Controlling the Uncontrollable: Spain’s National Addiction to the Use of “Dinero B”
Well, before we go any further, I would like to make clear that what I am going to talk about in this post is not anything illegal, or even irregular (things like this must be going on in almost all Euro Area countries even as I write). Bending of the rules? Perhaps. Taking them to their limit? Certainly.
What Spain’s central, local and regional government does is take advantage of loopholes in Eurostat accounting regulations to generate debt that really is debt, but is not classified as such according to the Eurostat excess deficit criteria. Key areas involved are debts on the balance sheets of state (or regionally, or locally) owned companies, overdue payments for receivables (very common practice in Spain), and public-private-partnership-type leaseback-arrangements. None of these are (typically) classified as debt, though they do all have to be paid at some point, which means there is a stream of revenue (flow) impact rather than a debt (stock) one (unless and until Eurostat changes the rules). Which means that while they do not impact that critical debt to GDP number, servicing these liabilities does exaccerbate the annual fiscal deficit one. Which is why ultimately bringing Spain’s fiscal deficit under control will almost certainly prove to be much harder work than it seems.
We are able to make this comparison since the Bank of Spain effectively maintains a double entry book keeping system, whereby it keeps one record under the National Financial Accounts of the total debt , while at the same time keeping a separate record of debt as classified for the EU Excess Deficit Procedure.
As we can see in the chart below, total gross government debt in Spain as classified in the Financial Accounts was some 751 billion euros (or around 75% of GDP), as compared with the 585 billion (or around 58% of GDP) in gross debt recognised under the EU excess deficit procedure classification.
Now if we look at the chart below, we will see that the proportion of Spanish national debt which remains outside the Eurostat classification system has risen since the introduction of the euro – from 14 to around 23 per cent – but most of the increase actually took place in the run up to the crisis. So as Spains funding problem has deteriorated, there does not seem to be any direct evidence that this has impacted the level of “non-accounted” debt, it has simply remained the same (in % terms). Of course, as the debt itself has balooned, so too has the “dinero B” part.
In the case of the regions (Spain’s Autonomous Communities) the position is not that different – the % has increased from 12% in 2000 to around 25% at the present time – even if there is rather more evidence of “stress” on their finances after the start of 2008 (see chart).
The position of Spain’s local authorities is also similar – with the proportion of “non-accounted” debt rising from 14 to about 23% – although again, there is even more evidence of post-crisis financial stress if we look at the gap between the two lines, and how it widens, which is none too surprising when you consider that it was the local authorities who lost the biggest chunk of their financing with the collapse of the construction boom. Indeed, it is my impression that in this case the gap only hasn’t widened further due to the fact that very few people are now willing to give any sort of credit to Spain’s local authorities.
As I indicate, one of the easiest ways of “kicking the can down the road” in terms of public finances, is to delay payment on receiveables (if you are not sure what receivables are, check this wikipedia entry), and the following charts show the relentless use of this procedure in Spain, despite the promise of Spain’s government to bring short term credit under control by 2013, there is no sign of this happening to date.
The other big area of “non-accounted” debt, is that accumulated by governmentally owned or “satellite” companies (who may for example run public transport, or outsourced cleaning services for local authorities). As can be seen from the charts below, this debt has increased massively since the crisis started.
As I say at the start of this post, none of this debt is hidden, nor is it illegal under Eurostat regulations, so there is nothing (in principle) out-of-order here. This fact doesn’t make the situation any less preoccupying, since one way or another all this debt will have to be paid. What its continuing presence does, I think, indicate, is the existence of some degree of “laissez faire” attitude towards fiscal targets on the part of the EU Commission and indeed the IMF (as I argue in this post, it is hard to understand the IMFs own Spain growth forecasts and CA deficit levels if they are not assuming a rather higher level of indebtedness into the future than anyone is prepared to admit right now) . The May measures are deemed to have worked. Europe’s Soveregin Debt Crisis is, if not over, at least in abeyance.
Symptomatic of the current “relaxed” state of things is the fact that only last week José Luis Rodríguez Zapatero, the Spanish prime minister, even started to air the possibility of reversing some of the spending cuts his government announced in May. In a cautious statement, which the FTs Victor Mallet reports was apparently aimed at testing the mood of financial markets, Mr Zapatero said the government expected to restore some suspended infrastructure investments if – as the government anticipated – renewed financial stability left room for manoeuvre in the 2011 budget. There is nothing here about growth, please note.
“In 10 to 15 days we will be able to give some positive news in relation to restoring investment activity in infrastructure, which will affect most regions and would provide relief, an important boost, to construction companies,” he told a news conference in Mallorca after meeting King Juan Carlos at the monarch’s summer residence.
A €6bn cut in public sector investment was among the biggest austerity measures announced by Mr Zapatero in May to coincide with the EU and IMF announcement of a €750bn financing facility for the eurozone.
Despite the fact that among the evident losers in what was effectively a “U turn” at the ECB in May were the monetary hard-liners like Jürgen Stark and Axel Weber, you obviosuly can’t keep a good man down, and European Central Bank Executive Board member Stark was out again on Monday, warning in the columns of the Financial Times that the European Union is all set to ramp up economic surveillance to prevent a repeat of the region’s recent debt crisis. “A new framework for macroeconomic surveillance will monitor whether national trends are compatible with those that are appropriate for the Union as a whole”, he said. “This framework will allow both targeted peer pressure and differentiated and more binding recommendations on follow-up action at the national level.”
All I can say looking at the above numbers is, there isn’t much sign of any of this being operational yet, but then, as I say, the Jürgen Starks of this world have rather had their noses pushed out of joint in recent weeks.
Originally published at Global Economy Matters and reproduced here with the author’s permission.
81 Responses to “Controlling the Uncontrollable: Spain’s National Addiction to the Use of “Dinero B””
A lot of thanks for all of your hard work on this site. Kim take interest in getting into investigations and it is obvious why. We all hear all about the lively method you render helpful secrets via this web site and as well inspire response from other individuals about this subject so my girl is becoming educated so much. Take pleasure in the remaining portion of the new year. You are always performing a powerful job.
I enjoy you because of your whole efforts on this blog. My mom really likes managing investigation and it is simple to grasp why. My spouse and i notice all of the compelling method you convey helpful techniques via your web site and as well as inspire participation from some others on that issue plus our simple princess is actually becoming educated a great deal. Take advantage of the rest of the new year. You have been performing a superb job.
I simply wanted to say thanks yet again. I’m not certain the things I could possibly have followed in the absence of the thoughts documented by you regarding such subject. It absolutely was an absolute troublesome difficulty in my view, nevertheless taking note of a skilled manner you solved that forced me to cry over delight. Extremely grateful for this help and even hope you recognize what an amazing job that you are undertaking teaching people via your websites. I am certain you have never come across all of us.
Your blog is one of a kind, i love the way you organize the topics.,;”-
Your blog is one of a kind, i love the way you organize the topics.,`,’:
I bookmared your site a couple of days ago coz your blog impresses me..”‘;~
Perhaps you should update the php server on your webhost, WordPress is kinda slow..-.:*
I love to visit your web-blog, the themes are nice.::~’,
Sometimes your blog is loading slowly, better find a better host.:~*,”
Last month, when i visited your blog i got an error on the mysql server of yours..`…
Perhaps you should update the php server on your webhost, WordPress is kinda slow.:,,.,
I love blogging and i can say that you also love blogging.”;’`~
You seem to be very professional in the way you write.-‘-“;
Your blog has the same post as another author but i like your better.*’,~:
Thanks for the great post on your blog, it really gives me an insight on this topic.~,-‘.
I just love to read new topics from you blog.`*:'”
Oh i really envy the way you post topics, how i wish i could write like that.””*,:
You seem to be very professional in the way you write.;`’-:
I just love to read new topics from you blog.`-*,”
I just put the link of your blog on my Facebook Wall. very nice blog indeed.’*’**
Your blog is one of a kind, i love the way you organize the topics.*::’;
Sometimes your blog is loading slowly, better find a better host.`~:..
I always visit new blog everyday and i found your blog.:’::.
Last month, when i visited your blog i got an error on the mysql server of yours.,,.~~
Very well said, your blog says it all about that particular topic..`,.-
Very well said, your blog says it all about that particular topic.~.*-`
I just put the link of your blog on my Facebook Wall. very nice blog indeed.:’:.-
I love reading your blog because it has very interesting topics.”–`-
Have you tried twitterfeed on your blog, i think it would be cool.;,`*’
I’m a blog crazed person and i love to read cool blog like yours..-~`’
Wow, you seem to be very knowledgable about this kind of topics.*:’:`
I love blogging and i can say that you also love blogging.,,”‘.
I love to visit your web-blog, the themes are nice.,’;;”
I was also reading a topic like this one from another site.**;.’
Perhaps you should also a put a forum site on your blog to increase reader interaction.–..*
Last month, when i visited your blog i got an error on the mysql server of yours.*~~’~
My friend first found your blog on Google and she referred your blog to me.’`-~,
What would be your next topic next week on your blog.:”.;`
You can increase your blog visitors by having a fan page on facebook.;-“;”
I would really like you to become a guest poster on my blog.`;”,.
I bookmared your site a couple of days ago coz your blog impresses me.-.'”.
I just put the link of your blog on my Facebook Wall. very nice blog indeed.`””~’
I bookmared your site a couple of days ago coz your blog impresses me..-:-:
Hey, what kind of anti-spam plugin do you use for your blog.~.’“
You seem to be very professional in the way you write..,,;.
You can also put a chatbox on your blog for more interactivity among readers.:*.”
I see that you are using WordPress on your blog, wordpress is the best.~’.*,
Isn’t it entertaining if we always talk about topics like that.`’-.`
Judging by the way you write, you seem like a professional writer.:`-‘~
Your blog never ceases to amaze me, it is very well written and organized.;*’`’
What would be your next topic next week on your blog.*.:;.
I think your blog is getting more and more visitors.`”;*`
My friend first found your blog on Google and she referred your blog to me.~’.:”
I always visit your blog everyday to read new topics..,’:,
I’m a blog crazed person and i love to read cool blog like yours.’..~*
Been following your website for times now and i should say i am starting to like a posts
Magnificent web site. Plenty of useful information here. I am sending it to some friends ans also sharing in delicious. And obviously, thanks for your sweat!
RSS Feeds on your blog sometimes does not work..`…
I really love the way you discuss this kind of topic.:`~.;
This is some good stuff. It took me a while to locate this blog but it was worth the time. I noticed this article was buried in yahoo and not the number one spot. This internet site has a ton of decent stuff and it does not deserve to be burried in the searches like that. By the way I am going to save this web site to my favorites.
A blog like yours should be earning much money from adsense.`:;””
A blog like yours should be earning much money from adsense.”;,’
Well, another blogger already posted a topic like this.:*..’
I really love the way you discuss this kind of topic.::,,`
I’m new to your blog and i really appreciate the nice posts and great layout.~-.-`
I just love to read new topics from you blog.-;’-~
Well, another blogger already posted a topic like this.’.:’,
Keep up the superb piece of work, I read few articles on this internet site and I think that your web blog is real interesting and holds lots of fantastic information.
I love blogging and i can say that you also love blogging.;”,’:
Very nice layout and fantastic content , practically nothing else we want : D.
Well, another blogger already posted a topic like this…`:,
Would love to perpetually get updated outstanding website ! .
Thankyou for helping out, wonderful information.
Man that was very entertaining and at the same time informative.”,*,.
You are my aspiration , I possess few web logs and infrequently run out from to post : (.
Wow, you seem to be very knowledgable about this kind of topics.:;*~;
Wow, you seem to be very knowledgable about this kind of topics.`:,’.
I really love the way you discuss this kind of topic.:’,~:
As I site possessor I believe the content material here is rattling fantastic , appreciate it for your hard work. You should keep it up forever! Best of luck.
magnificent issues altogether, you just received emblem reader. What could you recommend about your post that you simply made some days in the past? Any positive?
I think your blog is getting more and more visitors.-”`-