Meitav: Spain Isn’t Another Greece

Share prices have been falling world-wide not only because of the uproar in Greece (see coverage on Page 12), but on fear that the contagion will spread. Among the countries usually mentioned as the next likely victims are Spain and Portugal.
Meitav’s Ron Eichel isn’t buying any.

“Spain is not Greece and is not expected to be regarded as such in the near term,” Meitav Investment House’s chief economist Ron Eichel wrote yesterday.
“If investors are afraid of Spain, they should also have major concerns about other countries with the same credit rating ‏(AAA‏),” he wrote in an analysis of the situation.
It is unarguable that Spain’s fiscal picture isn’t pretty, Eichel admits.

“The country is operating with a high government deficit, the second highest in the euro zone after Greece, making Spain the second immediate suspect as [a country] that could run into difficulties,” he writes.

But then he qualifies that with some facts.

“Spain’s national debt has grown not only as a result of a drop in revenues but also because it implemented wide-ranging fiscal steps that gave it a debt level of 52% of [GDP]. If we look at the distribution of debt coming due, it looks like the panic has exceeded all proportions,” Eichel explains.

“Spain’s debt inventory excluding bonds that are expected to mature within a year stands at €553 billion euros ‏(44% of GDP‏). This year a total of €26 billion is expected to mature, or 4.6% of the country’s bond inventory, meaning, on an annual perspective, the debt burden coming up for maturation is not at critical levels.”

Nor does he find the short-term picture too alarming.

“Looking at the debt distribution on a monthly perspective, the picture is also not overly frightening,” Eichel wrote.

“Only €23 billion are maturing in another two months, more than 10 billion euros a month in bonds ‏(with maturations of more than a year‏),” Eichel wrote. “There is no immediate pressure on Spain to refinance debt as there is in Greece.”

It is true, in his view, that Spain won’t be able to reduce its deficit in 2010. The Spanish economy is expected to contract by 2% this year.

However, though it can’t reduce its deficit, Spain’s debt-to-GDP ratio will still be considered low compared to other countries, even Britain and the United States, Eichel says‏. “We received evidence that Spain’s situation is far different from Greece’s ... after the ratings agencies announced that they don’t foresee an immediate downgrade of Spain’s debt rating.

“While two-year German bonds are being traded at yields to maturity of 0.7%, Spanish bonds are trading at yields of 2.2% and Greek [bonds] at 13.7%. For a period of 10 years, German bonds are trading at yields to maturity of 2.9%, Spain’s at 4.1% and Greece’s at 9.4%.”

Of course, none of this means that Spain is out of the woods. Speculators for instance could attack, the head of Germany’s financial market watchdog BaFin, Jochen Sanio, pointed out yesterday. He accused the speculators of “waging war” against the euro zone, Reuters reported.