A Plane to Spain

Written by Paul Siluch
October 13, 2022

As a result of a cancelled trip during the Covid panic of 2020, my wife and I had expiring airfare to burn before Westjet burned it up for us. So, we escaped for a week to Barcelona, which was cheaper to visit than Montreal.

Go figure.

Barcelona anchors the ancient Catalonia region, a part of the medieval Aragon Empire that once stretched from France down the coast of Spain and controlled Sardinia, Sicily, and parts of Greece. Its navy ruled the eastern Mediterranean until Spain, discovered America and its silver riches, at which point Catalonia and Barcelona became a bit of an afterthought, and slid into a long decline.

Centuries later, Barcelona would be the first region in Spain to industrialize, which made it rich compared to the rest of Spain – a condition that continues to this day.

As a result, Catalonia today is resentful at paying more than its share of support to the rest of Spain – especially its poorer southern countrymen. Sort of like Alberta and Texas. They have wanted independence for centuries and almost got it in 2017 until the new leaders were arrested.

PIIGS No More

You may recall that Spain was one of the original PIIGS countries. This was the acronym for the ne’er-do-well nations of Portugal, Italy, Ireland, Greece, and Spain. All had huge unemployment and deficits that almost sank them in the years following 2011.

Here’s the funny thing: they aren’t the PIIGS anymore. These beleaguered countries reduced their deficits, squeezed down their debts, and reformed out-of-control pensions.

Today, their balance sheets are better than many of their senior neighbours. Britain is having its own currency crisis and in Germany, one of the most searched terms is firewood because natural gas is so expensive.

Spain has an energy advantage now, as well. It sources almost all of its natural gas from Algeria, which is just a stone’s throw away in North Africa, which means their energy costs are just 30 per cent of those of its neighbours, which import from Russia.

In other words, we might be the PIIGS now, with our bulging deficits and bloated pensions. Spain is in much better shape.

The Pain in Spain

In our eight days away, the markets managed to rise in just two of them. There is a growing fear that the world is falling apart and the markets could go to zero. So much has gone wrong in 2022, from the war in Ukraine to rising inflation to new diseases seemingly popping up on a monthly basis, it is easy to feel this way. And yet…

“The world has a nasty habit of not ending.”

- author unknown

The main issue that plagues us today is raising interest rates to slow inflation. But how much higher can interest rates go?

We don’t know, but probably not much further. The Bank of England just blinked and initiated moves to slow its rate increases. Rate hikes are still happening in places like Australia and South Korea, but they were lower than expected.

Rate hikes are causing some very interesting values to appear – values we haven’t seen for over a decade, in some cases.