Prisa, the Spanish economy and Brussels’ impossible deficit targets


Spanish media group Prisa ended 2009 with €4.85 billion of net debt, which includes subsidiary Sogecable’s. Today, after a severe adjustment process, the figure has been trimmed down to €3.1 billion that are mostly–€2.97 billion–owed to banks. The problem for Prisa is that its profits have all but plunged during the last three years, and the burning question in analysts’ reports is if 2013 will be better for Prisa. Should the banks extend their financial support and keep pumping in cash?

This conflict between Prisa and its lenders is one fine example of the mess the Spanish economy faces. Domestic consumption levels are dramatically depressed and financial entities fear that a new wave of late payment events could harm their balance sheets again. Indeed, credit to companies has been cut by 28 percent in the last 12 months. Unless economic conditions improve, this is a trend that will continue damaging any efforts towards recovery.

The answer to complaints about why banks are not lending to small and medium size companies can be found in Prisa’s troubles. Common sense and professional practices in banking would point Prisa’s creditors to stop giving the corporation any more money, as expectations about Prisa repaying its debt are too low. But Prisa is one of too many cases.

The European Commission must allow the Spanish government to relax its public deficit target for this year, from the official 4.5 percent to, let’s say, 6 percent. This is not a solution, but a sustainable solution for Spain’s economy needs it. This 1.5 points will afford Spain some extra liquidity so the economy can start to create jobs once more and increase domestic consumption. That is, when the right policies are implemented.

Otherwise, it is going to be near impossible to exit the crisis. Every single statistics number shows that the GDP is negative and tax income is still falling. The European Central Bank must change course, too, so market credit costs drop to a range at which peripheral governments will not suffer as much as they do now. Brussels and Berlin may stubbornly be strangling the eurozone because they cannot see the wood from the trees.

About the Author

Carlos Díaz Guell
Editor at and, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.

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