At least a fourth of the 91 European banks and other financial institutions undergoing stress tests by authorities will have to be suspended, because they lack the strength and liquidity to face the ongoing financial crisis, according to a study by Goldman Sachs and Moody’s Investor Service. The rating agency said those that will get the ax have the lowest credit ratings.

If the estimate plays out, in Spain, which has the financial sector most directly linked to Mexico, credit unions are most vulnerable to the growing deterioration of the financial sector, and could be subject to suspension. Last March, the agency downgraded the debt paper of such firms as CatalunyaCaixa, Unnim, CAM and Novacaixa Galicia, which represent a combined 8% of the banking sector’s total assets.

Goldman, meanwhile, estimates that those banks most exposed to Greek debt instruments will be the most affected, especially in Germany, France, Greece and Cyprus. Spain has the most banks and institutions being subjected to stress tests, with 25, followed by Germany, with 12. The two major Spanish banks operating in Mexico, BBVA and Santander, have no capitalization problems, according to the National Banking and Securities Commission. The test results will be announced this Friday.

Greece Downgraded

Only two weeks away from an alleged pact to assist Greece, as agreed upon by the European Union, Fitch Ratings bumped down three more notches the rating of the Greek sovereign debt, in the middle of great uncertainty over the role that private creditors would have in the rescue plan. The Fitch downgrade went from B+ to CCC, emphasizing that “there is no new assistance plan that is solidly and credibly financed by the EU and the IMF.

Meanwhile, Moody’s contributed to the uncertainty in international markets by warning that the United States could lose its highly coveted AAA investment grade rating if it fails to reach an agreement on its debt ceiling. Fitch has issued the same warning with regard to Europe. Greece, says Fitch, needs more fresh resources to avoid a default next year.

Only last May 20, Fitch had downgraded the rating of Greece’s long-term debt thrtee notches, to B+. With debt now rated at CCC, it is now only three steps away from insolvency. Although Greek authorities said Fitch’s action was “incomprehensible”, Prime Minister Giorgos Papandreou all but acknowledged that the country needs help urgently.

Honda Forges Ahead

Following the severe blow of the tsunami and earthquake tragedy in Japan last march, Honda de México has announced the reactivation of its sprawling assembly facility in El Salto, near Guagalajara. Beginning on Aug. 22, the Japanese carmaker will invest US$60 million in new equipment and technology to boost production of its star product in Mexico, the CR-V 2012 model SUV.

In the wake of the tragedy, the plant in El Salto, like most others throughout the company’s pipeline, was forced to implement technical work stoppages, known as “rationing”, due to the severe shortage of key components that are normally imported from Japan. Basically, the parts shortage caused a drop in output of at least 50%, but the company says it will get back up to full production beginning in late August.

Last year, Honda de México produced 55,000 CR-Vs, a new record for the company. Of those, 70% were exported: 13,200 went to the United States, and 30,800 to South America. Remarkably, despite the severe slowdown, the company did not eliminate any of the 2,400 jobs it has at El Salto. This facility assembles cars and motorcycles, in addition to car parts.

Growth in Jeopardy

The outlook of a slow U.S. growth and the growing financial problems in European nations will combine to curtail Mexico’s economic perspectives, putting at risk the possibility of growing beyond 4% this year, according to the nation’s industrial sector. The National Manufacturing Industries Chamber (Canacintra) charges that neither the government nor Congress have shown any interest in coming up with an economic structure capable of withstanding the onslaught of external upheavals.

“The adoption of measures that would correct this tendency, including the approval of major structural reforms, cannot be delayed any further”, said the organization. The uncertainty regarding the evolution of the Mexican economy threatens to grow worse, so our outlook for the coming months is difficult indeed, said Canacintra in its report, “Economic Synopsis”, where it points out that the U.S. slowdown will have an impact on industrial output, and thus, on our trade balance.

Canacintra analysts say it’s not enough to seek growth, because it must be accompanied by better options for income, jobs and general wellbeing. The cases of Greece and Portugal, which threaten to unleash a new financial crisis, will maintain low expectations for Mexico for at least the remainder of the year, said Canacintra.

Also, check out the following opinion columns:

“Rich and Powerful”, by Marco A. Mares

There are five groups of investors interested in acquiring the pension fund ING Afore. Unofficially, the fund¿s market value is US$2 billion. It is ranked third in the Mexican market, with assets of over 200 billion pesos. Outright divestiture is one of the options being analyzed. The ING data room is now open to interested parties. Among the playes are Banorte along with a Chilean partner, as well as Profuturo, which would vie along with another Chilean partner. The sale has its origins on the international financial crisis, after which the Dutch group decided to divest non-banking assets, to comply with a Dutch government bailout of 10 billion euros. In Mexico, the pension fund market shows a clear tendency towards consolidation, because margins have been squeezed to the limit.

“The Great Depression”, by Enrique Campos

The Green Party ought to be congratulated for miraculously finding a way to collect an additional 100 billion pesos for the Treasury, which would apparently justify its decision to try to derogate the Single Rate Business Tax (IETU). Otherwise, it cannot be explained how a political party would attempt to endanger the nation’s finances, causing a huge fiscal hole by eliminating that particular tax. We couldn’t possibly think that Green Party legislators are proposing IETU’s elimination merely to garner the electorate’s allegiance, right? Basically, the proposal smacks of electoral maneuvering by a party that ususally aligns itself with the front-running PRI. Why couldn’t an allegedly pro-environment party have proposed instead the elimination of gasoline subsidies? Yet, not a single taxpayer in his right mind could support the permanence of IETU, which is a veritable pain in the neck to pay. On the other hand, the tax load cannot be left on the shoulders of the traditional income tax (ISR). Something else is needed.

“Strongbox”, by Luis Miguel González

The debt ceiling talks in Washington are yet another tale of terror. The U.S. faces an economic relapse while the political class shows it’s disconnected from reality. There’s a 50% chance of a downgrade in the next 90 days, according to S&P. We were already spooked, and Grandpa decided to tell us another horror story. In other times, the S&P warning might have been taken philosophically, but today’s situation is far too touchy. Across the Atlantic, there is abundance of horror movies. The euro zone has arthritis, and Germany insists on dictating austerity lessons. In Washington, Republicans are immersed in a tug of war with Obama, more than anything else, to expose him as an incompetent president. Obama has lost his powers of persuasion, and he appears to lack power. A default scenario is unthinkable, but there’s always a first time for everything.

rmena@eleconomista.com.mx