Why are Investors so concerned about Spain?

Why are Investors so concerned about Spain?

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(This post was written as a sumary of a report almost two years ago and almost nothing has changed, some data – for worse – are added between parenthesis)

Concerns surged even when Public debt in Spain was relatively low, 53.2 % of GDP, in 2009 (80% now, excluding co-signed guarantees of FROB). Isn’t it low enough? Well, it seems investors do not think so. Let see why:

–   Spain hasn’t restructured its Financial Sector (mainly Cajas) yet. It could require 15% GDP (See McKinsey and/or Rogoff works on it)

–   Spanish Public Deficit is officially around 12% of GDP (8% now) and most of it is structural.

–   The current Spanish Government is unable to achieve a credible program of fiscal consolidation, even when it has the tools and resources.

–    There is also the shadow public deficit from a legion of public companies.

–    In just two years Spain could be over 100% of debt to GDP or as was Greece not long ago.

–     Although the economic structures of both the Spanish and Greek economies are quite different, the trend of public mismanagement seems scarily similar.

–     With the Greek experience of false statistics and opacity in mind, investors simple discount their own figures doing their own math and ignoring tricky and insolvent politicians.

Warm Regards,

© Luis Riestra Delgado 04-25-2010.



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