Investors are uncertain about Spain and withdrew 70.2 billion euros last year
nvestors are beginning to have doubts about Spain again because of the political uncertainty in the country and fears that international economic turbulance will affect growth. This has become apparent by the fact that 70.2 billion euros of capital were taken out of the country during 2015. This is the largest sum since 2012, when 170 billion were removed in a year when the country’s finances were hit badly by the crisis and there was a good chance that a total bailout would be needed.
However, last year’s flight of capital occurred in a different context - the Spanish economy grew by 3.2 per cent, double the European average. However, that was not enough to stop the money being removed, even though there had been an increase in investment of 5.55 billion in 2014 and 81.9 billion in 2013, according to figures from the balance of payments published earlier this week by the Bank of Spain.
If we look at the flight of capital in 2015, we see that there was a fall of 21.3 billion euros in direct investment compared with 9.3 billion in 2014. However, this is not especially significant because it is closely linked to specific business operations that may distort the final result. More worrying is the fact that most of the capital flight, 48.8 billion, occurred from what the Bank of Spain describes as ‘other investments’ (loans, repossessions and deposits). Meanwhile, in portfolio investments there was a regression of 700 million and financiers only invested 600 million in derivatives.
In any case, the change in investment levels was not even through the year and the flight of capital intensified in June when 21.9 billion euros were removed, just one month after the municipal and regional elections in which Podemos gained power in several councils. This trend continued in the fourth quarter of the year and especially in December, with a flight of 19 billion euros.
“In the last month of the year there was more political uncertainty and also much more volatility in the markets,” explains Ángel Laborda, director of Analysis and Statistics at Funcas. He believes that the combination of these circumstances is causing depositors to flee. He points out that the euro crisis is not yet over and that if new doubts arise, such as the solvency of the Italian or German banks, it is the peripheral countries that suffer most from increases in their risk premiums. “Spain is still a vulnerable country and when something happens the investors look for alternatives. Money gets frightened,” he insists.
Nor has Moody’s negative evaluation of the agreement between PSOE and Ciudadanos helped to dispel the fears. According to the rating agency, if the pact goes ahead it would have negative implications for the growth of the economy and debt because it would hold back the fiscal consolidation programme.
Fear of taxation
However, Jesús Palau, a professor of Finance at Esade, doesn’t believe that the political situation is that important in the negative evolution of this balance of payments index.
“Capital is moving in search of quality products like German or American bonds, and it’s not only happening in Spain,” he explains. In his opinion, investors are not afraid of political uncertainty or problems in forming government, and he points out that Belgium took nearly two years to do so without suffering a dangerous flight of capital. For him, the problem lies in “uncertainty over future taxes.” In other words, money is moving elsewhere because of the risk that taxation will increase.
Jesús Palau also stresses that most of the capital which has been moved was in the form of loans, repossessions and deposits, not direct investment.
“It would be much more serious if there was a downturn in business investment,” he says. In any case, he insists that the data should be read in context and says international investors are still confident about Spain because they possess a large part of the billion euros of public debt and regularly attend Treasury auctions.
“There is no need for anyone to be alarmed about this removal of capital,” he says.source surinenglish