John Mauldin | March 12, 2012
Today's Outside the Box comes to us from Grant Williams, who covers the world from his perch in Singapore, in his always instructive and always entertaining Things That Make You Go Hmmm... I felt for him right at the outset today, because (like yours truly) he was trying really hard ... not to talk about Greece.And so, he announced, he was going to talk about Spain and about oil; but then, before he even made it through his opening paragraph, there was this:
"... ahhhh NUTS! They did it AGAIN.... ok... the Greek restructuring. It's not as though I could ignore it, now, is it? ... Oil can wait until next time.... no doubt it'll be an issue then too."
But he's determined to talk about Spain ... so let's talk about Spain. But ... (What is this? Why is Greece such a strange attractor?) on his way to the pain that falls mostly on the plain in Spain, Grant just can't help sharing with us this wry factoid:
"... some 2,400 years after 10 Greek municipalities became the first sovereign entities to default when they stiffed the temple of Delos, birthplace of Apollo."
But Spain, Grant! Yes:
"Spain's GDP of $1.4 trillion, somewhat surprisingly perhaps, puts it just behind oil-rich Russia and Canada and people-rich India. Spain is a big country. Spain matters.
"Spain is now about to become the country everyone cares about all over again and, when the world's focus returns to the Iberian Peninsula, it will realise that the large, grey shape in the corner of the room was a Spanish elephant."
Spain's public debt-to-GDP ratio is a relatively appealing 68%, Grant notes (that's just a little over half of Italy's, at 120%), but here's the rub:
"As manageable as Spain's public debt would appear to be at face value, her private debt is an altogether different story standing at a staggering 227% of GDP and, according to McKinsey, Spanish corporations hold twice as much debt relative to their output as US companies and, in comparison to Germany, that number goes up to six times....
"As Spain reduced its deficit in accordance with the EU's Growth & Stability Pact, it meant an increasing reliance on private debt was needed in order to prolong the enormous construction boom that had been ongoing in Spain since the 1970s but which really picked up steam in the 90s and 00s. The outcome of that reliance? A tripling of average household debt."
Throw in the part about the Spanish unemployment rate skyrocketing toward the 25% mark this year (and twice that for those under 25) and the bit where the new Spanish prime minister, Mariano Rajoy, draws a line in the sand by unexpectedly announcing that his government's budget deficit would be 5.8% of GDP in 2012, more than 30 percent higher than the 4.4% agreed on with his supposed masters in Brussels, and we have all the makings for quite a spicy little paella.