Optimism and Short Term Credits in Spain
By: Hans Bool
A recent article in a Spanish newspaper revealed that short term credit in Spain reaches one billion euro this year. This announcement interested me, because the Dutch are famous for their propensity to save; they export more than they import, which is just the opposite in Spain where the imports outweigh the exports.
People take a credit, this goes without saying, to increase their spending — amongst other things — on holidays, but also in “plastic surgery,” according to the newspaper… This is the short term credit. There is also the normal long term credit, like the mortgages which are used to buy real estate (a house) but also to buy a new car.
Someone who applies for a credit must be an optimist. The average interest rate on the short term credits is about 19 percent per year. So for lending 1 billion euros, people pay on average, 200 million euros per year.
(This is a profitable business for banks and other financial institutions although the same article mentioned that credit issuers had to increase the interest rates because of the high amount of advertisements that was required. There is no day that you will not see and of these “credit” ads on television).
Back to the optimist.
If you spend more than you earn you must think that you will be able to increase you income in the future to spend (consume) the same amount (or more) and to be able to pay required interest.
What has contributed to this optimism is the fact that — for the house owners — the value of their real estate has increased out of proportions. House prices has doubled in only five years or less.
Also the stock exchanges in Spain, for example the Ibex 35 is outperforming many other indexes.
Both factors are very helpful to be optimistic…
© 2006 Hans Bool
Hans Bool is the founder of Astor White a traditional management consulting company that offers online management tools. Have a look at some of our free management tools