Thursday, May 20, 2010

España, ¿Hacia Finlandia o Argentina?



En el primer compás de su intervención, Edward Hugh afirmó que España se encuentra en un momento crítico de su historia, en el que se le plantean sólo dos posibilidades: ser como Finlandia, que en su crisis de la década de los 90 optó por coger el toro por los cuernos y acometer grandes cambios en su economía; o bien como Argentina, que no hizo nada frente a su último descalabro. Para el ponente, en este dilema no existe, además, un punto medio: o nos convertimos en un país más competitivo, o nuestros problemas se van a multiplicar.

Tras este primer y radical diagnóstico, hizo referencia al último informe del Fondo Monetario Internacional (FMI) en el que se apremia a la economía española a acometer de manera urgente reformas amplias y de largo alcance, con las que remediar las disfunciones de su mercado laboral, los estragos de la burbuja inmobiliaria, el elevado déficit fiscal, el excesivo endeudamiento exterior de su sector privado, el anémico crecimiento de su productividad o su baja competitividad, entre otros puntos débiles.



Para explicar el amplio consenso actual sobre los múltiples problemas de nuestra economía, hizo una panorámica de su curso reciente. Después de una década en la que se produjo un boom inmobiliario, España tiene hoy un serio problema de deuda, porque sus sectores público y privado acumulan un endeudamiento equivalente al 265% del PIB; este problema, sin embargo, es extensivo a otros países, como el Reino Unido o los Estados Unidos, por lo que concluyó que, de hecho, los niveles de deuda no son representativos de si un país es o no próspero –si bien, si la deuda sobrepasa el 100% del PIB, se corre el riesgo de una crisis a la griega–. En todo caso, al término de la recesión, la economía española ha empezado a recuperarse tímidamente, y, por ejemplo, su producción industrial ha dejado de caer y la venta al detalle mejora con lentitud. El paro, por su parte, se ha estabilizado, aunque las afiliaciones a la Seguridad Social siguen en claro descenso. Tampoco se ha recuperado el sector de la construcción, que prosigue con su severo ajuste. En este contexto, Hugh se mostró especialmente preocupado por la evolución demográfica, considerando que, tras el aumento ininterrumpido de nuestra población en los últimos 10 años, una contracción de la misma en tres millones de habitantes podría dificultar de forma notable la ya de por sí grave situación de nuestro mercado inmobiliario.

De vuelta a la evidente pero aún tímida estabilización de nuestra economía, señaló que ésta se ha logrado mediante dos instrumentos: el aumento vertiginoso del gasto público–mediante el cual se ha apoyado la demanda interna del país desencadenando por el camino un problema galopante de déficit público–, y el apoyo del Banco Central Europeo, cuya masiva inyección de liquidez ha permitido a los bancos españoles acceder a fuentes de financiación. El problema de estos instrumentos, en su opinión, es que su empleo ha empeorado los handicaps estructurales de la economía española.

Para apoyar esta tesis, se refirió al déficit en el comercio de mercancías, que hasta el año pasado había ido mejorando en España, pero que, de la inyección del BCE en adelante, ha empeorado gravemente.

Después de estas soluciones, España se ha convertido en un país tremendamente endeudado con el exterior, y ésta es una tendencia que, en opinión de Hugh, debemos cambiar. Es cierto que, como insiste José Luís Rodríguez Zapatero, no estamos tan endeudados como otros países de Europa, pero no por ello debemos desatender el crecimiento desatado de nuestra deuda. Para su reducción, las únicas vías para que España regrese a la normalidad económica son dos: inflación y crecimiento. Sobre la primera, Hugh quiso distinguir entre buena inflación y mala inflación, considerando que su dosis justa –en el entorno de los dos o tres puntos– podría ser positiva para nuestro país en el momento actual. En cuanto al crecimiento, en una economía moderna, el aumento de la demanda agregada puede producirse incrementando el crédito o bien por la vía de las exportaciones; como en España, hoy, tanto los hogares como las empresas están pidiendo menos créditos, la única vía de crecimiento a nuestro alcance es la de la exportación.

Retomando el problema intrínseco a la dependencia sistemática de la financiación externa, Hugh afirmó que su efecto hace que España no sea hoy un país totalmente libre, sino que varias de las medidas que está adoptando en la actualidad vienen dictadas por la necesidad de mantener su credibilidad en el exterior. Tampoco se puede desatender el severo ajuste que España ha de completar de aquí a 2013, y que en opinión del ponente es un 1% mayor de lo que pensamos, de modo que su consecución va a ser todavía más dolorosa.

A modo de cierre, Hugh se mostró confiando en que ya se ha iniciado la senda hacia una ambiciosa consolidación fiscal, pero exigió que ésta se complete con reformas que favorezcan nuestro crecimiento estructural –entre ellas, la del mercado laboral–. Son igualmente imperativas las reformas del sistema bancario y del de pensiones. A su vez, ninguno de estos cambios se ha de plantear con las miras puestas en 2020, porque urgen resultados en este mismo 2010 o en 2011 Whither Spain – Towards Finland or Argentina?

Edward Hugh

Sitges May 2010

“Spain’s economy needs far-reaching and comprehensive reforms. The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness. Ambitious fiscal consolidation is underway, recently reinforced and front-loaded. This needs to be complemented with growth-enhancing structural reforms, building on the progress made on product markets and the housing sector, especially overhauling the labor market. A bold pension reform, along the lines proposed by the government, should be quickly adopted. Consolidation and reform of the banking system needs to be accelerated. Such a comprehensive strategy would be helped by broad political and social support, and time is of the essence”. IMF 2010 Article IV Consultation Spain Mission Statement

Following a decade long housing “boom” Spain now has an enormous debt problem. The combined debt level of Spain’s households, companies and government now amounts to some 265% of GDP.



However, in contrast to the situation in countries like Greece and Italy, Spain’s endebtedness problem is not principally one of massive public sector debt. The main component of Spanish debt is private – between households and companies accumulated debt amounts to some 210% of GDP.

Spain is not, by a long stretch, the only country to suffer from such a high level of private indebtedness. There is, for instance, the example of the United States, where total indebtedness now significantly exceeds the 300% of GDP level, a threshold which many consider to be highly structurally significant. The sheer fact of knowing you share this problem with other larger, and richer, countries may be soothing, but it should also give an indication of the kinds of difficulty Spain may experience in interacting with the external environment, since solutions will need to be found which fit the needs not of one isolated country, but of various countries, all at one and the same time.

Stabilisation....At A Price

After an extremely severe recession the Spanish economy has now been stabilised.



Industrial output has stopped falling, and retail sales have even started to rise slightly.



Output in the bloated construction sector, as was to be expected, continues to fall, as do house prices. Unemployment has stopped rising, although employment, and participation in the Social Security system continues to fall.



At the same time the previously large migration flows have now all but dried up.



But this stabilisation comes at a price, given that is the result of a dramatic surge in current government spending and a huge liquidity support operation for the financial system being supplied by the ECB.

Deficit and Debt Dynamics

As is by now well known, this increase in public spending has produced a further problem – one of a large government fiscal deficit – and this development has served to attract the attention of the international investors on whom Spain depends for its financing at precisely the time that the issue of sovereign debt in the ageing societies of the economically developed world is starting to become a cause for concern in the financial markets.

The principal difficulty facing the Spanish economy at the present time is that while the emergency measures have served to buy time, this time has not been wisely employed, and the measures have simply served to exaccerbate the underlying structural problems rather than resolve them.

According to the National Statistics Office (INE), the slight economic expansion that was achieved in the first quarter of 2010 (0.1% growth) was the combined result of an increase in internal demand and a worsening of the net impact of external demand – precisely the opposite of what you would want to achieve. In other words, while Spain’s exports did increase, the growth in domestic demand in conditions of limited international competitiveness meant that imports increased even more. On an interannual basis the negative impact of national demand reduced (from -5.3 percentage points to -2.5 percentage points – see chart below) while the positive impact of external demand fell (from 2.2 percentage points to 1.2 percentage points). To be clear, growth in the first quarter of 2010 was due to rising domestic demand, and not rising exports, which means the real impact of the increase in government spending and the liquidity measures applied by the ECB since June 2009 has been to reverse the positive trend in the goods trade deficit which had been seen in earlier quarters.



As the Spanish government stresses, the country’s share in world exports has remained more or less constant since the start of the century, but at the same time Spain’s share of world imports has increased. Put another way, thanks to the foreign funds which flowed in to finance the housing boom Spain became a major imports powerhouse, with the consequence that both the trade and the current account deficits deteriorated sharply, while a significant part of Spanish industry simple died. One of the major tasks of any recovery programme is to bring this industry back to life. In this sense what Spain’s economy needs is not rejuvenation but resurrection.

With a highly integrated global economy as the background, Spain’s seemingly insatiable demand to build and buy ever more housing units was satisfied via the massive entry of migrant labour (5 million immigrants in 10 years), and substantial ongoing capital inflows (a current account deficit of around 10% of GDP), which both served to raise the short term capacity of the economy, but lead to the consequence that Spain today is a highly over-indebted country – net external debt is around 90% of GDP – while a large part of the manufacturing base which would have facilitated paying down the debt now no longer exists.



As a result – and as Mr Zapatero repeatedly stresses – it is the case that the accumulated debt of the Spanish government is not (yet) inordinately large when compared to that of its peers, although as a share of GDP it has been increasing rapidly in recent quarters.

To reduce this debt burden the Spanish economy needs two things: inflation and growth, although it should be stressed that competitiveness can only be restored by some form of price and wage deflation.

In a modern, mature, economy growth in aggregate demand only comes either via an increase in the level of credit, or through an increase in exports. The problem that Spain faces is that, on the one hand all sectors of the economy (households, companies and government) are now heavily over-endebted and deleveraging as fast as they can, with the result that – on aggregate – they are demanding less (not more) credit. On the other hand, the Spanish economy is not sufficiently competitive to be able to grow simply by relying on exports.

In addition, systematic dependency on external financing is never a good thing, since your creditors can always impose conditions on you which may not be to your liking. Despite the fact that the commitment to reduce Spain’s fiscal deficit by 5% of GDP in 2 years is, in and of itself, a very strong one, the country actually has to make a far greater fiscal effort than it seems, due to the commitment contained in the recent Ley de Economía Sostenible to reduce substantially the quantity of unpaid receiveables on the public sector account books. Spain’s Autonomous Communities alone have some 30 billion (or around 3% of GDP ) in payments oustanding as of the last quarter of 2010 – which means there will need to be a reduction in spending of something like a additional 1% of GDP a year over the adjustment period under this heading alone.



The need to restore order to Spain’s public finances will mean that the adjustment will be even more painful than generally envisaged, and that the impact of the correction on the economy generally will be more severe. Thus, it is rather unlikely that the Spanish economy will grow in 2011 as many expect. Weighed down by a heavy fiscal correction, an unacceptably high level of unemployment, private demand in slight contraction and a weak growth rate in exports, it is probable that the economy will once more contract, possibly by between 1% and 2%.

To conclude, Spain stands at a crossroads, and important decisions need to be taken. A fiscal adjustment is necessary, but the country also needs a competitiveness adjustment in the form of a substantial reduction in the wage and price level (possibly by 20%). If this is not implemented the dynamic of Spain’s debt will surely become unsustainable. Spain has two – and only – choices at this point. It can follow Finland’s example in the 1990s, take the bull by the horns and use the present crisis as an opportunity to transform the Spanish economy into a new economic miracle, or it can remain in denial about the severity of the problem, let things drift until they can do so no longer, and then follow Argentina down the road of ruin and despair.

To cite the words of the latest IMF report: “Such a comprehensive strategy would be helped by broad political and social support, and time is of the essence.” Ladies and gentlemen, enough is enough. Nearly three years have now been wasted, and it is time to act.