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On Monday February 27th, 2012, WikiLeaks began publishing The Global Intelligence Files, over five million e-mails from the Texas headquartered "global intelligence" company Stratfor. The e-mails date between July 2004 and late December 2011. They reveal the inner workings of a company that fronts as an intelligence publisher, but provides confidential intelligence services to large corporations, such as Bhopal's Dow Chemical Co., Lockheed Martin, Northrop Grumman, Raytheon and government agencies, including the US Department of Homeland Security, the US Marines and the US Defence Intelligence Agency. The emails show Stratfor's web of informers, pay-off structure, payment laundering techniques and psychological methods.


Released on 2012-04-01 08:00 GMT

Email-ID 100009
Date 2011-08-03 19:30:24

From: []
On Behalf Of Robin Blackburn
Sent: Wednesday, August 03, 2011 11:53 AM
To: Analyst List

Spain's Economy: Madrid Will Need a Bailout, But Not Today


The bond markets are punishing Spain unjustifiably, but the country's need
for a bailout is not imminent.


Borrowing costs for the Spanish government have skyrocketed in recent
weeks. But while Spain's economy is no longer the paragon of growth it was
in the 2000s, there is no reason to expect that a bailout is needed -- at
least not immediately.


Spain's cost of borrowing has risen to levels not seen since the advent of
the euro in 1999, sparking speculation that another European bailout is
imminent. STRATFOR disagrees. While Spain will need a bailout from the
European Union eventually, there is nothing occurring in the Spanish
economy that justifies the current increase in the cost of borrowing. In
fact, by most measures the Spaniards have instituted more draconian
austerity measures than even the Greeks -- who are already on their second

Driven in part by demographics, Spain experienced extraordinarily robust
economic growth during the last decade [stronger growth in late 80s and
mid to late 90s, would say last few decades since that's both when the
demographic trend you highlight began to hit, and when the real gdp growth
rates look strong.]. One of the largest sources of economic activity in a
modern economy comes from private consumption, and the largest proportion
of private consumption in any economy comes from people in their 20s and
30s. These are the first-time homebuyers, car buyers and child rearers.
Older workers buy things, too, and raise children, but not in the sudden
volume that young workers do. In the 2000s Spain had a glut of people in
that age group.

Also in the 2000s, Spain enjoyed the cheap credit made possible by the
eurozone. Mortgage and interest rates fell by a factor of three. A massive
consuming demographic had access to historically low credit costs. The
resulting growth was unprecedented in modern Spanish history [see above.
Spain was growing at a real 5% clip in the late 80s. it was under 4% for
all of the 2000s].

However, two problems are beginning to surface. First, any time the costs
of financing are cut by that much, credit is not always used as wisely as
it could be [weakly worded. Would rephrase: "cheap credit, especially when
financing costs decline quickly, tends to breed malinvestment." As a
counterexample to your phrasing: the US has had some of the cheapest
credit on record but consumer credit stocks have declined.]. Cheap credit
encouraged state spending as well as private consumption, and so Spain has
relatively high debt in both the public and private sectors. Spain's
public sector national debt is about 60 percent of gross domestic product,
about half of which has been financed by parties outside of Spain. [this
whole para is weakly structured. First we allude to malinvestment, then we
address debt stock without talking about its structure, vaguely asserting
that 60 pc of gdp is high (it isn't). then to complicate further we bring
up external debt, but provide no explanation as to why that's a problem.
Would rewrite entirely. What we need here is a brief mention and a link on
how the private sector leveraged up to invest in construction/housing.]

Second, Spain's demographic profile is not what it was 10 years ago [yeah
but all it did was shift from mid-20s to late 40s to late-20s to
early-50s. that is still a really positive looking profile. Very
productive and mostly pre-retirement.]. The bulk of the population is no
longer in its 20s and 30s, and the current and upcoming spending
generation is about half the size of the population cohort they are
replacing. Consumption and economic growth in the next decade cannot hope
to compete with the consumption and growth of the past decade. [so the
only real problem you point out really IS the same as it was 10 years
ago. Anyway a simple rewrite can fix this.]

The combination of relatively high debt and falling consumption rates
means the era of strong Spanish growth is over. A very aggressive budget
control effort might get the debt under control before the last bursts of
the 30-somethings' spending fades, but that would be unlikely. Barring
that, the Spanish will need a bailout to fix the imbalance. But that is an
issue for a time at least two years in the future -- not today. [time
frame issue. Main driver of the problem cited here is demographic,
something that will look virtually the same in 2 years]