Spain Is Not Greece, It’s Spain (And That’s Worrying Enough)

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Following Alex Tsipras’ humiliating capitulation to the Troika, one can imagine governments across Europe breathing a collective sigh of relief, tinged no doubt with a little schadenfreude. The loudest sigh was probably not in Berlin, as one might suspect, but in Madrid where the scandal-tarnished Rajoy government arguably had most to lose from a Syriza triumph (or even half-triumph), with general elections lurking just around the corner.

As the former Greek finance minister Yanis Varoufakis admitted to the New Statesman, he and Tspiras chronically underestimated the strength of opposition to a new Greek debt deal among the governments of fellow peripheral nations Portugal, Spain, Italy and Ireland.

“The greatest nightmare” of those with large debts – the governments of countries like Portugal, Spain, Italy and Ireland – “was our success”. “Were we to succeed in negotiating a better deal that would obliterate them politically: they would have to answer to their own people why they didn’t negotiate like we were doing.”

Unlike Syriza, Spain’s government has happily danced to the Troika’s tune throughout its tenure. The result, according to Spain’s Premier Mariano Rajoy, has been an unprecedented economic turnaround – one which, in the words of his Minister of Finance and Public Administration, Cristobal Montoro, should serve as an example to the world.

On paper Rajoy and Montoro may have a point. Spain’s economy does indeed appear to be firing on all cylinders. In its latest quarterly economic outlook, the Spanish bank BBVA revised upward its GDP growth forecast for Spain from 2.7% to 3% in 2015. This is no mean achievement for an economy that just three years ago was in the deepest throes of recession.

An Economic Fairy Tale

There is just one problem with this storyline – GDP growth in Spain, as elsewhere, tells only part of the story, albeit an important one. While almost everyone (economists, journalists, eurocrats, Troikaytes and even many Spanish citizens) desperately clings to the dream that the worst is over, they wilfully ignore one niggling fact — namely, that the government’s version of events is riddled with gaping holes:

“Many Little Greeces.” Since Rajoy won the last elections in November, 2011, Spain’s public debt has grown at a faster rate than any time in its post-Franco history. A staggering €590 billion – the equivalent of 30 percentage points – have been added to the country’s total debt during the last three and a half years of government-imposed “austerity.”

Government spending at the regional level continues to spiral out of control. In the last year alone, the regional governments took on 27 billion dollars more debt, ending 2014 with a total combined debt of €236bn – equivalent to 22.4% of GDP. As El Economista warns, Spain consists of many little Greeces. Matters are hardly helped by the fact that the worst regions are also the hottest beds of corruption. They include Valencia, home to Spain’s most corrupt regional government which just suffered the ignominy of being the first Spanish region to be fined by Brussels for “manipulating its own budget”.

A Ballooning Deficit. With general elections fast approaching, Rajoy is on a mission: to buy as many votes as quickly as possible. Austerity has been suspended and spending is on the rise at both the local and national level while tax cuts previously slated for early next year have been brought forward. In exemplary political desperation, the government has even reinstalled part of the extra salary payments civil servants enjoyed during the pre-crisis years of plenty.

Chronic Unemployment. “How can they possibly call this a recovery when more than one in five people are still unemployed?” the financial director of a large utility recently asked me. As if to answer his own question, he added: “It’s a farce, an insult to the lowest intelligence.” As I recently reported, recovery-blessed Spain, not depression-hit Greece, currently boasts the three most unemployed regions in Europe. It is also the OECD member with the highest unemployment rate among the under-25s and the over-55s — once again, higher than Greece! In other words, Spain’s so-called recovery is the economic equivalent of Tacitus’ indelible line: “They make a desert and call it peace.”

A New Bank Bailout. Despite passing repeated ECB stress tests, Spain’s biggest banks, like most of Europe’s biggest banks, remain chronically undercapitalized. They are also home to massive and growing pools of festering debt. Recent estimates have put non-performing loans (NPLs) in Spain at around 9% to 10% of total bank credit – the equivalent, according to analysis by the Wall Street Journal, of approximately €120 billion. As I reported in It’s Getting Ugly in Spain, while the IMF seems outwardly happy for Rajoy & Co to lure unsuspecting voters with the promise of across-the-board tax cuts, behind the scenes it is quietly preparing the groundwork for a new bank bailout – not just in Spain, but also in Italy.

Contagion from South America. Spain is by far the most exposed economy in the world to South America, a region that is slowing down. The region is the primary (if not sole) profit source of many of Spain’s biggest companies. Whereas HSBC, the world’s local bank, is withdrawing from the region as fast as it can pack its bags, Spain’s two biggest banks, Santander and BBVA, are doubling down on their bets. In September, if the Federal Reserve does the unthinkable – i.e. raise interests rates – it could well set off the mother of all capital outflows from across Latin America. If this happens, Spanish companies will feel the pain. Some may even need government assistance.

Since becoming prime minister Rajoy has repeatedly stated that Spain is not Greece. Nor is it Uganda, he said at one point, with his usual level of tact and diplomacy. In many ways, Rajoy is right: although it may have similar levels of corruption to Greece, Spain boasts a much larger, more advanced economy with higher levels of productivity, better infrastructure and a much bigger external market. As such, comparing the two is an almost pointless task.

But that’s not to say that Spain doesn’t suffer from its own enormous, potentially crippling set of political and economic problems, most of which have been swept under the rug of political expedience. In other words, Spain is Spain and that in itself should be reason enough to worry. By Don Quijones, Raging Bull-Shit.

There is no limit to how far our elected governments will go, and to what extent they will crack down on the little guy, to protect the interests and privileges of oligarchs and oligopolies. Red…   The Men Who’re Stealing the Sun

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  15 comments for “Spain Is Not Greece, It’s Spain (And That’s Worrying Enough)

  1. Bob Miller says:

    Neither falling oil prices, weak consumer spending, nor the Greeks can bring the Bernanke balloon down. I’ve grown weary of watching what should have been another Challenger disaster; rising into the heaven with its crews joyfully waving bye, bye. Spain, like all the others will be bailed-out. It’s no longer even paper and ink, it’s simply numbers being fed into a computer.

  2. Michael says:

    Do not despair Bob, the unwind is on its way.

    • Bob Miller says:

      Thank you, Sir. Nevertheless, I do despair for those poor souls who have never heard of derivatives. I believe a person has a right to know who and what has turned their life into a living hell. I’ve never accepted the old saying, “Ignorance is bliss.”

  3. Julian the Apostate says:

    I agree Bob. Ignorance is on the verge of turning deadly. Back in the 19th century Nietzsche said people do not starve because “there are too many antidotes.” I shudder to think of the disaster coming when those antidotes dry up, like so many springs in the California drought. At that point ignorance will most certainly not be bliss.

  4. Vespa P200E says:

    Could Spain be the next shoe to drop on the PIIGS debacle? Who would have thought Euro experiment was orchestrated by the Germans as sort of back way to subjugate the financially weak countries and “rule” the European continent?

    • Ray says:

      Orchestrated by the Germans? Nein das ist nicht wahr! Schweinehund.

      ‘But our terrorists, Jesus, Freud, Marx, Einstein. The whole world is still quaking…’

  5. ERG says:

    Like I’ve said before: this IS the unwind. The ONLY thing ‘accomplished’ since 2008 was to move private debt to the public side of the ledger. As if that fixes it!

    If you’re carrying 2,000 pounds of horse dung on a 500 pound cart, what difference does it make when you shift the load from one side of the cart to the other?

    Avoid the temptation to view what will happen like the Hindenberg catching fire and hitting the ground. It will be more like the wheels of the cart coming off in slow motion, leaving us all hip deep in…

    • AC says:

      Moving the garbage they held onto the backs of the tax victims does fix the problem, as far as the finance cartel is concerned.

      I’m wondering when the assassinations are going to start in earnest.

      • Bob Miller says:

        I’m 75. I worked for the US Government in one uniform or another my entire adult life. While I do not know how these words I’m typing can get from my computer to yours, I can tell you the assassins will not be Main Street USA. They’ll be misanthropes like myself. The last I heard, there are now 1,700 more guys in my old unit than there were when I retired. Then there’s the OO-RAH or OORAH bunch that will be ordered to shoot to kill and they will do exactly as they are ordered. Let us hope that things deteriorate slowly as the Feds raise the interest rate and stops when it gets back within inches of normal. Being a short seller, I’ve had a rough six years, but I’ve only myself to blame. I paid no attention to the handwriting on the wall. Some try to catch a falling knife, I tried to bring down an Atlas rocket.

  6. Cashboy says:

    I was convinced that the EndGame was going to occur in 2014.
    However, I now think that while all the Central Banks are printing money (digits on a screen), this fiasco can keep going on because there never has to be a cash flow problem with printing.

  7. Dan Romig says:

    As an occasional comment writer to Krugman’s posts on the New York Times, I am amazed that a huge percentage of his followers believe that having the U S national debt at over $18 T is a good thing! Banisters and derivatives are vile entities, but so is running any kind of government deficit.

    For the last seven plus years, debts for governments across the planet (for the most part) have been artificially inexpensive to create and carry, but any government that is running up debt for reasons other that investing in infrastructure maintenance/improvement is irresponsible. Sadly, the citizens and taxpayers are the ones caught with the tab.

    Just as a reminder, the one year Treasury Note in January 2007 was 5%.

  8. Petunia says:

    Note to DQ:

    Your articles are hard hitting news about the powerful and I was wondering how the recent legislation in Spain will affect the kinds of news you report. Now that dissent has been outlawed.

    • Don Quijones says:

      Good question, Petunia. I appreciate your concern.

      For the moment I’m doing lots of research on the new law, which is at times worded in such a vague way that it’s almost impossible to pin down its exact meaning. I’m even speaking to a lawyer about the potential repercussions. Most importantly, you’ve got to know your rights — or as in this case, your lack of rights.

      I’ve no intention of changing how I write or what I write about, but I do want to make sure that I don’t come unstuck by something ridiculously trivial.

      As soon as I know more, I’ll write a piece about it.

      Thanks Petunia (and Richard S).

      • Paul says:

        Great article. As they throw Greece on the fire, it seems to be strangely silent in the media concerning Spain’s and Italy’s position in the EU auto de fe.

        You can be sure that this new Libel Law will have some nebulous “emanating penumbras” in which truth will not be a defense against a libel charge. That would defeat the purpose to muzzle the press from exposing graft and corruption to the general public.

        As we slide from democracy to a state where it merely becomes a cover for a growing corporate fascism in Western Govt.’s, such a law that would be unthinkable in years past is now becoming reality.

        Telling the truth as you see it now puts you in the front lines in the battle against the powers that want to control the narrative.

        Be careful and aim well.

  9. SpNt says:


    I’m from Spain, and journalist.

    My English isn´t perfect, but if you understand me that´s useful. Better than Rajoy English, of course…

    Like reader, some words or terms are shocking from the media perspective, or just the treatment of History… There are protests for to identify civil war victims… every week since years… so “Post-Franco” it´s probably, now more than ever, a good term…

    Your comment about Rajoy`s diplomatic talents are funny, and obvious… He critizes to South American leaders for atack to national opposition, and Tsipras, of course. He is like a puppet of himself. Are you seen their communication through a TV? To speak about corruption… i think sometimes that this is like a bit of people have bought everything and now they want to be alone. If not, they fly with their money… but ther money is already out…

    But all is changing under the rain… and spanish people knows who is who; problems came from delegate voting (postal), and emigrates` votes (null)… with many young people going out…

    Of course, not all are bad news xDDD People smile yet ^^

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