Countries like Japan or Italy suffer from a debt problem. But it is a money that must be between Italians and Japanese. Other economies also have high indebtedness abroad. But at the same time they have borrowed a lot outside and neutralize that debtor position in net terms. It is not the case of Spain, which in net terms has one of the largest debts in the world, 84.1% over GDP once the debts owed to it are subtracted beyond its borders. Even if it has fallen by 15 points, it is still fired: because of this data the Spaniards are in a queue in Europe with Greece, Portugal and Cyprus. The European Commission considers excessive imbalance to exceed 35% of GDP.
At the peak of the bubble, Spain borrowed about 100,000 million that were dedicated to finance the housing bubble and the international expansion of large companies and banks. At that time there was a great excess of global liquidity, and investors were fighting to find safe and profitable assets. Spain and the Spanish brick seemed a good bet, especially when it also had the support of the euro zone. The debt to the outside was soaring. Spanish banks went to the market to finance themselves by issuing securitizations and mortgage bonds. And with that money they could continue to lend. Until, suddenly and suddenly, the perspectives changed when the crisis began. Fissures arise and it is perceived that this debt no longer has European support.
Only Spain has to continue refinancing these liabilities periodically. The interest rates demanded by investors to continue buying the emissions skyrocket. The vulnerability is evident. Banks no longer lend to each other. The ECB has to respond to the closing of the interbank market by expanding the liquidity it supplies to the entities. And even goes further: before the closure of the financing directly between banks, the eurobank has to be placed in the middle and guarantee all transactions between entities.
The situation only stabilizes when the support of Europe and the ECB to the peripheral debt is clear. But the underlying problem is still there. Despite seven years of surplus with the exterior and five years of growth, the external debt is corrected slower than is desirable. It continues to rebound in euros. And it has fallen in proportion to GDP from 174% to 167%, a more appropriate measure because it takes into account the ability to pay. Even so, the reduction is scarce because the fall of the private indebtedness has been substituted by the escalation of the public debt. And 43% of Spanish bonds are held by foreign investors, according to Treasury figures.
In its latest reports, the Bank of Spain and the IMF have warned that Spain suffers from a problem of high public and external debt. And to continue facing those payments, it has to generate continuous surpluses abroad. Which in turn implies that it has to maintain competitiveness. So far, Spain has combined robust GDP growth with positive external balances, a fact unimaginable in previous periods of expansion. But nevertheless, in recent months the balance has deteriorated rapidly. It still holds with 1.4% of GDP compared to 2.1% registered a year earlier. But the Bank of Spain warns "a possible depletion of the process of gain in competitiveness observed after the crisis." And a decrease in public debt would help a lot, international organizations always point out.
Financing of the ECB
Between September 2017 and September 2018, the total debt abroad has risen by 76,000 million euros. The Administration has grown by 38,000 million. The one of the banks in titles increases again: 24,000 million. And it descends in 22,000 that of the companies.
However, not all the debt is the same: a part of the increase is explained because the Bank of Spain has served to channel the injections of money from the ECB. Since 2015, the Bank of Spain's external liabilities have risen by 200,000 million. In principle, these debts are largely due to the operations of the eurobank, which will be renewed as necessary and, therefore, cause less concern. That is to say, Spain has recomposed somewhat its liabilities during the last years, increasing those of the Bank of Spain and reducing those of the private sector.
But, in any case, there is still much to be done. As highlighted by the IMF, Spain is the State in the euro zone with the highest financing needs, according to its GDP, second only to Italy and tied with Belgium. In 2018, it has refinanced 17% of GDP in public debt, in excess of 200,000 million. Although the state bonds are easier to refinance by the ECB, it is a clear Achilles heel as soon as the mood of the markets turns against. And it makes Spain very vulnerable to rate hikes.
In addition, the banks have raised the foreign debt again, which reveals a lack of internal savings. As economists explain, the ideal would be for the country to generate enough savings to be able to self-finance.