lisbon forecasting an unemployment rate of 16% next year.

Eurozone finance ministers can play a sleight-of-hand trick with investors all they’d like, but it’s not fooling me! Start your clocks now because it’s only a matter of time before Spain comes crawling back for an even bigger bailout.

If you’re in the market for some high yielding ASX shares, look no further than our “Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

 More reading

The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Sean Williams, originally appeared on fool.com

OUR #1 DIVIDEND PICK FOR 2016...

Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.