By Stephen Pope, Managing Partner Spotlight Ideas
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Moody’s reduces its ratings on 5 regions.
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2007 the level of sovereign debt to GDP for Spain was 36.3%.
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By 2016, the IMF forecast 101.4%.
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GDP growth of 7.5% pa needed to get debt to GDP back to 70%.
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IMF forecast growth…at best of just 0.5%.
I am still scratching my head to think why Moody’s did not take the bold step last week and mark the
Kingdom of Spain as “Junk”? At that time Moody’s kept Spain’s sovereign rating at Baa3, the lowest
level of investment grade, citing a reduction in the risk of losing market access because of the ECB
willingness to buy the nation’s debt. Is that willingness truly open ended? It appears that the politicians
in the central government are convinced that Spanish policies have the support of the market. Let’s be
honest… the Kingdom is only able to finance itself in the open waters of the capital markets because it
has President Draghi, waiting like a jilted suitor at the OMT alter.
It does not matter how one dresses the situation. The banking system is broken, bust and top heavy
with the stain of brazen local political opportunism running through it. The majority of the regions are
insolvent and what is the Kingdom of Spain if not the sum of its constituent regions?
A full analysis is available at www.spotlightideas.net