The Spanish economic nightmare

[Lord Beria3]

http://www.newleftreview.org/?page=article&view=2895

Prior to the debacle of 2008, Spain’s economy had been an object of particular admiration for Western commentators. [1] To reproduce the colourful metaphors of the financial press, in the 1990s and early 2000s the Spanish bull performed much better than the moping lions of ‘Old Europe’. In the decade following 1995, 7 million jobs were created and the economy grew at a rate of nearly 4 per cent; between 1995 and 2007, the nominal wealth of households increased threefold. Spain’s historic specialization in sectors such as tourism and property development seemed perfectly suited to the age of globalization, which in turn seemed to smile on the country. Construction boomed as house prices soared, rising by 220 per cent between 1997 and 2007, while the housing stock expanded by 30 per cent, or 7 million units. All feeling of being merely the biggest country of the continent’s periphery was dispelled by a new image of modernity, which did not just catch up with but in some ways surpassed standard European expectations—at least when Spain’s dynamism was compared to the ‘rigidities’ of the Eurozone’s core. Add to this the 2004 return to power of the Socialist Party, under a youthful José Luis Rodríguez Zapatero, and the effect of such quintessentially ‘modernizing’ laws as those on same-sex marriage, and the mixture acquired the bouquet of a young red wine: extremely robust on the palate.

In stark contrast, the financial crisis has given the country a completely different image of itself, with effects on Europe that remain to be calculated. Over the past year, Spain has on several occasions hovered on the brink of classification as a case for Eurozone bail-out, following Greece, Ireland and Portugal. Its construction industry, which in 2007 contributed nearly a tenth of the country’s gdp, has suffered a massive blow-out, leaving an over-build of unsold housing worse than Ireland’s, and the semi-public savings-and-loans sector waterlogged with debt. The effects of the housing-market collapse have reverberated throughout the economy: unemployment is running at over 20 per cent, and more than double that rate among the under-25s. A deep recession has been compounded by draconian austerity measures, supposedly aimed at reducing a deficit currently standing at over 10 per cent of gdp to 3 per cent by 2013. The political fall-out of the crisis is putting additional strain on Spain’s decentralized governmental structures, in which the seventeen Autonomous Communities administer a large proportion of public spending; in Catalonia and elsewhere, the ac budgets are also running deficits. The Spanish bull’s prostration also carries implications for the Eurozone as a whole. At over 45 million, the population of Spain is almost twice as large as those of Greece, Ireland and Portugal put together; its economy is the fourth largest in the Eurozone, with a gdp of $1,409bn, compared to $305bn for Greece, $204bn for Ireland and $229bn for Portugal. The scale of a Spanish bail-out, were Madrid to run into difficulty in financing its debts, would be likely to capsize the Eurozone’s current tactics for dealing with its indebted periphery—heavily conditional imf–ecb loans, so far made available to Greece, Ireland and Portugal with the aim of ‘tiding them over’, while safeguarding the exposed positions of big German, French and British banks. So far, the wager has been that, after a dose of austerity and labour-market reform, Spain’s pre-crisis economic model can be resuscitated in leaner, fitter form. Is this a viable proposition?

Good semi-Marxist article on the Spanish economy.

[RenewableCandy]

You could take the sentence:

Prior to the debacle of 2008, Spain’s economy had been an object of particular admiration for Western commentators.

and put in a lot of other countries with their own dates (e.g. 2007, Iceland). 'Twould appear that having a booming economy is a recipe for disaster.

[biffvernon]

Prior to the debacle of the 19th century industrial revolution, Earth’s ecology had been an object of particular admiration for commentators in the Western Spiral Arm of the Galaxy .

[vtsnowedin]

Prior to the debacle of the 19th century industrial revolution, Earth’s ecology had been an object of particular admiration for commentators in the Western Spiral Arm of the Galaxy .

Great shot.

[woodpecker]

Garbage article

Spain's economy has been a basket case for over twenty years, if not longer
Its unemployment has been very high for years, despite growth, despite booms and recessions, and Spanish qualified youth has been leaving the country year after year

And decade after decade, government after government, it has spouted the words 'labour market reform', which its OECD reports have constantly niggled at, but nothing has happened
You cannot make someone redundant in Spain without going to court, and the redundancy payments are stratospheric
So nobody gets offered a permanent job, and anyone in work and under 55 is generally on a contract length measured in days (30 or so)

The construction sectors was fed by structural funds from the EU, by an unsustainable model of tourism that was already on the way out, and by a private residential sector that is the main national mechanism for laundering 'black' money (which in some major sectors is 35%+ of business)

When you are sitting in a notary's office with a bank manager and 5 others, all passing huge envelopes of cash around the table (which they do every day; it was just me that was surprised); and when even an elderly university professor is gaming the system by insisting on a cash sale for a half a million quid property, you know something is seriously wrong with the way things work

I remember (late 90s) when M&S's main Spanish supplier (one of the top 2 textile firms in Spain) was found to be operating 90% in the black economy, found out as a result of a financial accountant whistleblower: the fact was, nobody was surprised (except perhaps M&S's UK management); all the press just wrote articles about 'this is the problem with this country, everyone behaves like this' and promptly forgot about it, as there was invariably some greater scandal to follow

Everyone is diddling each other and the government big time (which is exactly what has been going on in Greece) and that's a behaviour from way back, that has never changed, and it goes right to the top

In Spain, it is generally wise to be a believer in conspiracy, as there invariably is a conspiracy

The mistake of others, outside Spain, was to believe that somehow, as a result of joining the EU and the Eurozone, these countries' entire populations were magically going to change, overnight, the way they'd operated every day since the year dot - that was never going to happen

Spain's reforms were quite massive in the social sphere, but only in that sphere


[apologies for lack of full stops - the key has decided to stop working on this laptop]

[postie]

They sleep halfway through the day, don't they?

Nah.. doomed to be f***ed if they're that lazy.

And where's the profit in throwing donkey's off of towers?

Twats.

Bull fighting though.. yeah... go for that. I've heard youth unemployment is high... if a couple of greasy haired catholics get to meet their god earlier.. great.. more jobs for the others. In the meantime.. cheap beef.

Can't see a problem meself... self inflicted idiocy.

[woodpecker]

You really could not make this up.

I've posted here before about scandal after scandal, fraud after fraud, corruption after corruption, in Spain. I've posted about how appalling unemployment is, especially in Andalucia/the south of Spain, and how high redundancy pay is by law in Spain (thus making job creation very unattractive for any prospective employer, as you cannot afford to lay people off).

So the state/EU started providing funds to settle all these redundancy payments (that's pretty dysfunctional in itself), in order to be able to make some people redundant without having to shut down the entire business.

Well, the latest is that the man responsible for employment in Andalucia, the very person who should be doing something about all this, has been spending those state/EU funds intended to provide redundancy pay to all those people being made unemployed on.... cocaine! And antiques!

Apparently 20,000 euro a month on coke! Just for him!

Then there's a whole host of other allegations, including getting his chauffeur to set up fake companies to receive millions in EU/state funds to pay for antiques, drugs and a very long et cetera.

Some press estimates give a global figure of 1.5 billion euro as the amount of money that's been defrauded. This has been going on for *twelve years*.

His chauffeur has spilled the beans.

With these kinds of people running the economy, who needs American bankers.

[vtsnowedin]

You really could not make this up.

,,,,,,,,,,,Then there's a whole host of other allegations, including getting his chauffeur to set up fake companies to receive millions in EU/state funds to pay for antiques, drugs and a very long et cetera.

Some press estimates give a global figure of 1.5 billion euro as the amount of money that's been defrauded. This has been going on for *twelve years*.

His chauffeur has spilled the beans.

With these kinds of people running the economy, who needs American bankers.

Perhaps the chauffeur wasn't getting a large enough cut of the et cetera????

[stumuzz]

I spend a bit of the winter in Tenerife ( I know, not Spain) The economy is bonkers, totally relies on the tourist buck and is effectively closed to non black market operators. There is only one reason why anybody would want to move to the Canaries, the sun.

My brother, a happy go lucky chap, who does not take much notice of world events (which is surprising as he has partaken in three wars) was going to buy a property out there. I sat him down, explained PO, closed economies and currency debasement. He is now going to rent!

[woodpecker]

A little more investigation reveals that aside from the coke, antiques, properties, Rolexes etc., - obtained with EU grants intended for developing small business...

The core of the fraud was to pretend that all kinds of people - friends, family, party members, party members' families and friends and a long etc. - had worked for all kinds of businesses where they had never worked, and to apply for redundancy payments from EU/state based on that fake info (the so-called 'ERE' payments/funds). This latter amounts to at the least > 600 million euro, so far, but estimates up to 1.5 billion so far. Individuals with no entitlement at all were being awarded very large six-figure sums as a result. Some of the claims were based on those individuals claiming to have worked for those firms since their day of birth.

Apparently the fund concerned, which was used to pay for all kinds of illegal stuff, was known as the 'reptiles fund'. The money was transferred from Andalucia Dept of Employment (i.e. regional administration) to the regional employers' organisation (private sector, a bit like a regional CBI), and thence wherever.

I can perfectly understand Germany's wish to directly audit Greek affairs through a physical presence. Inspection and audit just do not work in southern Europe, never have at any level. In Spain, the situation is exacerbated by regional nationalism: places like Andalucia have very far-reaching powers, and they just never change their administration/political complexion, which means there is rarely any check on power and corruption. And the more local things are, the more it is the case that the inspector or auditor is your brother or cousin or someone you know privately, and susceptible to corruption.

Funnily enough, the political party responsible for the current antics is still trying to postpone the current criminal investigation into its people, and still fully believes it will win the upcoming election despite recent developments and their people now being in prison. (And they probably will.) But it looks like the people already going through the legal process will probably get off with fines.

[woodpecker]

You really could not make this up.

,,,,,,,,,,,Then there's a whole host of other allegations, including getting his chauffeur to set up fake companies to receive millions in EU/state funds to pay for antiques, drugs and a very long et cetera.

Some press estimates give a global figure of 1.5 billion euro as the amount of money that's been defrauded. This has been going on for *twelve years*.

His chauffeur has spilled the beans.

With these kinds of people running the economy, who needs American bankers.

Perhaps the chauffeur wasn't getting a large enough cut of the et cetera????

The chauffeur saga looks like just the latest segment in a much bigger criminal enterprise. There was a whole bunch of stuff that eventually came to light before that... but only after 12 years.

There is a huge web of fraud and corruption across different parts of the country, all kind of interlinked, involving most political parties. In Valencia it's the PP, in Andalucia it's the PSOE, in Galicia it's always been the PP, in Catalonia it's linked to regional nationalist illegal party funding (CiU)... It's just endemic. In the Basque Country at one point you could only get a health service job in the main city if you belonged to the PSOE (they checked applicants off against party lists)... but in my gran's town you could only get planning permission - for some decades - if you were influential in PNV or HB (both regional nationalist parties).

[stumuzz]

But why would anyone in there right minds trust the Spanish/Greeks/Portuguese with their personal wealth? I love going to Madrid,Barcelona or Valencia to do the tapas and culture, but on business I would not trust them as far as I could P..s on them.

I sometimes watch on the telly the whining Brits who moved to spain and got ripped off and think how they could have been so stupid? Maybe it's financial Darwinism.

A good test of southern Europe productivity is to go into a Mcdonalds in Spain. One pissed of teenager stamping on a snail because the snail is overtaking him.

[emordnilap]

A good test of southern Europe productivity is to go into a Mcdonalds in Spain. One pissed of teenager stamping on a snail because the snail is overtaking him.

I find the first image worse than the second.

[woodpecker]

And yet, and yet, all those governments and bankers and eurozone ministers seemed to think that Greece was like Germany, and Spain was like Sweden, only hotter.

They shouldn't really be getting upset with the Greeks or Spanish. After all, the Greeks and Spanish are just doing what they have always done. They should be looking closely at themselves, and considering how it was they came to arrive at certain decisions about currencies and economies. How they came to judge these countries as AAA and meriting investment and loans and membership of the eurozone, when they were really C to junk, and complete basket cases. No matter how you sliced and diced the C to junk countries, there was no way the overall rating was going to be AAA.

[Ludwig]

Woodpecker: none of this is an accident. The system has not become corrupt, it was corrupt from the start, and the Mediterranean countries are merely the first to pay the price because they're small enough to fail.

It's not just the banks, it's also the very model of the stock market.

It had always been a mystery to me what people were actually buying when they bought shares. Someone told me they were buying the rights to dividends. I thought, "Hmm, fair enough, but it's odd that all investors talk about is stock prices and never dividends."

I'm not an investor and I didn't know anything about how big dividends are and how frequently they are paid out. But I read the other day that Apple hasn't paid dividends for 17 years.

The penny dropped. Dividends were never even the original purpose of the stock market, they were only ever a fig leaf for its real purpose, namely to generate money from thin air.