Introducing the APEs: Anglo-Protestant Economies
If running a big deficit for two years in times of great distress can be considered a mortal sin, what about the United States and the UK?
- Some of the — presumably — tiny PIGS are bigger than some big BRICs — and, as it happens, more serious than some APEs.
- Spain's economy alone is bigger than the economies of Poland, the Czech Republic, Romania, Hungary, Slovakia, Slovenia, Bulgaria, Lithuania, Latvia and Estonia put together.
- It should be obvious that not all PIGS are alike.
- The APEs' favorite narrative says that the main cause of the crisis afflicting the euro has been the imbalances accumulated by those spendthrift Mediterraneans.
- If running a big deficit for two years in times of great distress can be considered a mortal sin, what could be said of the United States and the UK?
Most Anglo-Protestant Economies (APEs, for short) do not pass the idealized Weberian test of financial probity and capitalist accountability — not even when compared with some PIGS. Let us look at the recent record and compare some APEs and other up-and-coming animals with one of the PIGS: Spain.
According to the storyline about PIGS, now repeated ad nauseam by the media in APEland, Spain is a "peripheral" and topical "Mediterranean" country with a highly indebted economy and a wobbly banking sector, is over-dependent on bricks and mortar and is scarcely competitive in a world destined to be dominated by APEs and those emerging new kids on the block: The BRICs and the NEXT (to use Goldman Sachs' terminology).
In short, Spain is a PIG and a "true sinner" (as a contributor to the Deutschland edition of the Financial Times recently said) if there was ever one.
Turning some topics upside down
Well, really? Let us debunk some of the underlying Weberian myths about who is an accountable capitalist and related charges.
First, is Spain "peripheral"? This epithet is used by many analysts and the media in APEland to avoid the pejorative term PIGS. Apparently, they have just realized that some people could be slightly offended by their puerile puns.
But let us not be fooled. They are referring to the same countries, although by another name but with the same derogatory intent. Only that in this case the emphasis is put on the small relative size and declining impact of the PIGS on the European and global scale of things.
For them, the easy and tempting headline would say something like: "Pigmy PIGS are doomed, the future belongs to the giant BRICs (plus those serious, prudent and squeaky clean APEs, of course)."
It was a catchy headline, was it not? But there is a snag: Some of the — presumably — tiny PIGS are bigger than some big BRICs — and, as it happens, more serious than some APEs.
Let us consider size. In 2009, already in the midst of the crisis, Spain's nominal GDP was $1.46 trillion, according to IMF figures. This makes Spain the ninth-largest world economy, only slightly behind Brazil (with a GDP of $1.57 trillion) — and ahead of other members of the much-hyped BRIC club, Russia and India.
Of course, this hierarchy is highly volatile, and Spain is being surpassed by those other BRICs as of this writing. But mind you, a country with just 46 million inhabitants and no significant raw materials to export playing in the same league as those demographic, economic and increasingly geopolitical giants should put to rest any attempt at prematurely dumping the PIGS and cheering the BRICs.
Besides, and this should also be obvious, not all the PIGS are alike. Spain's economy is five times bigger than Greece's and seven times bigger than Portugal's and Ireland's. And if we take the combined economies of Italy and Spain, they are bigger than Germany's, France's or the UK's.
This overlooked fact should serve as a powerful counter to those arguments that the Central and North- European "core" has nothing to lose by distancing itself from those irrelevant southerners. Are the seventh- and ninth-largest world economies akin to non-entities? Compared with whom?
For starters, we can compare the size of a supposedly "peripheral" country like Spain with some of the "core" EU economies. For instance, Spain's GDP is almost double the Netherlands' and bigger than the combined economies of Belgium, Sweden and Austria.
And what could we say about those promising Central and Eastern European countries destined to occupy the place of the PIGS in the hearts, minds and wallets of the EU heavyweights like Germany?
Well, again a single fact tells it all: Spain's economy alone is bigger than the economies of Poland, the Czech Republic, Romania, Hungary, Slovakia, Slovenia, Bulgaria, Lithuania, Latvia and Estonia put together. Peripheral, anyone?
And location is a relative factor
Is Spain "Mediterranean"? Well, nothing bad about belonging to the Mare Nostrum of classical fame — except that coming from the electronic pens of some APE-based writers and analysts, this term is used as an insult (à la ClubMed, "Medcons" and so on) — again, another artful circumspection to avoid the "P" word.
Whatever the name, the APEs' favorite narrative says that the main cause of the crisis afflicting the euro has been the imbalances accumulated by those spendthrift Mediterraneans (the Irish are supposed to be a slightly different kettle of fish, though to no practical effect).
Well, as before, we can proceed to confront those topics with some basic and easy-to-find facts. Let us start with the imbalances. One of the most often-quoted criticisms leveled against the PIGS is that they are fiscally irresponsible and that they have relied too much on foreign, cheap credit to finance their unsustainable booms.
But this is not the whole picture. For instance, from 1999 to 2007, Spain was running an annual budget strictly within the 3% ceiling set by the Maastricht Treaty. Meanwhile, Germany was incurring a budget deficit well above that limit from 2002 to 2005 (as was France). Is Germany therefore “Mediterranean”, while Spain is Prussian?
By the way, should both Berlin and Paris be imposed retroactive, corrective penalties or be deprived of their votes in the EU — as some Germans suggest should be done to the PIGS as punishment for their past sins?
Furthermore, Spain accumulated a budget surplus from 2005 to 2007. It was only in the last two years — as a result of counter-cyclical expansionary measures adopted to avoid a further contraction — that the surplus has been transformed into a big deficit (rising to 11.2% of GDP in 2009 from 4.1% in 2008), which is now undergoing a sharp downward correction.
Granted, the wisdom of those expansionary policies can be discussed and disputed at length, but the fact remains that they were limited in time — and that they prevented the Spanish economy from sinking even deeper.
Germany's GDP contraction in 2009 (at 4.7%) was sharper than Spain's (3.7%). And the same applies to other APEs: That very same year, the UK's economy fell by 4.9%, the Netherlands' by 3.9%, Finland’s by 8% and Denmark’s by 5.2%.
Thus, it is difficult to sustain, as some APEs do, that a country like Spain has a structural problem with its public finances.
And if running a big deficit for two years in times of great distress can be considered a mortal sin, what could we PIGS say about those two big APEs of the Anglo-American family, the United States (93.2% of GDP) and the UK (64.5% of GDP), whose current budgetary imbalances are similar to Spain's? Should they also be punished by their vindictive Protestant God?
And the same goes when it comes to the national debt. Actually, here the gap between myth and reality is even larger. The received wisdom says that Spain got into a hole because of the indiscriminate expansion of public debt during the boom years, thus creating a sovereign debt time bomb.
Nothing could be further from the truth. To the contrary, from 2000 to 2007 Spain’s gross debt to-GDP ratio went down — from 59.3% to 36.2%. Even in 2009, in the midst of the crisis, its public debt stood at 53%, still below the 60% limit established by the Maastricht criteria.
It is thus still well below the current EU debt average, which stands at 73.6%. In contrast to Spain, Germany in 2009 had a 73% public debt, the UK's was 68% and the Netherlands’ was 60.8%.
And, by the way, if someone wants to take a look at other figures beyond public finances, fancy these: Household debt was 85% of the Spanish GDP in 2006. The same year, it represented 65% in the United States, 105% in the United Kingdom, 115% in the Netherlands and 131% in Denmark. Spendthrift, anyone?
Editor's Note: This is Part II of a three-part essay. Read Part I here. The views expressed by Luis Francisco Martinez Montes in this article are his own personal opinions.