IE Focus || By Javier Vega, Professor at IE Business School
A famous New York University professor has predicted that the Spanish finance system saga will end in tears and that Spain will be out of the Eurozone within two years. What is the reasoning behind such a prediction?
Professor Nouriel Roubini of New York University, famed as one of the soothsayers who foresaw the US real estate crisis, landed a few days ago at the offices of Financial Times with the prediction that Spanish Banks were going to need between one hundred and two hundred and fifty billion to meet the requirements of the competent authority – based in Switzerland, naturally – of 9% of the capital. Moreover he declared that Spain could leave the Euro in one or two years.
“I once had a broken watch that gave me the correct time twice a day”, said the popular Mr Roubini. Journalists from accredited media informed, on the same Friday, that the number of potentially toxic real estate assets now stood at one hundred and forty billion, not counting those of Bankia and BFA, which are already covered by the state, and that provisions in place to support them stood at fifty billion. This means that if all the Spanish real estate assets were worth nothing, some ninety billion would have to be deducted from banking profits. Banks and saving banks should have recurring annual profits of some 20 billion Euros, and not all real estate assets are going to be worth absolutely nothing, unless there is something they are not telling us and the 9% isn’t mandatory. This means that in two or three years the Spanish banking system would be as clean as a whistle. Then, as long as you and your fortune tellers don’t also think that the 10% of the remaining loans (1.2 trillion) are going to become bad debts, just exactly where is Roubini Global Economics Consulting getting that magic figure from? Basically we don’t know, but it is certainly serving its purpose, which is to put the frighteners on us.
In four years of crisis I have only ever heard once person say something positive about the future of our country. Former minister Miguel Boyer, who found himself struggling in the midst of Spain’s previous big crisis. Nobody else. Only he said that he had confidence in the strength and capacity to react of the Spanish. All the other doom-mongerers can only see dark shadows and pitfalls in our future, except the green shoots or rays of hope merchants, who are merely spouting electoral slogans.
But that is us in a nutshell. After being bombarded with tales of going to hell in a handcart we have a certain curiosity to know what that is supposed to be like, and that just gives feedback to our boring lives. How many times have we been on the edge of the abyss this year? How many weeks have we lived through that are crucial for our future? More than your average comic hero, that’s for sure. And what for? How many times have we said over the last 4 years “with everything that is going on…?” in criticism of our own and others wastefulness, or celebrations of football wins? Again, that’s us. There cannot be any joy in adversity. We have to be miserable and circumspect when we are poor.
There are pieces of news that should serve to console us, but we are not interested in them. For example, the fact that total debts of Spanish families reached 850 billion Euros in March is met with the curmudgeon remark of “Great, that’s all we need…”. But do you know the net value of these same families? Well, it’s 7 trillion, or put another way, nearly nine times their debt. Who talks about that? Nobody, and if anybody does they are made fun of, as well as ending up stigmatized and maligned by derogatory remarks.
We can choose between two alternatives. One is to wallow in all this bad news and gorge on predictions of catastrophe, and the other is to look to the horizon to see if the clouds are beginning to clear. Your choice.