Debt Was Not An Infection

A while back, I blogged my amazement about the debt-as-an-infection meme that permeated Euro Debt Crisis articles. The conventional wisdom at the time said if they could just contain the Greek debt crisis, the whole thing would blow over. The worst case would be if Spain started going under. If Greece could be saved, then Spain would escape.

Spain didn't escape. Spain was never going to escape. Spain owed more, spent more and regulated more than they could afford.

The Spanish economy is in recession.

Spain’s economy contracted for a fifth quarter, adding pressure on Premier Mariano Rajoy to seek more European aid even as the euro area’s fourth-largest economy met a bill-sales target.

Gross domestic product fell 0.4 percent in the three months through September from the previous quarter, matching the contraction of the second quarter, the Bank of Spain said in an estimate in its monthly bulletin released in Madrid today.

Spanish debt, both national and local, is becoming poisonous.

The region of Madrid’s pulled bond sale Tuesday looks bad — very bad — but in the end it probably doesn’t matter.

Madrid cancelled the deal after failing to garner as much investor demand as it wanted, even though it was planning to pay a chunky interest rate of about 7.8% for a bond maturing in 2020. In a yield-starved world, that’s an enticing number.

But the timing of the deal was poor, analysts said. The night before, Moody’s Investors Service downgraded five Spanish regions. While it stood pat on Madrid, keeping its credit rating one notch above junk status, for nervy investors the damage was done.

Then came newspaper reports that Spain’s 2012 budget deficit could end the year as high as 7.4%, above the official target of 6.3%. Again, never mind the fact that the government alluded to these higher figures some two weeks earlier. The numbers in print still looked poor, leaving investors even more skeptical and less inclined to give Madrid the benefit of the doubt.

Despite all of the contraction, debt problems and unemployment, the government still refuses to relinquish control of the economy.

Despite reiterated pledges by the government to cut down on red tape, Spain remains one of the most difficult countries in the world in which to set up a business, according to the World Bank’s Doing Business 2013 report, which was released late Monday.

Spain is ranked 136th out of the 185 countries included in the World Bank’s survey on the ease of doing business, three places lower than last year. On average it takes 10 separate administrative procedures and 28 days to establish a company in Spain, at a cost equivalent to 4.7 percent of the average annual per capita income.

I guess they need to descend a bit more into the Pit of Despair before they are ready for Dr. Milton's prescriptions.