Like the three eurozone members that have sought assistance, Spain faces big economic challenges. In fact, the recent recession, property market correction, and high unemployment have all taken their toll on the country’s public purse. Can Spain avoid following Portugal, Ireland and Greece?
Tension has escalated in the European bond markets after Portugal finally bowed to the ongoing sovereign debt crisis and requested for an emergency financing from the European Union (EU) during the first week of April 2011. As financial markets had similarly forced Greece and Ireland to seek monetary help from the EU and IMF last year, economists have now started fearing that the recent bailout request from Portugal makes it more likely that other eurozone members will follow suit, and soon. But then, the question is: Who will fall next?
The last of the four PIGS (an acronym used by international bond analysts that refers to the faltering economies of Portugal, Ireland, Greece and Spain; the other three have already faltered), we would say! Reason: Spain’s recovery has been really rough so far. In fact, the eurozone’s fourth-largest economy is among the area’s laggards. While the entire monetary union saw GDP grow by 1.7% last year (with Germany racing ahead at 3.5%, the fastest in the eurozone), Spain’s economy contracted 0.1% in 2010. At 20.5%, Spain’s unemployment rate too is the highest in the area, and almost double of Portugal’s 11.1%, the latest victim to the debt crisis. But then, are these reasons good enough to predict Spain as the next European Domino?
The Banco de España – Spain’s Central Bank – diplomatically ducked our queries and told B&E, “As central bank we do not usually give answers to questions of this kind, especially the questions related to the eurozone debt crisis.” It’s both surprising and amusing to get such a response, given the increasing negativity in global markets about Spain (Enam Ahmed, the London-based Sr. Economist at Moody’s Analytics, tells B&E, “Like the three eurozone members that have sought assistance, Spain faces big economic challenges. Spain has a large fiscal shortfall to finance. Its recent recession, property market correction, and high unemployment have all taken their tolls on the public purse. In fact, the country is likely to slip back into recession in 2011”).
The signals sent by Spain are almost similar to the ones propelled by Greece, Ireland and Portugal just before they collapsed. Like its aggrieved Euro-partners, Spain too has a fragile public finance. Though Spain’s fiscal deficit narrowed last year, it still remains at 6.2%, which is almost double the fiscal ceiling (3% of GDP) set by EU. Even the country’s public and private foreign liabilities at $2.4 trillion (of this total, about $1.2 trillion are owed to foreign holders by Spanish banks & other private financial institutions, while about $700 billion are owed by private companies and individuals. The public sector owes $450 billion to foreigners) are close to 170% of its GDP ($1.3 trillion), much higher when compared to the other three beleaguered nations. For instance, foreign liabilities of Greece stood at 87% of its GDP at the time of the collapse.
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Tension has escalated in the European bond markets after Portugal finally bowed to the ongoing sovereign debt crisis and requested for an emergency financing from the European Union (EU) during the first week of April 2011. As financial markets had similarly forced Greece and Ireland to seek monetary help from the EU and IMF last year, economists have now started fearing that the recent bailout request from Portugal makes it more likely that other eurozone members will follow suit, and soon. But then, the question is: Who will fall next?
The last of the four PIGS (an acronym used by international bond analysts that refers to the faltering economies of Portugal, Ireland, Greece and Spain; the other three have already faltered), we would say! Reason: Spain’s recovery has been really rough so far. In fact, the eurozone’s fourth-largest economy is among the area’s laggards. While the entire monetary union saw GDP grow by 1.7% last year (with Germany racing ahead at 3.5%, the fastest in the eurozone), Spain’s economy contracted 0.1% in 2010. At 20.5%, Spain’s unemployment rate too is the highest in the area, and almost double of Portugal’s 11.1%, the latest victim to the debt crisis. But then, are these reasons good enough to predict Spain as the next European Domino?
The Banco de España – Spain’s Central Bank – diplomatically ducked our queries and told B&E, “As central bank we do not usually give answers to questions of this kind, especially the questions related to the eurozone debt crisis.” It’s both surprising and amusing to get such a response, given the increasing negativity in global markets about Spain (Enam Ahmed, the London-based Sr. Economist at Moody’s Analytics, tells B&E, “Like the three eurozone members that have sought assistance, Spain faces big economic challenges. Spain has a large fiscal shortfall to finance. Its recent recession, property market correction, and high unemployment have all taken their tolls on the public purse. In fact, the country is likely to slip back into recession in 2011”).
The signals sent by Spain are almost similar to the ones propelled by Greece, Ireland and Portugal just before they collapsed. Like its aggrieved Euro-partners, Spain too has a fragile public finance. Though Spain’s fiscal deficit narrowed last year, it still remains at 6.2%, which is almost double the fiscal ceiling (3% of GDP) set by EU. Even the country’s public and private foreign liabilities at $2.4 trillion (of this total, about $1.2 trillion are owed to foreign holders by Spanish banks & other private financial institutions, while about $700 billion are owed by private companies and individuals. The public sector owes $450 billion to foreigners) are close to 170% of its GDP ($1.3 trillion), much higher when compared to the other three beleaguered nations. For instance, foreign liabilities of Greece stood at 87% of its GDP at the time of the collapse.
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