Hampered by a remarkable collapse of private debt and struggling to sell its public debt on the market, Spain is in an economic free fall
Wikipedia
Before I depress you with some really hideous graphs, here's a story about Spain and Germany -- two lovely European countries, both alike in soccer excellence, both shaped like cheese squares with an edge bitten off -- that are going in opposite directions in the aftermath of the Great Recession.
In the boom years of the 2000s, Spain was riding a real estate and construction bubble, and frugal Germany was still recovering from the fizzle-out of its telecom burst while the country grappled with labor reforms that many accused of slowing down the economy. Looking for a hot bet, German banks bought debt off smaller European countries, which had the effect of inflating their housing bubbles. For much of the decade, Spain was growing twice as fast as Germany.
Then the bubble burst. Germans, famously thrifty, had an easier time thriving in a global balance sheet recession. With factories humming and domestic spending low, they exported their way to growth that the developed world could only envy. Meanwhile the Spanish, who built up more private debt than almost any other country, have been an international mascot for debt hangover. Between 2007 and 2011, private sector debt swung 17 percent toward savings in Spain, according to Richard Koo, and the country's unemployment skyrocketed from 8 percent to 20 percent.
That brings us to December 2011, when it was announced that Germany's unemployment rate fell to 6.8 percent, its lowest since 1991. In the same month, Spanish unemployment benefits reached a 15-year high. More than 20 percent of the country is out of work, and nearly 50 percent of young people are unemployed, the worst youth joblessness in the euro zone, if not in the developed world. Hampered by a remarkable collapse of private debt and struggling to sell its public debt on the market, Spain is in an economic free fall, and growth likely turned negative in the last quarter of last year.
This collection of Spanish economic data (via Zero Hedge) reveals the state of 2012 Spain:
To sum up: The overall unemployment rate is in the mid-20s, industrial production
and services activity have both cratered, construction indicators like
cement consumption have been devastated after doubling between 1998 and
2007, retail is in a free fall, and export growth (most of which go to Europe) is falling is slowing. [Word of warning: None of these graphs have the same Y-axis range, so beware direct comparisons.]
In the next year, Spain is meant to cut spending to show the bond market that Madrid can stabilize its all-important ratio of debt to GDP. But what Spain really needs today is what it had 10 years ago: Lots of money flowing into the country! Spanish leaders know the intricacies of Spanish economics far better than I ... but I do know something about ratios, and if your GDP isn't growing, it's rather impossible to increase your GDP faster than your debt.
Spain has avoided an even worse recession, if you can believe it, by growing exports in every year since the housing crash. But even here, trouble lurks. As you can see (bottom-right graph in the collection above), export growth is slowing down as the nation's largest trade partners -- in order: France, Germany, Portugal, Italy, and the UK, which account for more than half of Spanish exports -- all face austerity regimes of their own, which is likely to make businesses and consumers cut back on Spanish goods. In a word: Yikes.
We want to hear what you think about this article. Submit a letter to the editor or write to letters@theatlantic.com.
