|"Beleagured" Spain and its prospects according to the press|
Spain is doomed! The roads across the Pyrenees are clogged with ex-pats abandoning their negative equity-laden villas. Brits are fleeing with their last euros stuffed into their soiled underwear. Behind them Spain’s unemployed army of workers prepare for the inevitable spasms of violence to come. Spain is crashing back into the Third World.
Utter nonsense of course, but not far removed from the picture we are getting from the press.
British journalists, sitting in their gloomy offices drinking terrible coffee, are mining a rich vein of Shadenfreude with gloomy articles about Spain’s economy and its disastrous effects on ex-pats. The British public can’t get enough stories about starving pensioners and bankrupt bar owners on the Costas.
Snide hacks keep finding new ways to insinuate that ex-pats deserve everything that they get. After all, how dare they abandon drizzle- and tax-bighted Britain for a carefree life in the sunshine? Look at them all now, watching their villas being repossessed and then crawling back to Britain before their tans have faded. Har Har!
Britain’s jingoistic press is behaving abysmally. The millions of Spanish people loaded down with negative equity and a shrinking job market barely get a mention. Like when a foreign natural disaster kills thousands but the one Brit with a broken leg hogs the news. Does being outside the euro really give Britain an excuse to be actively obnoxious and passively xenophobic?
British journalists who think that Palencia is a spelling mistake are cracking out articles about Spain full of scary words like beleaguered, troubled and spiralling. Ex-pats with failing bars get their moment in the limelight on daytime TV and pensioners tell the local papers about their Spanish nightmare.
Some people who emigrated to Spain have lost everything, but most have not. Life goes on along the Costas. The Daily Mail may not have noticed, but most British ex-pats live in Spanish cities and towns, rather than on the set of El Dorado.
Suddenly everyone is an economist!
“Spain has to leave the euro, it’s the only way to make the economy competitive again”
“Unless Germany bails us out, this country will collapse into anarchy”
“The Royal Navy is on standby to rescue Alicante’s ex-pats from the chaos”
“If Spain leaves the euro it will never recover. It’s unthinkable”
The only thing that connects all these self-appointed experts, from gung-ho British journalists to traffic-hungry bloggers, is the complete and utter lack of facts behind their opinions. Economics without figures is just gossip!
All we actually know right now is that Spain is up a creek. We don’t know how far or where the paddle is. However, three banking reports due out in June will give everyone, from The Economist to Dave down in Alicante’s Red Bull pub, a much better idea of what's going on.
The first report, from the IMF, is due out on Monday 11. Tick tock!
Europe’s fourth largest economy is undeniably in a bind. In the halcyon days of low interest rates and frothy money during the 1990s and early 2000s its government lost control of the property market. Spain has millions of empty and unfinished houses all built with borrowed money. Its banks lent freely to anyone with an architect friend and a plot of land. Negative equity is now standard for Spain’s property owners, both ex-pat and local.
House prices have fallen by 40 to 50 percent since the 2006 peak. Spain’s banks are lumbered with billions of euros of worthless loans that are never going to be paid back. Its banks and the property industry managed to destroy hundreds of billions of euros of value in ten years of hubris. That money has gone forever leaving Spain with a huge lack of capital.
Spain’s other big problem is that its rigid labour laws. Brought in on a wave of idealism after the end of Franco’s dreary dictatorship they created a two-level job market. Those lucky enough to have a fixed contract have guaranteed wages and pensions. Everyone else with a job works for peanuts with no job security at all.
They are the lucky ones!
It costs so much to sack a worker in Spain that businesses can’t risk expanding. Most Spanish companies are consequently small and inefficient and don’t create jobs. Over 30 percent of Spanish people, and 50 percent of its youth, are unemployed.
Only they are not!
Almost half of Spain’s officially unemployed workers are working. Because it is absurdly expensive to be legally self-employed, anyone earning less than 1000 euros per month does it outside the tax and social security system. They don’t contribute to their pensions and barely earn a living wage. But there is money moving around Europe’s fourth largest economy. It’s far from ideal but it gives Spain some wiggle room.
Why the Spanish government hasn’t made it cheaper for the country’s horde of unofficial workers to go legal is a mystery to everyone from Maspalomas to Murcia. With one move it could increase its tax base and take control of its black economy, worth as much as 240 billion euros per year. Not enough to fix the problem, but a big number nonetheless.
Spain has three basic options to recover:
Spain can accept a bailout from Europe (Germany) that recapitalizes its banks, and then embark on a massive national drive to liberalize its economy and create employment.
This option is far more likely to cause widespread civil unrest than any other. Spain’s Asturian coal miners are already mobilizing in response to a cut in subsidies. It costs more to dig up coal from deep under Asturias than it does to ship it in from Australia but jobs are jobs. Even if they cost the rest of the country far more than the coal they produce? You tell the miners otherwise. Spain's government doesn't have the guts for a fight.
A massive liberalization involves Spain’s privileged civil servants and fixed-contract employees giving up their legal rights. They won’t do that without a huge battle. Liberalizing the labour market has to come with measures to make it easier for the Spanish to create new jobs. Maybe Britain’s mob of coffee-guzzling, vitamin D deficient journalists could contribute their ideas. Instead of just rehash another column of “beleaguered Spain” drivel!
Spain’s last option is to voluntarily leave the euro and go back to the Peseta. The new currency quickly loses up to 50 percent of its value and makes Spain’s economy far more efficient. It also reduces the value of everyone in Spain’s savings and makes importing everything from toasters to iPads exorbitantly expensive. The tourist industry benefits but fuel (90 percent of Spain’s oil and petrol is imported) gets very expensive.
Dropout supporters, and there are more than a few, welcome the purgative effects of leaving the euro. Countries have left currencies (65 times according to Wikipedia) without disintegrating before. The practicalities and the short-term chaos an exit implies however, are frightening. Spain’s manufacturing industry would take years to catch up with demand, especially if it needs to import all its raw materials and pay for them in Pesetas. Interest rates would soar, creating more pain for Spain's mortgage holders.
Spain’s sheer size and the fact that a third of Spain’s bank debt is ultimately held by French and German banks make a euro exit unlikely. If the implications of abandoning the euro are uncertain for Spain, they are clear for the grand German dream of European integration: Without sunny Spain the euro project plunges into darkness!
Article © Alex Bramwell (email@example.com)