The competitiveness of the periphery; the cash position of Spain

- "With fiscal consolidation and private-sector deleveraging across the Euro-zone underway, peripheral countries in particular will need to improve their export competitiveness and rebalance their economies towards external demand. While the weakening of the Euro so far this year should certainly help in this regard, the overall starting position for these countries is, at face value, not particularly favourable: by most standard measures, they have suffered a marked deterioration in price competitiveness over the past decade."
- "However, our analysis produces a more encouraging result: when we examine the
historical relationship between these measures of competitiveness and relative export performance, we find that their explanatory power for Euro-zone countries is rather limited. In particular, they seem to overstate the extent to which competitiveness has deteriorated in certain countries, partly because they fail to take into account the extent to which price and cost increases have been driven by quality improvements. For this reason, we think the competitiveness situation in the periphery may not be as dire as the indicators suggest, and that the price adjustments (i.e., internal devaluation) needed to generate export gains may not have to be as draconian as most envision."
- "Spain’s public finances remain under the spotlight. One reason is that in July Spain will need to finance its monthly cash deficit (some €10bn-€15bn) and refinance the redemption of €24.7bn in government paper. Our second focus assesses its financing prospects, and the type and order of magnitude of any possible funding squeeze—as well as the tools the government has at its disposal to resolve it adequately."
GoldmanSachs European Weekly Analyst 20100624