Spain — A Country Built on Sand?
Is Spain’s economy really as frail as its detractors would have us believe?
- It could well happen that, at the end of the current crisis, PIGS will look at APEs and APEs will look at PIGS — and no one will be able to distinguish who is who.
- Far from being a Mediterranean economy enclave, Spain is well-connected via migratory, cultural and capital flows with some of the most dynamic sectors and regions in the world economy.
- It is ironic that many of the attacks against the soundness of the Spanish banking system come from banks and other financial institutions which were saved from bankruptcy due to the largess of their respective governments.
- Since the mid-1990s Spain has been, and still is, one of the world's major sources of outward foreign investment.
- For every euro heading South from the North via EU financial transfers, there are at least two euros going in the opposite direction — via the huge trade surpluses.
Spain has been posting positive rates of growth for the last 15 years — and outperforming the EU pace of growth for the last 12 years. As a result of this cycle, cumulative growth in GDP per capita between 1999 and 2007 increased by 52% in Spain, compared to just 33% in Germany. In terms of per capita income, Spain reached the EU average in 2008.
Thus, Spain's growth was not a mirage, but quite a consistent reality, like the high-speed trains crisscrossing the country or the wind turbines and solar panels that have transformed Spain into a world leader in renewable energies.
And, by the way, if any APE analyst, writer or opinion leader were to retort that the Spanish increase in wealth and the improvement of its physical infrastructure was mainly due to the EU cohesion funds effectively handed out by Berlin and others, the answer is very easy: Remember the Marshall Plan (of which Germany was a big recipient, while Spain was left out)?
Or consider this fact: For every euro heading South from the North via EU financial transfers, there are at least two euros going in the opposite direction — via the huge trade surpluses that Germany, for instance, has been generating from Spain from 1986 onwards.
Not to forget that a big chunk of those cohesion funds, particularly during the 1980s, benefited German and French firms, which received many of the big contracts handed out in Spain at the time. Not a bad deal for our Northern partners, was it?
Now, let us get back to the initial question: How much of Spain’s growth was dependent on the construction sector? Here again we have to discriminate the facts from the myth.
To start with, from 1997 to 2000 the sub-segment of residential construction as a percentage of GDP was larger in Germany than in Spain.
It was between 2001 and 2007 that the real boom took place in Spain — in this latter year amounting to around 8% of the total economy.
If we add other sub-segments, in 2007 the overall construction sector represented 17.9% of GDP, though part of it was related to the accumulation of productive fixed capital (and not just for residence or sheer speculation).
Undoubtedly, that was an unprecedented and unsustainable percentage.
But it has to be interpreted against the backdrop of an equally unprecedented surge in the level of immigrants received by Spain during those very same years: 4.5 million new residents in the last decade, a figure that makes Spain the second-largest recipient of migratory flows after the United States as a percentage of their respective overall populations.
And to immigration we should add another two important factors — such as the creation of new households increasing dramatically from 1999 to 2007 and the enormous appetite of foreigners, mainly from other EU countries, for buying residential real state in Spain.
Just in 2004, at the peak of the construction boom, EU foreigners bought 80,000 houses out of the 160,000 that were available on the market in tourist areas. Now, can you guess how much of that buying spree in the Spanish costas by EU citizens was financed via cheap credit handed out by banks in cold, sun-starved APEland?
Besides, if we consider that the Spanish growth was too dependent on a single sector (which is true for a limited period of time), then what should we say about the long-lasting overdependence of the British or the U.S. economies on the financial sector — or the huge reliance of the German economy on exports?
As a reminder, the weight of the financial sector as a percentage of the U.S. economy was 8% in 2007, roughly the same as in the United Kingdom. By the way, remember that 8% was the same percentage residential construction represented of Spain's GDP at the height of the real estate boom. Lopsided, anyone?
Next, let us look at the Spanish banking sector, under so much scrutiny by credit rating agencies and other APE-dominated market vigilantes. Here again, let the figures — not stereotypes — do the talking.
For instance, how many banks and other financial institutions had to be rescued — read: nationalized or bailed out with public money — in the United States, the United Kingdom, Germany, Sweden or the Netherlands from 2008 onwards?
Putting aside the well-known case of the United States, the rescue packages assembled by the British government alone in 2008 and 2009 to save the likes of the RBS, HBOS or Lloyds TSB amounted to £550 billion.
In the case of Germany, the October 2008 rescue package for the country's banking sector reached €500 billion (since many German banks had unwisely exposed themselves to the U.S. subprime catastrophe).
The same month, the Dutch government made €10 billion available to the Netherlands’ largest financial services company, ING, which was on the verge of collapse. And also in October 2008, Sweden made a financial guarantee of $205 billion available to its troubled financial sector.
In contrast, the Fund for Orderly Bank Restructuring in Spain has hitherto disbursed around €16 billion out of a €99 billion guarantee fund. So it happens that the financial core of APEland has received far more public transfers and guarantees than Spain's (and far more than the EU packages recently put together to rescue the likes of Greece and Ireland, by the way).
It is therefore fairly ironic that many of the most acerbic attacks against the soundness of the Spanish banking system come from analysts in the pay of APEland banks and other financial institutions which were saved from bankruptcy due to the largess of their respective governments. Of course, they are now unfairly competing in a supposedly free-market environment with their Spanish peers.
And, by the way, if those analysts were unable to foresee the doom of their own financial houses, what kind of standing do they have now to make any kind of dire predictions about, say, a country like Spain, about which many of them only manage to know a couple of prejudiced clichés? Wobbly, anyone?
Finally, there is the issue of the PIGS' lack of competitiveness and irrelevance in a globalized economy. Again, take the case of Spain. It happens that the share of Spain in the world merchandise trade has remained practically the same since the entry of the euro (around 2%).
The same goes for the trade in commercial services, where Spain (with 3.7% of the world's market share) occupied in 2009 a more than respectable seventh place as a major exporter in the rankings of the WTO.
And what can be said about foreign investment? For those thinking that Spain, as any other average PIG, is no more than a recipient of now-diminishing foreign handouts, suffice it to say that since the mid-1990s Spain has been, and still is, one of the world's major sources of outward foreign investment.
Actually, in 2009 the accumulated investment abroad represented 44.2% of Spain's GDP, thus making Spain the world's tenth-largest holder of capital placed in foreign markets.
Many APEs, for instance, would be surprised to know that Spain is not only the first- or second-largest investor in Latin America (depending on the countries). It has also been the fourth- to sixth-largest investor in the United States and the United Kingdom from 2007 to 2009.
Even more tellingly, in 2009 Spain ranked tenth in the number of multinationals included by Forbes in its list of 500 major world companies. In particular, many Spanish multinationals are world leaders in their respective sectors.
That list goes from banking (Santander is the largest eurozone bank in terms of market capitalization), to retailing (Zara is the world's second-largest retailer), telecommunications (Telefonica is the world's third-largest integrated company) and renewable energy (the likes of Iberdrola, Acciona, Abengoa or Gamesa are leaders in wind and solar energy).
It also extends to infrastructure management (according to the U.S. magazine Public Works Financing, six of the world's 11 largest companies in this sector are Spanish, including the first one, Ferrovial).
In fact, far from being a Mediterranean economy enclave, Spain is well-connected via migratory, cultural and capital flows, and increasingly by trade, with some of the most dynamic sectors and regions in the world economy, including the North Atlantic basin, China and Latin America. Introverted, anyone?
Animal Farm revisited
So it seems that despite all the efforts made by neo-Weberian fundamentalists in APEland aimed at denigrating the PIGS, some of the latter are still well alive. They are not only kicking — but even able to fly.
Furthermore, some APEs are closer to being stuck in the mud than they think. Would it not be appropriate that some people in APEland start reading that wonderful dystopian novella by Orwell, Animal Farm? With regard to their own futures, it could well happen that, at the end of the current crisis, PIGS will look at APEs and APEs will look at PIGS — and no one will be able to distinguish who is who.
We need to come to terms with the realization that we live in a world where we are all sinners. That coincidentally, is not just Catholic, but also a very Protestant thing to believe in.