'Rays Of Hope' For Spain's Economic Prospects?

If you believe recent headlines, Spain is going the way of Greece. But maybe things aren't really as bad as all that. One Zurich-based economist sees reasons for cautious optimism and thinks a little help from the European Central Bank could go a

Protests against labor reforms in Madrid (gaelx)
Protests against labor reforms in Madrid (gaelx)
Matthias Chapman

ZURICH -- The headline on the website of the German newspaper Handelsblatt proclaimed: "Spanish flu infects the financial markets." It was just one of many recent headlines blaring negative news about crisis-stricken Spain, prompted by the rise in Spanish 10-year bond yields. For the first time since last November, these jumped above 6%. For Greece and Portugal, 7% pushed things over the top.

However, Jörn Spillmann, head of international economics at the Zürcher Kantonalbank, is not as pessimistic on the subject of Spain. "There are rays of hope," he said, pointing to labor market reforms and the possibility that the government could intervene to take control of finances in some of its autonomous regions.

"The labor reforms will help the Spanish economy become more competitive," Spillmann explained. For example, it will be easier for Spanish companies to lay off personnel. He is also expecting positive results from the law approved last week giving the central government better power over regional budgets. "This should help to consolidate budgets," he said.

The issue of regional budgets is what has set off the latest wave of concern – instead of the 6% budget deficit targeted by Brussels for 2011, Spain's deficit was 8.5%. For 2012, Spain set a new target of 5.8% but Brussels would only agree to 5.3%, with an objective of 3% for 2013. "Under present economic conditions, that's a tall order," said Spillmann. Investors fear that it could cause Spain to turn to the bailout fund.

The spectre of a real-estate crash

Along with government debt, Spain has another pressing problem: the threat of a real-estate crash, with a worst-case scenario having the government shoring up the banking sector. Unemployment figures and bad mortgage debts have been climbing side by side for a while now, although recently unpaid mortgages have been rising less sharply than unemployment. Unfortunately, analysts are worried that this picture is deceptive, and that the country will see a spate of bankruptcies linked to these bad mortgage debts.

However, a small beam of light glimmered Tuesday on the bond market. Yields for 10-year bonds fell during the morning by over 18 basis points, bringing them well under the 6% mark. And should the situation tense up again, market observers believe the European Central Bank (ECB) will step in as it did in Italy by buying Spanish bonds to calm market fears.

"They announced last week that they would," said Spillmann, adding that the institution would take its time and appear reluctant at first, in order to remind governments about the urgency of reforms.

The pressure Spain is under to recapitalize is – relatively speaking – much smaller than Greece's was before debt forgiveness. The Spanish government debt is presently around 80% of domestic gross product (Greece had reached an incredible 220%). Spain has to recapitalize some 180 billion euros in government debt in 2012. By comparison: Italy must refinance 340 billion.

Finally: Spain is benefitting from the fact that many of its citizens are prepared to relocate. With unemployment at 20%, many people are leaving the country to try their luck elsewhere. At least short term, this lightens the load on state coffers since less unemployment benefits and other social aid have to be paid out.

Spillmann was not prepared to predict when things may start looking up again for Spain, saying only that he wasn't "all too pessimistic." The bank analyst added that he expected Brussels to provide funds to cushion economic weaknesses. "Euro country governments have always found solutions," he said.

Read the original article in German

Photo - gaelx

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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