The Spanish Economy as Seen by the Little People


I am no high flying economist but recent days has seen much activity with the UK press about Spain and the Spanish Economy. Thank god someone is finally asking some questions

It is interesting that, until recently, little has been done by the Spanish Press.

Unlike UK press Spanish newspapers rarely go on crusades or overtly criticise the government preferring it would seem to just report facts or what is said rather than getting beneath issues.

This may well be a throwback to Franco days where freedom of speech was non existent. One should remember the press in Spain from that perspective is very much in its infancy and perhaps will take sometime to catch up particularly in the area of investigative journalism.

The current size of the crisis in Spain could have been avoided and even myself without the benefit of an economic degree or full understanding of the political dynamics recognised the issues some 6 to 7 years ago.

Having lived in Spain since 2002 I have seen the impact of the current economic situation but also the drivers that caused many of the internal issues we now have.

These experiences are not derived from the press or authority as to my shame I still neither speak or read Spanish fluently enough but as a small business owner who has been involved in the property industry as mortgage broker.

Most recent quotes from UK and economic authorities point to the fact that whilst Spanish Banks did not have exposure to worldwide toxic debts they have created their own.

This is in fact very true. Much is now reported about the problems the Spanish Banks have as they become more like estate agents than banks.

It is quite perverse that in 2003/2004 before the new government took over the then governor of Bank of Spain in his monthly report warned all Spanish banks in very strong terms that the level of funding they were putting into construction was too high and unsustainable. This statement was made formally and is available via public records.

Back at the point the governor shot this warning across the banks bows the level of funding for new construction was small in comparison to the level funded during the boom years of 2005 to 2007. What a shame for Spain that because of a terrorist bomb they voted out a government that had a handle on what was happening and was taking steps to prevent overheating; and voted in instead a government who had neither the desire or intellectual capacity to recognise that even without the now widely reported credit crisis Spain was heading for disaster.

The Spanish Banks themselves cannot say they were not warned. They just chose to ignore the warnings they were given and take heed of the appeal from the Bank of Spain to restrict the level of funds being provided for new construction.

It is very easy to look at the whole Spanish system, how licences for new builds are provided, who has authority to grant them what controls central government takes to see why the complete mishmash and vast amounts of unoccupied properties we now have has happened. The whole political infrastructure needs to change dramatically for Spain to ever sustain their G20 status in the longer term. Without fundamental changes it is difficult to see Spain ever pulling out of the boom to bust syndrome which has dogged them since Franco died.

I am; all this said; at loss as to why the country is in such a financial mess and where the vast amount of expenditure goes.

Taxation levels are high; it is a fallacy that tax in Spain is low. On costs of employing people are a big disincentive and rigid labour laws compound this issue.

Average monthly wages are very low and social support also much less than other European countries.

There are for instance no

• Tax credits
• Rent support for low earners
• Social security payments for unemployed are 400 euros a month once the initial dole runs out. This is it a flat payment that is not even enough to feed a family.
• Healthcare is generally good but the state does not support the health system in the same way as the UK and many opt for private health insurance and many hospitals are completely privately run
• Money spent on education again is combined with many private or partly funded schools
• Roads are not extensively lit and most new ones built done from EEC funds
• Post service appalling
• Public transport very limited

The bulk of expenditure must be spent on supporting a Civil Service that is bigger and more bureaucratic than Gungerdin. The level of inefficient government services and departments is scary.

Lack of control of expenditure by central government is well demonstrated at even micro levels. In my village alone around € 200k has just been spent on building a so called memorial that had to be built before end of 2009 or the money sent back to central government. I expected a statue which I already thought was a complete waste given current climate what in fact has been built is a property. For what purpose I am not sure.

We already have a completely refurbished and grand Town Hall and more facilities than one might expect for a population of 2000 people whilst one third of its population live in sub standard housing often with no running hot water.

Having lived in both UK and Spain I know public services are not as good in Spain and social support woefully lacking. It is therefore in fact quite frightening how much the government are in debt in comparison to what tax money supports.

Making cuts to avoid a Greece type collapse should be easy but getting Zapatero, who is known as Mr Bean by the Spanish,  to actually get to grips and resolve matters is rather like asking a 3 year old to explain the theory of relativity.

Leave a Reply

Your email address will not be published. Required fields are marked *