DEBT IN SPAIN - UNSUPPORTABLE?
So, what is there to say about the debt crisis in Spain – or, at least, what can we believe and what really is the situation? Frankly, I really do not know and I am not at all sure that the recent stress tests of EU banks provide much of a clue. Certainly, when the ‘same’ banking stress tests were undertaken last year no-one in their right mind believed that they were rigorous or properly reflected the truth.
This year, of the eight European banks that failed the stress tests set by the European Banking Authority five were Spanish banks and were (predicatably) CaixaCatalunya, Unnim, Caja de Ahorros del Mediterráneo, Grupo Caja 3 and bank Banco Pastor. But are these the only Spanish banks ‘at risk’ and does it mean that all is well elsewhere with the Spanish economy and the Spanish banking system – or is Spanish debt so high that it is unsupportable?
Certainly, I am concerned not least because I do not think the full truth has been told by a long way. Indeed, as I pointed out in a recent Post (Are the Autonomous Regions of Spain bankrupt?) Spanish debt is rampant wherever you look.
Indeed, as good an example of debt in Spain as any you are likely to find relates to my own town of Gandia. This, evidently, has a debt of 180 million Euros. Now, with a population of 80,000 people that equates to a massive debt and one not easily cleared. Meanwhile, Valencia City (from memory) has a debt of some 890 million Euros.
My goodness – these are huge figures, by anyone’s standards, and are probably, more or less representative of towns and villages right across Spain.
Of course, the really shocking thing about the monstrous scale of the debt crisis in Spain is that the debt has come after the biggest boom in Spain since galleons were bringing tons of gold over to the country from Central and South America in the 16th Century. Logically, the country should have a surplus but the extreme reverse is true, although I doubt anyone who has been living in Spain over the past few years is surprised.
Indeed, one of the really striking things over the last ten years is the scale of spending on public projects in Spain that has been undertaken by local villages, town and city governments. They have always seemed profligate – and so it has turned out to be. Unfortunately, much of the spending has not always seemed to make sense and there are good grounds for thinking that much had been initiated corruptly to benefit local politicians and businessman. This may be the reason why some 86% of Spaniards, in a recent poll, believed that corruption in Spain was bad/very bad!
Mind you, Spain is not alone in having huge debt. The US public debt is enormous as well and stands at $14,291, 686, 094, 756 (and rising rapidly) at the time of writing. This equates to some $46,543 per person (the population of the US is 311,792, 612) or 129,838 per tax payer! So, Spain is not alone although in being saddled with vast debts. The trouble is that I suspect the nature of the Spanish economy makes it more vulnerable than the US or the UK with any regeneration for Spain that much more difficult to achieve.
My point, unfortunately, is that all the evidence appears to suggest that this ghastly recession is far from over and that property prices (for example) in Spain are a long way off stabalising with high unemployment and hard times set to continue – damn it!
Incidentally, if you are interested in debt crisis statistics then do have a look at the US National Debt Clock or the World Debt Clock (but avert your eyes, if you are British, from the UK statistics!).
Nick Snelling - Culture Spain
FURTHER RELEVANT ARTICLES
Banks in Spain – is the truth finally coming out
Banks in Spain, how safe are they?
Spanish Property Crash and the Spanish Banks
The Spanish Economy – Unemployment Up Again
The Spanish Property Market 2011 – the Spanish Property Crash is Not Over Yet
Spanish Property and the Spanish Banks
Are the Autonomous Regions of Spain effectively bankrupt ?
Hello Nick,
Grimsville, in spades. New York went bust, once but it’s still there – noisy, dirty, expensive & full of hype as ever. New York going bust didn’t take the US down but a city like Valencia going broke might well take the rest of Spain with it.
Valencia is building more metro lines and stations. Where’s the money coming from? Is it possible to just stop building a metro line and send everybody home, leaving vast holes in the ground? I suppose it is.
As for these stress tests, what I want to know, tried to find out but have not succeeded, is the 15 Spanish banks that only just passed. I looked at the raw data on the ECB’s site but I cannot interpret it.
Has there been comment in the Spanish press identifying the ‘near misses’? I bet NovaCaixaGalicia is one of them. That’s my bank ….
regards
Chris Nation
Chris, I love your sense of humour! I guess, like me, you find it difficult to understand where the money is coming from? Well, I have no idea although I suspect the truth is that the age old state mentality of infinite money comes into it- together with the fact that it is always easy to spend someone else’s money (particularly if there is a ‘kick-back’ available…
Nick,
You make a very important point which is not being addressed at European level. That is that Spain, Italy, Portugal, UK etc have all built up their own huge, and very likely unsustainable, debt. What is happening at EU politician level is that the crisis is being blamed on Greece and Greek contagion. Consequently solutions are being considered for Greece when the problem is not about Greece but about the level of debt across Europe. Even if the EU leaders come up with a plan for Greece it will only be a short matter of time before the next problem comes to the fore.
In Spainish terms, I am sure that you have heard about the fireman having to pay the ITV (MoT) on the fire engines because the council cannot afford it. Or the Malaga police having to take the bus to crime scenes because of the police cars not having ITVs. More worringly, we understand that there is a local council that has not paid its staff for 4 months.
What will happen? Either the EU politicians will come up with an EU wide solution (estimated cost 3.5Trillion) and all of Europe will struggle with the debt burden for years. OR we will have a change to the Euro with two versions of the Euro. Spain will be in the part where the currency devalues massively so that it becomes a really attractive place again – think 1 GBP = 2 soft euro – and people will pour into Spain bringing with them wealth etc. It is going to be a bumpy ride to get there though.
Barry
I think your soft Euro [GBP1 = Eurosoft2] is a brilliant idea. Can you just keep it quiet – that Mr Barroso might be listening – till I’ve sold my house in Bristol next Spring?
Nick,
as for spending other people’s money, I guess Zap never heard Mrs T tell everybody “The Government has no money. It is all your money.” Only in the case of Greece, Spain etc it turned out to be not even their money but our money.
But it is a pleasure, as you say. I have a condition known as G.A.S. – Guitar Acquisition Syndrome. I have a pal who has some daft thing called a Lapstick which is a travel guitar small enough to fit in a briefcase. You can plug in earphones and play it on planes, for instance.
In an attempt to assuage GAS without spending any of my own money, I tell this guy that the electric guitar is supposed to be played standing up and loud enough to make yr ears bleed and that he ought to get a proper guitar. I keep sending him excellent examples of what I want him to spend his money on but he resolutely refuses, claiming hard times, maintenance for the ex, ballet lessons for the daughters, new tyres for the Porsche etc etc.
He doesn’t appreciate that relief from GAS can only be obtained – on a temporary basis – by NGD [New Guitar Day] and even NGD at one remove is better than nothing, to a sufferer.
I think there’s a parallel with these free-spending countries but I’ll leave it to you to work it out …