27 Mar 2017

Spain is in Public Debt Turmoil

Country’s Economists Are Talking SPexit

Spain cannot repay its huge burden to the European Central Bank (ECB) and have no other solution but to live the EU, according to leading Spanish university professors and economists.

Currently, an average family in Spain has £118,000 (€136,000) public debt which has mounded in years of bad political management.  But the specialists believe that this number is higher and the prime minister Mariano Rajoy and his government are not truthful about the real numbers. One of the country’s leading economists Robert Centeno, stated in his blog that Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” He plead to the prime minister to be honest about the current situation, stating the ECB debt number of €1.1 trillion is much higher. According to Mr Centeno, more real are the numbers presented by the Bank of Spain. “This total amount of debt which has nothing to do with the dossier we have sent to the European authorities is published every three months by the bank of Spain under the name of ‘circulating passives,’” the economist said. The latest numbers announced by The Bank of Spain quoted the number of €1.56 trillion. “This is public debt.” – Mr Centeno commented – “Debt generated from the central government, the autonomous communities, the local government and the social security.” He also points that “that only a miracle will reduce that amount of debt” and call the government to take serious measures to think of better options for the Spanish development. The country is sliding harder down and for the last three decades drop 5 positions from the words’ largest economies list and suffer from the same bureaucracy turmoil as Greece. Mr Centeno referred to a recent survey which shows that Spain has 445,568 politicians and trade’s union representatives, twice as much as Germany, Italy and France. “Our economic future requires drastic decisions to cut public waste, such as eliminating thousands of useless public companies, thousands of useless advisers,” he said.

Earthquake under the Eurozone

Unfortunately, Spain is not the only EU country that continues to be facing hard times. According to market specialists, the current situation in the Eurozone is getting dangerously close to the debt crisis from 2011. The ECB uses a system called Target2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to monitor in real-time the levels of the debts and the moment situations shows that it’s only a matter of time another crisis is going to hit the Eurozone. The previous crises affected five countries – Cyprus, Ireland, Greece, Portugal and Spain which had to be bailed out with third parties help like the International Monetary Fund and other Eurozone countries. Unfortunately, Spain, Greece, Portugal and now Italy, keep accumulating public debt. The numbers show that Portugal and Greece owe €72 billion to the ECB and for Italy that debt equals 22% of GDP or €364 billion. To the market analysists this is “Alarm bells starting to ring again,” and “feels like the build-up to the Eurozone crisis in 2011”. Quite expressive in his statement was David Fuller, co-founder of one of the leading strategy companies “Fuller Treacy Money”: “Those whom the gods wish to destroy, they first make mad, including driving them into the EU. It will be a rude awakening for political Remainers, from the House of Lords to Scottish Nationalists.” According to him, the future of the EU is without the Eurozone: “over the longer term, Europe including the UK will be far better off as a trade association of independent, self-governed countries with their own currencies.”

Mr. Fuller believes that several countries have reasons to leave the Eurozone. Here’s why:

France: Not so much for the economic reasons but the current unstable political situation. The result of the presidential elections in a couple of months will determine if France will stay in the club of the 19th.

Greece: The ongoing negotiations between Athens and its creditors can easily escalate and this time no one can predict if the Greeks will keep the boat of the Eurozone on the surface.

Italy: Bad credit, crisis in the banking sector and unstable political situation. Without anyone to realise it, Italy is probably the Eurozone’s biggest threat.

Portugal: Despite the efforts for reforms at different levels, the country is still in poor economic status and high public debt.