Finally, We Have a Winner

04/12/2012 12:25 pm EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Who stands to gain most from Europe’s self-inflicted pain? Why, it’s Las Vegas casino mogul Sheldon Adelson, writes senior editor Igor Greenwald.

Generalissimo Francisco Franco is still dead, and Spain still doesn’t need a bailout.

Which is a terrible thing for the Spanish prime minister to say, because it’s only reminding people—notably bond investors—how Greece and then Ireland and then Portugal also didn’t need a bailout, until they did.

And Europe’s bailout club is looking more and more like a Roach Motel that no one ever leaves.

Not that the Spanish government needs much encouragement in trying to put the economy out of its misery. Faced with a 23% unemployment rate, Madrid is attempting to cut its budget deficit from 8.5% of GDP last year to 5.3% this year and 3% next, even as each incremental cut shrinks tax revenue and adds more people to the jobless rolls.

Each cut also undermines the slumping but still vastly overpriced real estate market and thereby the balance sheets of Spanish banks, which may yet cost the government much more than it will currently acknowledge.

Other than that, the German script for Spain is working out wonderfully, and the authors only regret that their ally’s “enormous efforts” have gone unrewarded.

Things are a little better in Ireland, often held out as the one bailout recipient with an economy not yet robbed of all promise. And on the surface, there are signs of hope: consumer sentiment perked up to a five-month high in March, though that was before Spain got run over by a train. The jobless rate fell to 14.3%, a ten-month low.

On the other hand, half of Ireland’s households missed the deadline for a regressive and deeply unpopular new property levy needed to raise the revenue demanded by the Eurocrats in Brussels and Frankfurt. Also, poverty is up.

But no, really, Ireland won’t need a second bailout, not as long as Europe lets Ireland keep a big commitment to an Irish life insurer “off the balance sheet," and not as long as it refinances the €30 billion Ireland needs to repay its central bank after rescuing failed lenders. Europe’s answer seems to have been “We’d love to, if your banks weren’t already sucking us dry.”

At least Ireland hasn’t yet become a bogeyman fit for scaring voters, the way Spain has for French President Nicolas Sarkozy in the home stretch of a close race. To him, Spain’s straits suggest not that austerity has failed, but that France shouldn’t opt for socialism.

Now, socialism hasn’t exactly impoverished Norway or Denmark, while France has lost competiveness under Sarkozy’s tenure even more rapidly than her Mediterranean neighbors. But this sort of rhetoric does explain why austerity has been pursued for three years now despite ample evidence that it’s not working. For the conservatives in charge of France, Spain, and the UK, it’s a way to tilt the economic scales in favor of their electoral base, at the expense of rivals’ supporters.

So Spanish regions will continue dismissing teachers and nurses, but, great news: Sheldon Adelson of Las Vegas Sands (LVS) hopes to build a mini-Vegas in Spain, to entertain tourists from Eastern Europe and any westerners still fortuitously employed.

This might take as long as ten years…and won’t happen at all unless the needy Spanish government provides big incentives, as well as exempting Adelson, who’s allergic to unions, from Spain’s laws on labor, immigration, and gambling. Math teachers turned blackjack dealers will then be free to cater to German and Russian tourists, and to vote for the casino candidate of their choice in subsequent elections.

Naturally, Banco Santander’s (STD) CEO says the European Central Bank should buy more Spanish bonds, presumably so that the ones his bank recently bought with money cheaply borrowed from the ECB would stop depreciating so fast. Predictably, Santander’s stock is down 19% since March 19, while the Ibex 35 benchmark stock index has dropped 13% over the same span.

But, to repeat, Spain doesn’t need a bailout. It needs growth…the one thing it’s not going to get.

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