Spain Not Out of the Woods Yet

Spanish banks are borrowing record amounts from the European Central Bank as the country’s financial institutions struggle to gain funding from the global capital markets.

Spanish banks borrowed €85.6bn ($105.7 billion) from the ECB last month. This was double the amount lent to them before the collapse of Lehman Brothers in September 2008 and 16.5% of net eurozone loans offered by the central bank.

This is the highest amount since the launch of the eurozone in 1999 and a disproportionately large share of the emergency funds provided by the euro’s monetary guardian, according to analysis by Royal Bank of Scotland (RBS) and Evolution. Spanish banks account for 11% of the eurozone banking system.

This just reflects Spain’s struggle to hold things together and the acute stage of Spain’s liquidity crisis. The exchange-traded fund iShares MSCI Spain Index (EWP), which corresponds to the price and yield performance of publicly traded securities in the Spanish markets, is down -24.6% this year.

This is coupled with a no growth economy that at its peak in 2006 relied on tourism and housing for 25% of GDP. Housing starts in 2006 were greater than Italy, Germany, France and U.K. COMBINED.

R&D only accounts for 1.3% of GDP. High school graduation rate is 1/2 EU average. Adjusted for GDP, Spain’s unsold housing inventory is 6 times that of America. Spain does not even have one university in the world’s top 150. Unemployment rate is 22%. Budget deficit is 11.5% of GDP. Total debt is 270% of GDP. Credit downgrades equal higher borrowing costs equal debt spiral. Looks like Spain has some work to do.

Leave a Reply

Your email address will not be published. Required fields are marked *