The Strange Case Of Diverging Spanish Exports And What It Means For Europe

Tyler Durden's picture

As we have been warning for over half a year, and as conventional wisdom has finally caught on, the economy most impacted in Europe by the recent surge in the EUR exchange rate (not because of an improvement in the economy but due to wholesale engineering of asset prices by central banks) is the one that has so far been able to keep it all together - Germany, the same country where Angela Merkel last night suffered an embarrassing last minute loss which may be a harbinger of things to come should Germany slide deeper into recession. This, as also noted repeatedly before, is part of the grand paradox in Europe: unlike every other central bank in the world, the ECB's interventions achieve only one thing: to push the EUR higher, in the process stabilizing secondary market indicators (bond prices, the DAX, swap spreads) but destabilizing EUR-denominated exports. And while the adverse impact on core exporting countries from ECB intervention is by know understood by everyone (and this is ignoring the impact of potential inflation as a result of fund flows to the few safe regions in Europe), few appreciate just how big the EUR impact on the periphery is as well. The chart below from the Spanish economy ministry showing the recent stunning divergence of Spanish exports, should explain why a low EUR is good for not only Germany, but certainly the PIIGS, in this case Spain. And vice versa.

Below are Spanish exports and imports broken down by trading counterparty: EU; non-EU and Total:

What is immediately obvious is that when it comes to imports and exports between Spain and Europe, primarily the Eurozone, but also all EU countries, the trade situation is about as abysmal as ever, posting a decline compared to 2011, and about the worst on a Y/Y basis since 2009. And yet the total export number is not quite as bad. Why? Courtesy of the yellow line showing exports to non-EU27 countries. It is here that exports have soared to previously unseen Y/Y levels, and which have managed to keep export growth in Spain sustainable. Exports driven exclusive by a weak Euro currency.

With imports declining rapidly because of the far less organic demand in Spain for foreign goods and services (not to mention domestic) courtesy of 26% unemployment, it is this trade surplus that has had a much needed and beneficial impact on the current account situation in Spain.

Alas, the benefits to Spain, not just Germany, from the very weak Euro which has soared since the 1.2000 "Draghi bottom" in July 2012, are now ending, and as the chart below shows, in November Spain just posted its first Y/Y decline in Exports following months of increases: only the second such decline in 2012, and amounting to 0.6%. This compares to a 7.4% increase in exports in November 2011, when Europe did have the benefit of a currency whose strength was rapidly deteriorating .

And just in case there is no confusion about what the internal European demand for Spanish products was: demand that represents some two thirds of all exports, it is shown below: a 10% drop in Spanish exports to other EUR countries, offset by a 15.5% to non-Eurozone European countries, and a surge in exports to North America, Africa, and less to Latin America and Asia - all places that prefer a EUR that is:

a) stronger?
b) weaker?

One thing is unmistakable: Spain deserves as much of its GDP and current account boost (not that it is positive mind you, just that both would be far, far worse had it not been due to the EUR crush mid year) to the weak EUR exhibited in the mid- to late-2012, as it does to all other ECB interventions, paradoxically meant to strengthen the EUR!

And it is here that the supreme irony of Europe resides: because very soon Spanish exports to the rest of the world will tumble as its goods and services are no longer competitive courtesy of a 1.33 and rising EURUSD, and with the core of the Eurozone now so weak (recall German GDP just dipped to under 0%) and irrelevant what the level of the EUR is (as everyone in Europe uses it) to not be able to offset the decline in non-European exports, Spain will once again become the focal point of everyone's attention.

This will force yet another ramp up in TARGET2 liabilities, forcing an even bigger drop in Spanish GDP, and finally, forcing a return of the Spanish bond vigilantes, all of which leads to, drumroll, another spasm in the European crisis, one that culminates with a plunge in the EUR, and a need for the ECB to step in and bailout the Eurozone and its currency once more.

Of course, this analysis excludes the impact of the ever plunging Yen - something which forced none other than BUBA head Jens Weidmann to publicly admonish Japan against engaging in currency warfare a few short hours ago, and whatever other currencies soon join the fray of devaluation, which will ultimately have just one impact on Spanish, German and other European exports: negative.

The take home here, however, is simple, and is becoming so clear, even a caveman Econ Ph.D. gets it: where other countries can and will engage in currency warfare in an increasingly more hostile manner, all rhetoric aside, it is only Europe, and its fake currency, that has central bank intervention occur to prop up the currency, not to push it lower! It is this complete outlier nature of the Eurozone to the rest of modern central banking that will ultimately be its downfall, as while in a zero sum world everyone can devalue in stepwise increments, it is the party with the inverted incentives - the ECB - that will be the short circuit of all plans to gradually at first, then very rapidly devalue all currencies against all other currencies, and then against hard assets.

Sorry Europe: your crisis is nowhere near over. In fact, it is about to start all over again. But at least Germany is taking the proper steps to ensure that when it all ends up going horribly wrong at least it will have some gold to fall back to. What about all the other countries in Europe: who has their gold?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
zorba THE GREEK's picture

Spain is Greece, just much larger.

lucas991's picture

You don't know what the fu*k you are talking about and you most probably don't know anything about Spain. Compare Spanish companies with Greek companies and you will find out.

ACP's picture

Assuming there is no one here who has any experience with Spain, yes? A business owner I know needs a specific solvent that is not available in the US. He needs to stock up before the summer/fall. Why? Because no one FUCKING PICKS UP THE PHONE FOR TWO MONTHS during that time.

Maybe that's not exactly the same as Greece, but pretty damn close.

zorba THE GREEK's picture

When Spain goes down, Europe is going with her.

If not, then Italy and France will do the deed.

Europe is fighting a losing battle and so is Japan, England, China 

and The U.S. It is not a question of if, just a question of when.

Better to prepare for it a year early than a day late.

falak pema's picture

when thieves fall out, as they inevitably will.

whence the urgency to ramp up the MIC games worldwide!

No reason that Sepp Blatter, Michel Platini and Jacques Rogge be the ony winners in the global sports races, along with TW and RF. 

Stuntgirl's picture

Why would you assume that?

Nobody will pick up the phone in August. This is not only the case of Spain. This is because it is well over 100 degrees.

If I were to get frustrated that noone picks up the phone during Golden week in Japan, or any of your bimonthly holidays in the US (thanksgiving, 4th of July), you'd just think I'm ignorant and unable to do international business.


Dareconomics's picture

Greece is about two years ahead of Spain in the crisis cycle. Spain and Greece have similar levels of total and youth unemployment. Spain actually is running larger budget deficits, because Greece already received its bailout. GDP is shrinking at a faster rate in Greece, but Spain will catch up soon as a result of the effects of unemployment and the property bubble.

What is keeping Spain from a total disaster is cheap ECB money and a shrinking trade deficit since the crisis began. Just like Greece, Spain should leave the eurozone and take its chances with a return of the peseta.

Stuntgirl's picture

I completely agree with you.

I'll add that bad mortgages are about to soar again, we're not done uncovering bad debt at all.

The growing unemployment will uncover more ad morgages as extended families' resources to keep distressed member afloat are depleted.

Aside from higher bad loans numbers, watch for increased social unrest this spring. Massive political corruption cases are being investigated and uncovered at a speeding pace. The current lull due to bad weather will turn very violent when the days become warmer.

Stuntgirl's picture

Lucas, he probably doesn't know much about Spain. But you do.

You know perfectly well that most companies do very creative accounting and those keeping their heads above water are doing so heavily dependent on political favors and ties. Corrupt political ties, I might add.

You know that the workforce's productivity is being hammered down towards zero by exhausting presentism, lowering of wages beyond the sustainable, one person doing 3 people's jobs, and sheer terror.

You know that new projects will seldom get started unless "free money" from the EU or govt (again, political favors) is handed over.

And you know that everyone in Spain is green-shoot hallucinating. And nothing gets done when people are high and not seeing reality.

clara-to-market's picture

The big question?

When will Franco 2.0 arrive?

Democracy can't survive endless depression.

I hear the drums of war

rotagen's picture

Next on zero hedge:  the strange case of goat cheese prices in luxembourg, and how it affects your pocketbook deeply.

surfersd's picture

Don't worry Geitner is going to stay on as Treasury secretary, he'll just go to Europe again and explain to them the problem, it worked so well last time. 

Clint Liquor's picture

What about all the other countries in Europe: who has their gold?

As an American, I'm more interested in who has ours.

DeliciousSteak's picture

All this doommongering regarding Europe is tiring. It's on the fifth year now. When will the currency finally fail so we can all move on to other doommongering? Another five years? Ten? A century? *Yawn*

secret_sam's picture

     When will the currency finally fail...?

Right before the US dollar gets unilaterally revalued.

Börjesson's picture

So many words, and yet no mention of the fact that in spite of this horrible thing called a strong currency, the euro area as a whole keeps reporting a positive current account month after month, and an even more positive and actually steadily improving balance of trade. How can that be possible when the central bank so nefariously refuses to weaken the currency?

Tyler Durden's picture

Perhaps because there is also no mention of the fact that Germany funds intraeuropean current account deficits to the amount of €656 billion as of December 31 a trend which will obviously continue as the primery drivers positive trade balance were Germany (€157.7 bn euro in January-October 2012), then Netherlands (€41.0 bn) and  Ireland (€35.6 bn). The United Kingdom (-139.8 bn) registered the largest deficit, followed by France (-69.1 bn), Spain (-29.3 bn) and Greece (-13.2 bn).

And since it may not have been clear in the article, the ECB does not "nefariously" need to weaken the currency as weaker is its natural state, hence interventions to prop it up. Should Europe get a weak currency, suddenly everyone starts using bad words like "redenomination risk", "7% yields on Spanis bonds", and other such scary words.

shuckster's picture

According to my cursory research, the ECB has printed little to nothing in the past 5. Germany is right where it has always wanted to be - on the moral and jurisdictional high ground. In the end, Germans never wanted to enslave Europe, just to be the most important member. UK has previously been a stumbling block to this goal, but a 400% debt/GDP will eventually take its toll. Kind of like how the final downfall of Rome was a sacking by Germany's ancestors during some early AD, except this time during a much shorter time scale

Tyler Durden's picture

That was some seriously cursory research:

EnslavethechildrenforBen's picture

Fake elections, fake politicians and judges. What's real is the bastards have our printing press and are buying drones to bomb our asses with our own money

Black Markets's picture

Europe's biggest flaw is that the city of London is in London and NOT in Paris or Frankfurt.

The eurozone has no financial hub, and it desperately lacks the human capital required to find a solution to the euro crisis.

Instead it has New York and London baying for blood.

The Brits are actually considering a referendum on their relationship with the EU. Leveraging the power of the city to twist the knife and force bond holders into USD and GBP so they can issue 50 and 100 year bonds.

The Germans have got a tiger by the tail, all they can do is buy time and play for delays in the hope that the global economy strengthens enough to pick up the post 2008 trade slack.

Snakeeyes's picture

Spanish house price data is due out tomorrow. This should be fun on top of the export data!


Haager's picture

But, but,

lsn't it sustainable to get production prices down albeit the higher euro due to choking the wages of the remaing workforce?

TrustWho's picture

Klaus Schwab says the euro area is FIXED; No Worries Mon! Don't you guys read! 

Klaus Schwab, founder of the World Economic Forum, sees political “black swan” events threatening global security even as economic risks subside, with confidence returning to the euro area.

shuckster's picture

Black Swan hunters will eventaully fall asleep at their shotgun. That's when it will fly out and that's when all these bobble heads will find that all the time they spent pontificating on ZH could have been better spent doing actual research. On that note, REGN is due for a good shorting. You heard it here

Black Markets's picture

Good article.

They're all fucked.

Non Passaran's picture

I concur.
This is very encouraging news.

100pcDredge's picture

Sorry Europe: your crisis is nowhere near over.

WHAT?! How DARE you?!

The EU-crisis is OVER, OK? Capisce?

Because... uh... Hollande said so.

And so did Olli and the rest...

So... you just have to BELIEVE it, ok? It's that simple;)

And I thought Americans would understand this by now - looking at some debt ceilings and listening to old and new Bernanke/Clinton/Bush/Obama/etc mumblngs and/or hopium-'speeches'.

And now... gimme some Twinkies!

All of them!


q99x2's picture

Short the EUR, the Yen, the Dollar and so on with gold.

THE DORK OF CORK's picture

Its not about imports and exports in Europe


That did not create the crisis - it was a lack of rational internal demand  / internal commerce in these nations.


And by european standards Spain was in the past big enough to sustain a certain amount of internal intrinsic demand.............


Pre 1986 at any rate.


Post 1986 pretty sure 

post 1992 was a disaster zone.


Stuntgirl's picture

The first thing the EU did was impose production caps on its members on certain products.

That is not conducive to healthy internal markets in any scenario. Seriously, pre-assigned production quotas?

Youri Carma's picture
Excellent piece! Except on one point: "ECB interventions, paradoxically meant to strengthen the EUR!"

The ECB interventions are mainly directed towards keeping bond rates low by buying up bonds exactly the same as the FED's doing.

Long term bond rates will come under upside pressure tough forcing the FED and the ECB to print even more. Further more does the maturing bonds create a self feeding machine, a 'QE to Infinity' switching short for long term bonds. Bottom Up Line: I see no FED vs ECB, they are exactly on the same page I am afraid.

Nussi34's picture

Spain is a bubble based on nothing.

bobbydelgreco's picture

hey zhers this europe thing (prop up the euro so pig bonds affordable) won't last; add in japan & you know where the $ is headed? just the opposite of where you think.

Volaille de Bresse's picture

"Spain is Greece, just much larger"


RIGHT! In the 90's they believed they'd become the 2nd largest European economy right behind Germany. So they grew and grew like Keynesian cancerous tumor. Airports, highways, marinas (in a country that's for the most part a desert...) enough real estate to house half the population of China. Empty buildings everywhere... Corruption that was rife...


Cheap credit & big egos, the shit lasted 20 years, now the king has no clothes. 

So long Spanish penderos! We won't miss you...