01.09.2012 - 20:40
For months, all major Spanish companies such as Telefónica, Gas Natural, Abertis, ACS, etc, have had the international financial markets closed. That is, private investors do not want to lend them money at any price. And this is independent of the sector in which they operate or the state of their economic health (after all, they all have run out of credit regardless of your industry and the state of their finances). The reason is simply that they are Spanish: investors think that the possible collapse of the Spanish economy puts Spanish corporations at risk of collapse and, therefore, they optimally choose not to lend them money.
And that is true even if some of these companies (such as Telefónica or Natural Gas) derive most of their revenue from outside Spain. Moody’s said it clearly makes a couple of months “Telefónica’s rating can only be a step above the rating of the government of Spain.” I say this because the Catalan Government has officially announced that it will request access to the Liquidity Fund, a fund that will be set by the Spanish government to help regional governments in financial distress. Catalunya said it would ask for 5,023 million euros. Although this decision has caused much media coverage, it is not the first time that the Catalan government applies for state funds. A couple of months ago it requested loans from ICO). Why? As most major Spanish companies that lost access to international private capital markets, Catalunya has lost access to bank credit. Hence, it has no other choice but to borrow from the state rescue fund created for such occasions.
Some (anticatalan) analysts have been quick to point to the Catalan embassies (especially the one New York), the budget of the Ministry of Culture and the alleged extravagance of the Catalan public TV, TV3, as culprits for Catalunya’s financial collapse. These arguments do not merit discussion because the size of these items is ridiculously small compared to the magnitude of the fiscal problem. However, it is relevant to ask: How did Catalunya end up here?
Part of the explanation can be seen by simply analyzing the evolution of total debt since 1997. I begin in 1997 because many analysts believe that year to be the beginning of the housing bubble. The first graph (above) shows the total debt of the Government in millions of Euros. The chart below shows the deficit of the Government relative to GDP. The source of both graphs is data from the Bank of Spain (links to total debt and debt relative to GDP).
