Anthony Peters SwissInvest strategist
ONCE IN A while it pays to think, as they say, outside the box; to think deep thoughts; and to go out on a limb. I propose to do all of those things in this column and make a bold claim: Spain is the coming powerhouse of the European economy.
But why have I selected Spain as the next big thing – especially when it is struggling so hard and when I have often dismissed it as a country with a competent government but no industrial economy worth mentioning?
Spain can certainly be a challenge. It was there, 200 years ago this year, that Napoleon Bonaparte’s fate was sealed. He referred to it as his “Spanish ulcer” and it was the defeat of the French in Spain – not the failed Russia campaign – which drove the Prussians and the Austrians to rise again, to break their treaties with France, and to bring down the Emperor at Leipzig.
Spain has land, people, access to both the Mediterranean and the Atlantic, a global language and a desire to make things better
MOVING SWIFTLY FORWARD, I recall the convergence period during which currency and debt markets in the eurozone candidate nations began to be brought together.
I was part of the school that was most enthusiastic about the prospects for Spain and Portugal as they, as emerging economies, were not lumbered with the legacy costs of those excessive social ambitions of the 1970s and 1980s that today weigh us down with generous but barely affordable social programmes. I truly believed that Spain was a blank canvas and one in which one could, as a bond buyer, safely invest. Oops!
Since then, the world has moved on. The rise of Asia and especially of China as the manufacturing base of choice has changed the dynamics forever. There is no need for me to repeat the story of how the low-cost economies have undermined all but the highest value-added manufacturing nations and of how Europe has been hollowed out by its desire to maintain a standard of living for which it does not generate enough income. But all is not lost.
Industrial economists have for some time forecast a persistent rise in Chinese wages and all we have done so far is to fear the negative effects of imported inflation, which we can influence as little as we did the positive ones of imported disinflation of past decades. However, what I think has been missed is that this brings with it a deterioration in China’s competitiveness in favour of old Europe. And where in Europe do I go to look for a capable and willing workforce which isn’t hamstrung by legacy structures, by high social costs and intractable unions? I’m sure you get my drift.
Spain has land, people, access to both the Mediterranean and the Atlantic, a global language and a political culture with a desire to make things better. What more attractive platform could global manufacturers be looking for, should the flattening of the cost advantage of manufacturing in Asia lead to considerations of new, greenfield investment in capacity in Europe?
Quite obviously, Eastern Europe still has some cost advantages and I am not trying to imply that Spain is a one-way bet without competition but – and who would have believed this until recently – its political stability and its distance from the big, scary and unpredictable bear of Russia will surely stand it in good stead.
THE MORE I think about it, the more I like the idea of Spain emerging as the prime beneficiary of a maturing Asia. It is a good few years since the French concluded that the geek generation would want to work in shorts and T-shirts in Europe too and pushed ahead with its own Silicon Valley-lookalike on the Côte d’Azur. Perhaps we could think a step further and envisage that the country which colonised California might in fact see the compliment returned.
I am not trying to suggest that one should be filling one’s boots with Spanish exposure quite yet, but I am simply beginning to wonder what a new European order might look like.
France, Italy, Belgium, the Netherlands and so on are lumbered with the millstones of the politically unthinkable. Spain, and to a lesser extent Portugal, will have a clear and present competitive advantage when foreign (that is, Asian) inward investment begins to look for suitable locations to return manufacturing to the European theatre.