Sunday , 23 June 2024

In Defense of Spain: What Crisis??

Most of the spectacle we witness is based on the discussion of debt levels which are now seemingly unsustainable, yet a few years ago nobody cared about the same debt levels which have remained fairly stable as a percentage of GDP. My basic intention…is to offer investors an alternative way of thinking, one that allows for more reflection than following.

Spain is NOT Greece!

[Yes,] Spain has one of the largest unemployment rates in Europe with 21.5% and has to deal with the bursting of a major property bubble…but one thing Spain does not have, however, is high outstanding public debt as measured as a percentage of GDP.

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Spain’s public debt as a percentage of GDP was 50-60% between 2009 and 2010…and, according to recent estimates by the IMF…will be around 70% [in 2011 yet] the harbors of stability Germany and France are expected to reach ratios of 81.5% and 86.26 respectively. With so many other countries (the U.S., Japan, European member countries) having higher debt levels, wouldn’t it be an inconsistency to isolate Spain in particular for its debt levels and budget deficits?

The market has been quite clear that it is not willing to distinguish between Spain, Italy and Greece despite fundamental and starkly contrasting debt levels, refinancing costs and structural differences in the national economies. The market is very negative toward Spain as can be seen in the 2-year IBEX chart:


The main argument critical investors have is: Spain will not be able to resort to expansive monetary policy as austerity measures require restrictive fiscal policies. Since the ECB controls the monetary policy and not Spain’s central bank, Spain is effectively deprived of its ability to devalue its currency and rehab itself through exports.

What the above argument neglects is that:

  1. Spain is a sovereign nation and can leave the union any time it wants, and
  2. Spain profits hugely from the Euro in terms of trade and tourism. With Greece having even higher debt levels and worse fundamentals than Spain, its decision to not leave the Euro speaks to the advantages of staying in the Union, which provides both tangible and intangible benefits.


Spain is not Greece. The “crisis” is overhyped. It is more likely that the news cycle follows its main purpose: Pick one, destroy one, move on to the next one. One year from now, nobody will talk about Spain.

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Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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