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February 6, 2010

Spain experiencing debt implosion

By Clarice Feldman

Barcepundit reports that Spain is imploding under the weight of its huge short term debt and that Zapatero is finding few defenders:

[T]ake a look at this chart by McKinsey showing Spain's total debt, including government, non-financial business, households and financial institutions, as a staggering 366% of GDP"

Also, while it may be true, as the Zapatero government spin goes, a 56% public debt over GDP (60% forecasted for 2011) is much lower than many countries, what makes it different is that the debt is very short-term, about one year. If you add the €100bn deficit ($137 bn) in 2009, plus other €125 bn (€$171 bn) maturing within 2010, it's going to be extremely difficult to raise that much money at a reasonable price. We're talking about €225 bn ($308 bn).

In Greece, the response to a directive from the EU to cut government spending is being met by nationwide strikes. In Portugal, the economic situation is also out of hand.

Once upon a time, profligate nations like these would find their currencies devalued to reflect the actual conditions of their economies. Now that they are sharing a common currency, the rest of the European nations have to be very concerned about the effect this has on the value of their own (shared)currency.

 
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