Daily commentary: On burst housing bubbles in Spain, the Netherlands and Denmark

Most of the focus these days is on Spain and the periphery – and for good reason. Spain’s bond yields are putting it into a potential debt death spiral from which the only escapes are a bailout or default. Moreover, the whole of the periphery are reporting terrible GDP numbers, with Italy predicting a deficit of 0.5% of GDP next year, up from a previous target of 0.1%. That would be called missing one’s targets because of a debt deflation. Germany is being dragged in tow as they also released data today that was downbeat. Clearly, Europe is a mess.

But what about the property bubble? My contention all along has been that Spain’s problem is not government debt, but private debt. The Guardian reports that the "amount of bad loans on the books of Spanish banks has risen to an 18-year high of 8.15% in February and accounted for €143.8bn (£117.7bn) of their outstanding €1.76 trillion of loans." That is debt deflation. And it is likely to get worse. The reality is there is no escape for Spain. More on this in the weekly tomorrow.

I wanted to turn my eye though to the Netherlands and Denmark. They too have had property booms. Ambrose Evans-Pritchard notes that Fitch is going to cut the Netherlands if it can’t get it’s fiscal house in order. The problem however is here again private debt. "Household debt is the eurozone’s highest at 249pc of income, compared with 202pc in Ireland, 149pc in the UK, 124pc in Spain, 90pc in Germany, 78pc in France and 66pc in Italy – according to Eurostat data from 2010." And it is worse in Denmark where households have 310 percent debt to GDP.

The German in me says "ich sehe Schwarz" – literally, I see black. Given the political realities, these countries are going to have to cut to meet the deficit targets that have been set and that is going to make the property bubbles a problem. At least Denmark can resist this somewhat, but with the developed world’s largest household debt ratios they will be pulled in tow as debt deflation takes hold. Watch these five countries for property: Denmark, the Netherlands and Spain as mentioned here but also Australia and Canada.

That’s it. Here are the links.

P.S. – As usual of late, these links today are heavy on Spain.

  • Fitch doubts Dutch AAA as property slump reaches ‘coma’ – Telegraph
  • Argentinian minister Axel Kicillof says country ‘will not pay’ $10bn compensation for YPF-Repsol – Telegraph
  • Eurozone crisis deepens and tensions rise within European Union | Business | The Guardian
  • The siren call of populism seduces again – FT.com
  • Argentina’s oil raid can only end badly – FT.com
  • Yet Another Obama Big Lie: Mortgage Fraud Investigation Not Even Staffed « naked capitalism
  • Repsol/YPF – the Chinese connection | beyondbrics | News and views on emerging markets from the Financial Times – FT.com
  • Why Richard Koo’s idea won’t save the Eurozone | Felix Salmon
  • Argentina dice que Repsol ha recuperado con creces toda su inversión en YPF | Economía | EL PAÍS
  • Repsol exige que Argentina le pague 8.000 millones por su 57,4% de YPF | Economía | EL PAÍS
  • EconoMonitor : RGE Analysts » Why Spain Won’t Regain Market Confidence
  • Cut in E-Book Pricing by Amazon Is Set to Shake Rivals – NYTimes.com
  • ‘My name is Khan and I am not a terrorist’: Bollywood star detained at US airport, again – RT
  • Spain Government May Take Over Some Regions’ Finances – WSJ.com
  • ¿Del capitalismo de amigos al capitalismo de Estado? Aprendiendo del asedio que está sufriendo YPF – Foco Económico
  • Japón aportará 60.000 millones de dólares de contribución adicional al FMI | Economía | EL PAÍS
  • La última carta de Brufau a Cristina Fernández | Economía | EL PAÍS
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