Spain has less debt than the average EC members and even the worst forecast does not raise its level of debt above the european average. Given the historical low rates, spanish expenditure in serving this debt is lower than it has been in the last ten years, as percentage of GDP.

Edward’s analysis is simply six months old in his data. All of his numbers are from October/November 2009 he seems to ignore that in absolutely all of the issues he touches the trend has been reversed, as has happened in the rest of Europe and the world: Spanish GDP growth is now positive, PMI has crossed the 50 line, industrial output has grown, property sales have increased, as have mortgages approvals … too many to mention. If this report had been written six months ago with this same numbers and previsions, the reality would have already contradicted his conclusions. If this numbers do not even work for today’s reality it is difficult to use them as base for any future developments.

Also is worth pointing what do other rating agencies think of spanish debt and the strange obsession of Edward with Spain. S&P / Moody’s / Fitch / Debt issued

Spain AA Aaa AAA $657
Italy A+ Aa2 AA- $1,988
Ireland AA Aa1 AA- $120
Cyprus A+ Aa3 AA- N/A
Greece BB+ A3 BBB- $383
France AAA Aaa AAA $1,571
Germany AAA Aaa AAA $1,446
Netherlands AAA Aaa AAA $380
Belgium AA+ Aa1 AA+ $403

http://www.xe.com/news/2010/04/28/1108741.htm?utm_source=RSS&utm_medium=TL&utm_content=NOGEO&utm_campaign=News_RSS_Art3

“Is there really any penalty for default that is any worse than the pain of taking actions in order to not default?”

Yes Wally, I think there is. Although I would emphasise before mentioning it that we are a long way from such a point at this stage, but if people do nothing for long enough the Eurozone will simply explode, with very unpleasant consequences for everyone. This would be a lot more painful than simply taking some slightly unpleasant actions in the short term. People could end up without pensions, and without well functioning health systems as they get old.

“Honestly, at this point, SnP have absolutely no credibility”

Well, this depends with whom, since with financial market participants (judging by the way the spreads move) the IMF, the ECB and the EU Commission S&P’s certainly have a good deal of credibility. Perhaps with the general public and the governments they criticise they have little credibility, but then who does have credibility here. Who would you personally believe if they told you that Spain was too deeply in debt, and might not be able to pay it back in the longer term?

“spain needs to greatly increase their output and up their consumption”

No! I am not saying this. Spain’s consumption is now “maxed out”, that is what I am saying. No growth can now come from domestic consumption, and this is because of the indebtedness problem. Spain needs to pay down its debts, and this can only be done by exporting, and running a large trade surplus.

“Honestly, if I was the spanish government, Id start building rail and nuclear power stations.. (all that skilled construction labour!)”

Yep, but not in Spain, since there is no one to pay for this (this is S&Ps whole point), but in Morocco or Brazil perhaps, and then pocketing the profits to pay down the national debt. Spain could generate electricity for export to France, but my impression is that France already does this more efficiently than Spain for itself.

This is not a crisis of underconsumption in Spain, it is a crisis of over indebtedness.