April 2012: Where is the problem of the Spanish public debt?

Nowadays, it seems that Spain Government Debt is the main guilty of the European Crisis. But can it be reasonable.

First of all, we should look at the real data.

 

Graph 1 General Government Gross Financial Liabilities as a Percentage of GDP (source OECD)

The Spanish level of public debt is similar to the Dutch one, and lower than the German or French ones. Some ratio debt over production is used always when an economic analyst is analyzing a business. Of course, a single ratio cannot show the state of a business, it is necessary to analyze other ones.

I suggest continuing with the government deficit, we can see that there was super habit of the public accountancy before the crisis. Then as all economic experts suggested, there was an increment of the public expenses to impulse the economy. Finally, all European governments decided to finish with those policies to impulse the economy with public funds that shows the following graph.

 

Graph 2 Spanish Government Deficit as a Percentage of GDP (Source OECD)

It is very interesting to analyze the French case too. And we will see that looking only at the figures Spain has not done a bad management of the public funds in terms of financial position.

Graph 3 French Government Deficit as a Percentage of GDP (Source OECD)

It is true that the Spanish deficit has been higher that French last three years but the margin of Spain is much higher because its debt is much lower. The debt position is Spain is much less problematic than French.

Then, why are markets punishing the Spanish debt? There are mainly three reasons: trust, productive economy, and local customs.

 

We can analyze them in deeper:

  1. Trust: The previous graphs show data of December of 2011. The figures of 2011 are forecasts and not final data. The new government has found that the final deficit of Spain was two percentage points over the prevision. This level of uncertainty in the public accountancy is not acceptable. This can be showing a high level of complexity in the public sector that should be eliminated.
  2. Productive Economy: The problem of Spain is not related to its accountancy. The objective of a society is not having a healthy accountancy, this is only a mean; it is having a healthy group of citizens. This will not be able with the current level of unemployment. This fact must change as soon as possible. Spain should not receive advice from countries as France, Italy or the US about public accountancy. The target of Spain should be to impulse employment and the productive economy. Spaniards need to think less as an accountant and more as an engineer. Foreign financial markets would be very glad for it.
  3. Local customs: Spain seems to be the only country in the world that feels itself as guilty of its own crisis. Perhaps, Spaniards should try to search for other guilty countries out of their borders, and they should not put a target for the speculators on their own heads.

As conclusion, if an investor is thinking about the return of its funds, looking at the financial figures there is not a real reason to think that the public financial position of Spain is worse than in other European countries. Still it seems that crisis is and will be paid by many Spanish citizens in terms of unemployment, and it will not be paid by foreign investors. Of course, if we analyze this case with other variables that consider the effect of the productive economy on the future accountancy as complexity, we could get different conclusions. Spain should focus the public expenses on actions to impulse the productive sectors and it should reduce costs and complexity in the public one.

 

Mr. Luis Díaz Saco

Executive President

saconsulting

advanced consultancy services

 

Nowadays, he is Executive President of Saconsulting Advanced Consultancy Services. He has been Head of Corporate Technology Innovation at Soluziona Quality and Environment and R & D & I Project Auditor of AENOR. He has acted as Innovation Advisor of Endesa Red representing that company in Workgroups of the Smartgrids Technology Platform at Brussels

 

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