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Spain will not be immune to the effects of a possible Brexit owing to its strong connections with the United Kingdom, as much in terms of flows of people (both tourism and migratory) as of interrelationships with the financial sector. The latest issue of Cuadernos de Información Económica, published by Funcas, in one of the articles analyses the economic consequences that could come with the exit of the United Kingdom from the EU, in case that is the result of the referendum of 23 June, and that could bring knock-on effects for Europe as a whole.
Nick Greenwood states that the United Kingdom is the fourth market for exports of Spanish products, especially significant for the transportation sectors (cars, trains and aeronautics) and food (fruit and vegetables). Furthermore, the surplus of the balance of services in Spain reflects the high numbers of British tourists entering the country — 15.8 million last year, the principal market for the Spanish tourism sector. With respect to migration flows, it is estimated that between 800,000 and 1 million British people live for at least part of the year in Spain, mostly groups of older people with a strong dependence on social security payments, that could be vulnerable in a Brexit scenario given the possibility of their access to EU health systems becoming more limited. On the other hand, the United Kingdom is the principal destination for Spanish emigrants, above all the young who are looking for job opportunities.
Spanish investment in the financial sector of the United Kingdom is especially relevant. Spanish banking has the biggest investments of all European countries in the private banking sector of the United Kingdom, only behind the USA.
Consequences for the entire EU go beyond the loss of the second biggest economy in the region. Banks with exposure to the United Kingdom could confront risks of contagion through a rise of non-performing assets and a lesser contribution of the country to their results. In addition, other financial capitals in the EU would be able to compete with London if the United Kingdom can no longer issue a passport offering the financial institutions of third-party countries automatic access to the EU, although it would not be easy to reproduce the ecosystem of the City for the international financial sector.
Two articles tackle the situation of the European banking sector. In a context of reduced profits, balances experiencing problematic assets, regulatory changes and business transformation with significant consequences for the sector, Santiago Carbó and Francisco Rodríguez consider that the outstanding challenge is still the matter of exploring economies that result from synergies in combining traditional products with new ones. Alternative fintechs are a clear possibility for mixed economies, although it is still to be determined what technologies and services will provide those advantages.
The authors also refer to acquisition and fusion processes, that usually increase after financial crises, and the impact on the concentration of the sector. It is no wonder that the market share of the five largest banking organisations has increased in the principal financial systems of Europe. “In Holland, that percentage is already 85%, in Portugal 69%, in Spain 58% and in the average of the eurozone, 48%”, they explain. Nonetheless, they warn that it is a mistake to associate the degree of concentration in a sector with its competitive intensity.
Ángel Berges and Francisco J. Valero show how the complexity and uncertainty around the application of the new regulatory framework in Europe may be behind the worst behaviour of European banks when dealing with the rest of the sectors in the stock exchange. The evaluation of the banks of the four principal countries in the eurozone shows two illustrative cases of problems that lead to such radical regulatory changes and the uncertainty about their implementation: Italy and Germany.
In the first case, the authors are linking the sharp drop on the stock exchange with the risk of spreading losses onto the shareholders of all the Italian banks, if a model of pooling between good and bad banks is applied. In the second case, problems would at first be mentioned to the principal bank of the country, because of the risks of absorption of losses on its convertible contingent obligations (CoCos) and on the remaining financial instruments issued. However, the fear of the contagion effect could also be behind the generalised decrease in the market assessment of German banking.
Marco Trombetta in his article covers the relationship between financial education and initiative in business. Using a survey with questions on basic financial education, he compares the financial educational level of entrepreneurs with that of non-entrepreneurs in Spain, with more favourable results ascribed to the former. But before questions of advanced financial education, entrepreneurs do not seem especially prepared to assess aspects such as the potential of debt as a means of business financing, the differences between a positive cash flow and the profit, or the correct accountancy of an investment paid in cash. In any case, as much in a basic financial education as in an advanced one, results are better in companies with less than five years' standing. This could mean that the financial management of new companies is governed by less conventional and conservative parameters than that of more established companies, which represents a heartening sign for the modernisation of the means of production.
The transformations of the business fabric so far this century are at the centre of the article by Ramon Xifré. The business demography presented encouraging signs in 2015, since for the first time since the beginning of the crisis, positive figures of net registrations of companies in Spain have returned. However, this recovery is maintained mostly on the rise of the number of self-employed workers and not on other legal forms of company that were far more numerous in the previous expansive phase of the Spanish economy. When it comes to innovation activities, the number of innovative firms has gone down from that of 2008, although it seems that the fall is slowing down in 2014 in the case of activities of non-technological innovation. Especially serious is the loss of innovative drive in companies of less than 250 workers, above all in those of the service industry.
Read the latest issue of Cuadernos de Información Económica: Educación financiera y tejido empresarial (May – June) 2016; no. 252