Spain Is an 'Anti-Market'

Spain’s central bank stepped in to save regional savings bank CajaSur Saturday with a €500 million euro ($621.75 million) cash injection to keep it solvent.

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It is only the second time since the Spanish housing crisis began more than two years ago that the government has had to step in and support a bank.

But that has more to do with the honesty of the Spanish banking system than little need for bailouts, according to Jonathan Tepper, a partner and chief editor at economic research and analysis company Variant Perception.

“Banks and those that run them have no incentive to come clean over the scale of losses within the housing market, Spain is currently a kind of anti-market” Tepper said.

It is estimated that the Spanish banking industry could be sitting on €300 billion worth of mortgage-related losses, but it is impossible to tell how bad things are as banks refuse to properly price houses sitting on their books following the collapse of the market, he said.

During the height of the financial crisis, when Europe’s banking industry came close to collapse following the demise of Lehman Brothers, the European Central Bank stepped in and started taking assets of banks across Europe.

At the time, there was much speculation that Spanish lenders handed over billions of euros worth of mortgage backed securities to the central bank to keep afloat. It remains unclear just how bad things got for some Spanish banks.

The response of the Spanish government has not been good enough. according to Tepper.

“Current policy is to take one good bank and merge it with a bad bank in the hoping of getting an average bank,” he said.

Mark-to-market “is not happening in Europe” and “is one of the reasons the U.S. offers a better destination for capital than the EU at the moment,” David Miller, the head of alternatives at Cheviot Asset Management, said. “The growth dynamic in the US is favorable and America also has a history of tackling big deficits. Europe, since the launch of the euro, does not.”

The Elephant in the Room

On Sunday, Spanish Prime Minister Jose Luis Rodriquez Zapatero warned voters austerity is here to stay and vowed to make sure his country’s debts are paid.

"No one can doubt at any time that Spain is a strong country and an economic power that will meet its obligations and pay debts," Zapartero told a meeting of socialist mayors.

Zapatero vowed not to be swayed by unions who are refusing to rule out a general strike in reaction to the cuts. But the prime minister promises Spain’s wealthy will be asked to “make more effort” to cut the deficit.

Spain is the elephant in the European room, where the big problem is productivity, Mark O’Sullivan, director of dealing at Currencies Direct, told CNBC.

In addition, labor laws in Spain need to be reformed, O’Sullivan said.

“Growth is needed as well as cuts, without changes in labor market flexibility there is no driver of growth,” Tepper said.

Zapatero is hoping to avoid major trouble with unions who are planning to go on general strike on June 8.

"I call on society as a whole, especially businessmen and unions, to reach a good labor accord as soon as possible, so that young people may have more hope of finding work, and those with temporary contracts may have more hope of a stable job,” he said.

But given anger among unions and voters across Spain, an accord between workers and companies could be asking too much.