Tuesday, May 17, 2011

Against the Wall – Spain and the ultimate Wall of Worry

A special report by Pau Garcia                                                                              Valladolid, May, 2011

Hello everyone, and welcome to my first installment of “Against the Wall” , a podcast and newsletter covering several economic topics from a perspective based in Spain.
My name is  Pau Garcia  and I am a small business owner, specialized on collectibles, coins and antiquities, but i always had a knack for Macroeconomics and their influence in the average joe's life. My job allows me to travel quite a lot  through most parts of Spain, Europe and the world, and I have decided to summarize all my experiences and thoughts related to the ongoing crisis that is defying our current economic system. 
I believe that sovereign debt, in particular US and European debt , is one of the key factors that will mark the outcome of this crisis. And we in Spain are in the frontline of that battle, as probably everyone is aware by now.
Speaking of Frontline, I would like to stop for a second to acknowledge one of my inspirations to start this venture: The respected investor and long time analyst John Mauldin, and his “Thoughts from the Frontline” newsletter, which is a weekly source of amazing information and insight.  In no way I can dream of be close to that quality of work and value, but I think that everyone must have a role model, and mine is Mr. Mauldin.

The role of Spain in the financial markets: A tool or a player? 

 Today I would like to take a closer look of the role of Spain in the Euro financial market. During several years, we have come across two very different ideas:

On the expansion years, the stock market and the big capital movements inside Spain have been dictated through the traditional financial markets, specifically London. There has been a feeling that, whatever the good or bad news were, you needed to convince the City and, in some cases Wall Street, in order to get a decent move in the capital directed to Spain.

However, with the recession years now installed on the distressed balance of the country, either at political, private or state level, we are becoming aware that suddenly Spain is not a toy that Forex traders, ETFs, sovereign funds and the like can move at their will.

Suddenly, Spain is becoming our own European “Too Big To Fail” country, with several declarations of EU top economists about the “sterilization” of the debt problems that ravages the smaller countries, in order to stop a bigger, unable to be handled, problem: Us.
The inability of Spain, like any other country in the Euro area, for create its own currency and therefore helping to ease their balance problems, is becoming a dual-cut blade.

The two faces of the same coin

 In one hand, that special agreement of the common currency hurts even more the economies of Spain and the other Mediterranean countries (I will refuse to treat them as PIIGS, as stills amazes me how a financial commentator can coin that term and feel fine using it when referring to almost one hundred million people) 
But in the other hand, in Spain and as I see in Greece and Portugal as well, its blossoming a very dangerous thought: Whatever will be the problem, the ECB must fix it. No politician or national economist head is going to admit this, of course, but somehow, when we are not the one in charge, we usually tend to soft our mindset and behavior .
At the end, the members of this game are going to face the harsh reality: They need to take full responsibility and  make the appropriate decisions to get the train back to the rail. This can only be achieved through a new step forward in the common political and administrative union.  Spain must push supra-national legislation that will ultimately allow European Commission to administrate every country  as a whole.
The backdrop is the loss of autonomy, in a country that has a King, a Prime Minister, 17 autonomic Regions and more than 50 provinces, each struggling to get some part of the power, budget and attention. But the other solution is a huge step back: The exit from the Euro area, an option that no one in Europe, less the Spaniards which are mostly pro-european, think of.

Choosing the place in the chess table

In this current state of things, is the Spanish Government which must choose which road want to take: To wait for the other members of the Euro Area to take decisions for them, with the urges of a growing debt that every month is more expensive to repay, or make a step forward and show their fellow countries that, despite the hard adjustments that we have taken, and the ones that are still yet to come, Spain is willing to move more power from Madrid to Brussels in order to be an active participant of the policies and decisions of the Union.
This movement will make the Spanish market far more resilient to the capital movements of foreign capital, and at the same time will minimize the current concerns about the “checkmate” that , because of the present balance problems and the perceived lack of future growth, Spain is in.
So here we are, in this Wall, with nowhere to go, waiting for the politicians and regulators to make their move. I’m sure that we will see the unfolding of the match in the upcoming months, as we are really close of the coming of a new Prime Minister that can turn the way things are seen from Moncloa, our particular White House.

 Thanks for your reading, and I really look forward to any discussion on  this or other topics at my email address paugarciawall@gmail.com

Don’t get too busy,   
                                     Pau Garcia.

Next Week Topic:    20% unemployment in Spain: Is it really a 30%? Or it's a 10%?

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