Spain’s funding needs, regional debt and public pension raids
Spain had an estimated 350 billion euros of debt that it needed to roll over in the three years from 2011 according to analysts at Brockhouse Capital. Add in the likely need to fund regional government deficits and rollovers as well as the need to recapitalise banks as the housing market continues to decline and you see the fundamental problem for Spain.
My concern with Spain is liquidity more than solvency. Given the deflationary policy path, the high private debt levels that create higher private savings and the debt rollover, you are guaranteed to have gargantuan funding needs during a period of high deficits. For any currency user, this is a recipe for a liquidity crisis. Right now, Spain is looking good because the yields have subsided after the OMT program was put in place by the ECB. But the fundamental liquidity problems are still there. And as the funding schedule ramps up, I expect it to become an acute problem, causing Spain to seek a bailout.
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About Edward Harrison
Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.
