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Eduardo Martínez Abascal, Professor, IESE, University of Navarra
Distrust in the government
Since the Davos summit (January 28), we have been hearing negative comments about the financial status of the Spanish public sector. International investors, who are the ones lending money to the Spanish government, have expressed their doubts.
Is there data to justify this concern? Let's see. We have a public debt equivalent to 55% of GDP. This is the best figure of all the developed countries in our environment, which are around 70%. However, in the last year we have been the country whose public debt has increased the most. But I believe that debt is not the problem.
The problem is the deficit, which reaches almost 12% of GDP (about 120 billion [billions] euros). This is a very high deficit. Of course, the United Kingdom has a higher deficit (14%) and there is not so much talk about it and its government.
Spain's status is not good. In December it was not good either. In January there has been no more negative news. So why the international concern about Spain? The data, although very bad, does not explain this sudden increase.
My impression is that the doubts are caused by the poor impression the Government has made in international forums, starting with Davos. All the heads of State and Government and all the bankers and businessmen meet there. Those who lend us money and those who will invest in Spain meet there. If the image offered by the Spanish representative is not good, it is logical that investors will be suspicious, or at least that their level of confidence will drop.
If you are owed money, you meet with the debtor and the explanations you receive are vague and generic, you will conclude that the debtor is not very reliable, or at least you will have doubts. That is what has happened (in my opinion).
Can the deficit be solved? Answer: Yes. My colleague from IESE and now Secretary of State at Economics, Professor Campa, has said that the deficit will be solved as it was under Solbes and Rato. Indeed, the public deficit fell from 6.5 percent in 1995 to 3.4 percent in 1997.
But, a small detail: in between there was a change of Government, in March 1996. It was Aznar's Government (with Rato as Minister) which reduced the deficit. Solbes could not achieve this under the socialist government of Felipe González. It is possible that the same thing will happen now, and that is why the markets are nervous about Spain's future and, more specifically, about the capacity of its government.