Friday, June 17, 2011


The European Commission has looked at the Spanish economy and suggested higher taxes and more activity to generate jobs but it totally overlooks the private debt built up by businesses and families during the euphoric years between 1996 and 2007.

The economic crisis amongst the banks has closed off the credit lines. Also the foreign investment in to the property market has ceased with the bursting of that market’s bulb.

Without internal demand Spain can only grow by exporting. However to export to Germany which is the leader of European growth this country would have to improve its competitiveness. As Spain cannot devalue its currency the pressure is on to reform structures with the cutting of workers’ rights and the real threat that there will be a regression in the standards of people’s lives.

In to this scene comes the 15-M democracy movement that insists that politics cannot be dictated by the markets. It is calling for “popular sovereignty” and “economic sovereignty” What does it serve to vote if the government is in the hands of the markets and banks, it asks?

According to Professor Emiliano Carluccio: “the debt in the private sector grew greater than in other developed countries” over this period. Now the crisis in Spain is not the public debt.

The level of debt of the central government, the autonomous regions and the town halls is more than 60 per cent of GDP, the wealth that Spain generates each year. Surprisingly this is less than the European average of 80 per cent or the rest of the major European countries.

However whilst the various arms of the State have accumulated debts of 639,767 million euros the debt level amongst Spanish families dwarfs that total. Private debt stands at 886,460 million euros, 38.6 per cent more than all the State debt. (Curiously as I posted this blog Reuters issued an article highlighting the growth in Spain’s public debt but saying nothing of the private total).

To be added to the family debts are those of businesses which come in at 1.2 billion euros more. This means that the debt in private hands is a massive 189 per cent of GDP.

Another problem faced by Spain is the size of its external debt. Japan (200 per cent), Italy (117) and Belgium (101) all have far greater levels of public debt than Spain. However that money is owed to the nation’s nationals whereas in Spain the majority of the debts are international.

In the case of Spain the exterior debt (the majority of it private) is equivalent to 170 per cent of GDP. In hard figures it means that Spain has to pay back to the rest of the world 1.87 billion euros. That is because during the good years Spain was importing two thirds of the financial resources demanded by its businesses and families.

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