The situation looks set to get worse over the coming weeks. At a meeting of Eurozone finance ministers in Cyprus on friday, Spain revealed that it would present a new set of economic reforms by the end of the month..
Just before saturday's march began, buses transporting protesters blocked several major roads in the Spanish capital. The main organisers were Social Summit, an association of more than 150 organisations, the Workers' Commissions and UGT.
Prices for dwellings down a further 14.4%
In the second quarter the prices for dwellings fell further 14.4% from the same time last year. This is the 17th consecutive quarterly fall since the property bubble burst in 2007. Prices for new dwelling declined 12.8%, whilst resale ones fell 15.7.
The President of the Promoters and Constructors, Jose Manuel Galindo, says he does not know when the fall in property prices will come to an end. He referred to the unknown effects of the ‘bad bank’ as well as to the increase in VAT on sale of dwellings which will take effect from next year.
Construction drops 16,1%
According to Eurostat, construction activity fell 16,1% in August, compared with the same month of last year. The sector also showed declines in other EU countries, with an average of 6,1%, while Germany increased 2,2%.
Motorways going broke
Radial 4, the Ocańa to Madrid motorway, where traffic on the toll road fell 10% during the first half of the year, with debts of 575 million euros, has declared itself in ‘suspension of payments.’ This is the third company which include R-3 and R-5, in such a situation.
1.5 million m2 office space empty
There are 1.5 million m2 of unoccupied office space in Madrid, forcing the owners to reduce rents by up to 40% on what they charged before the property bubble burst in 2007. The fall in rent values not only affect new contracts, but also existing ones.
Another 50,000 m2, in the best areas of the centre, will come on the market in the remaining months of this year, but it will be difficult to find new clients, as more companies are going out of business, reducing staff or moving to the cheaper outskirts of the capital.
More tax inspections – less tax income
The Ministry of Taxation, by frequent inspections, is putting more pressure on companies to pay their taxes. In the first half of the year inspectors uncovered 5,838 million euros in unpaid tax, 15.3% more than in the same period last year. However, the income from the tax fell short of the target in the state budget.
The inspectors also discovered 4,500 dwellings and premises not being declared, but with high electricity consumption.
Two million “Ninis” in Spain
A recent study by OECD found that there are two million “Ninis” in Spain (young people between 15 and 29 years who are not working nor studying) that is 23.7% of the age group. In Italy the percentage is 23, in Ireland, 21.
Regions spending their money
The regions of Navarra, Extremadura and Murcia have already exceeded their 1.5% total budget deficit established for the year. Navarra has a 2.50% deficit, Extremadura 1.89 and Murcia 1.80%.
Following those three regions are, Andalucía, 1.27%; Las Canarias 1.24 and Galicia 1.07% above their targets
Sharp rise in banking fees
According to the Bank of Spain, if you have a current account today, you can be charged a maximum of 75 euros, in 2011 it was 42 euros. That's an increase of 78%.
In July 2011, the Bank of Spain stopped regulating the fees that banks and cajas charge their clients for services and products. In the last year, according to the Bank of Spain, bank fees have increased on average by 40%, although there are services that have registered a rise of up to 300%. This is the case of the commission that the banks can charge for a transfer: the maximum price has risen from five euros for 2011 to twenty euros this year. Maintenance fees for current or savings accounts have also risen substantially. The minimum remains at 12.50 euros, however, the maximum allowable has shot up from 42 euros in 2011 to the 75€ that banks can now charge.
Car sales fall 27.6%
Cars sales fell 27.6% in the first half of September, compared with last year. Sales were up 3.4% in August, the last month before the VAT increases became effective.
Wealth Tax remains
The Wealth Tax (that was introduced as a ‘one off’ tax in 1978 to encourage those individuals who had been hiding their wealth to be more transparent) will not only remain under the Rajoy government but maybe increased, following studies which are being made, to reduce the minimum exemption and increase the top rate. This tax goes to the regional administrations.
The weekly crisis
The ‘big canons’ of the European Central Bank and FED, the US Monetary Authority, had only a brief effect. However, Spain managed to place 4,576 million euros worth of Bonds at the lowest interest rate since April
The indecision of Prime Minister Rajoy when it comes to asking for a rescue, is complicating Spain’s financial situation. On monday, the country risk increased by 20 points to 435 points, and the interest rate on 10 year public bonds again rose above 6%.
The European Central Bank says it expects ‘a significant fall’ in salaries in Spain
The public debts has increased 3.8% in the second quarter of the year, to a total of 804,388 million euros. Compared with the same time last year, the increase is 14%
The Spanish banks’ debts to the European Central Bank increased from 375,549 million euro in July to 388,736 million in August
Nobel Economics prize winner, Joseph Stiglitz, has warned that if Spain finally applies for a rescue, accepting austerity measures similar to those of Greece, it will be a ‘suicide’ for the country
At the last meeting of the Euro Group Minister of Finances, Luis de Guindos, acknowledged that the government is prepared for a new round of structural reforms
Bad loans in Spanish financial institutions continue to increase. In July they reached 9.86%, up from 9.42 in June
The President of the Euro Group, Jean Claude Juncker, has warned that when Spain asks for a rescue, robust measures will be imposed, to adjust the public accounts and make ‘structural reforms.’
The ‘Bad Bank’ and sale of properties to foreigners
By Per Svensson
Spain will soon have a ‘Bad Bank’ where all properties, not sold by developers, but financed by banks which have had to apply for public support, will be bundled.
The main task of this ‘bank’ will be to sell the properties to recover funds provided by the Government to set-up the bank, and take over the bad property assets.
The book value of the bad property assets to be taken over by the public bank will run into hundreds of million of euros, however considerably less than their market value. To sell those properties will be a formidable task, taking into account
the financial crisis in some of the ‘potential buyers’ countries
the bad image Spanish properties have abroad, due to the many scandals
the feeling in the markets that Spain still lacks the necessary legal safeguards for foreign property investment
the impact on the markets from the sale of dwellings owned by foreigners, at almost any price
the fear that foreign property owners may also suffer from a probable financial rescue operation.
There are approximately 700,000 unsold new dwellings for sale in Spain by promoters and banks. In addition to these there are some 1 million properties for sale by private owners. Several, half-hearted attempts by the Government and promoters to sell the properties on ‘road shows’ abroad, have failed.
Prices for dwellings have fallen approximately 50% in the tourist areas from the peak of 2006, and the trend continues: According to the National Office of Statistics, prices fell 12.6% in the first quarter of this year, compared with same period last year.
The sale of dwellings to foreigners in Spain has come to a virtual halt, and most experts expect the situation to continue for years to come.
The only way ahead
A revival of the foreign property market can only be achieved if
One stops calling this operation a ‘Bad Bank’ and instead structure it as a ‘Property Guarantee Bank’
The price of the properties reflects the current market value
The ‘bank’ guarantees the urban legality of the properties offered
for sale, the building quality and the completion of the infrastructure
A sound model of financing is offered.
The key point among the conditions mentioned above is of course the guarantee from the ‘bank’ to potential buyers. Is the Spanish state able to give a guarantee for such an enormous number of properties? Of course, it should ask for a reassurance from the banks that want to get rid of the unsellable dwellings, and the state ‘bank’ should itself inspect the real estate before placing it on sale. The risk is manageable.
In this way the huge surplus of dwellings could be reduced, property prices stabilised and the market relax. The next important step would necessarily be to place a limit on the number of new building projects and building licences, for instance in relation to the individual new escritura’s registered in each region over the last years.
You will ask: Will the promoters, bankers and politicians go this way?
My answer: Probably not, and the crisis will continue!
Spanish Politicians bet on Gambling rather than Higher Education
Juan Pardo (‘Blog de Juan Pardo’) Translated by Lenox Napier
The mediocrity of our political actors have managed to bring Las Vegas to
Spain, accompanied, of course, by the sundry charms of prostitution, vice and narcotics. But if we are so keen on imitating the genius of the American mind, why not make a copy of Harvard University?
Yale University recently opened a campus in Singapore, the University of
Berkeley another in Shanghai. What if we had offered to these institutions all facilities that we have so generously given to Sheldon Adelson and his Las Vegas Sands Corporation?
I don’t mind if it is not Harvard nor a large research center that we shoot
for. But can we not opt for a dream that would make us happy in this country?
Do we want to be remembered as those folk who came out of a housing crisis only to start building mega-casinos and amusement parks?
In 1961, Kennedy proposed putting a man on the moon before the end of the decade. During the following years, NASA's budget was multiplied to account for 4% of the U.S. federal budget (today it stands at less than 0.5%). Kennedy hadn’t a clue about aerodynamics, or the complex technical problems to be solved. He offered something more important: a collective dream and the political will to achieve it.
Today, that dream, now reality, is not just the pride of the Americans.
Institutions like Harvard or NASA are admired even by the staunchest
anti-yankee. And if you prefer, we can also talk about economic benefits,
since every dollar invested in NASA generated $7 in the U.S. economy.
But all we can dream about is somebody comes along to build another Las
Vegas?
The economic crisis is causing tremendous human suffering. But, at the same time, our country is experiencing a fascinating turn-around. A few years ago, when everything seemed to go well, almost nobody cared about Government policy. Today, even my grandmother grabs a neighbour’s ear to discuss Government budgets and policies.
Why not take advantage of this crisis to build something we can be proud of?
Are we going to resign ourselves to remain as the poor and vulgar cousins of Europe? European Squabbling on Currency Crisis Solution May Test Rally
By Patrick Donahue – on Bloomberg
Squabbling among European governments over the next steps needed to overcome the region’s sovereign debt crisis raised the specter of renewed turmoil as last week’s market rally eased pressure to forge a common path.
A Sept. 14 European Union finance ministers meeting in the Cypriot capital of Nicosia deadlocked over the timetable for a more unified EU banking sector, with a German-led coalition pushing back against a more ambitious plan sought by France, Spain and Italy. The ministers also bickered over the terms of bailout requests and the role of the European Central Bank.
“Experience suggests that just as day gives way to night, improvement gives way to policy complacency, which is then followed by renewed crisis,” Joachim Fels, chief economist at Morgan Stanley in London, wrote in a note yesterday.
The euro area’s ability to overcome differences will determine whether a market revival prompted by increased ECB intervention and a German high-court ruling on bailout funding will mark a turning point in the three-year-old crisis or just the latest European bid for more time.
The euro climbed 1.1 percent Sept. 14, helped by new measures by the U.S. Federal Reserve, bringing the rally this month against the dollar to 4.4 percent. After falling from more than 6.8 percent at the beginning of September, Spanish 10-year yields climbed 1.5 basis points at the end of the week to 5.79 percent as the euro ministers failed to find agreement.
Single Supervisor
The sharpest EU disagreement in Nicosia was over a European Commission plan to establish joint banking supervision from the beginning of next year. German Finance Minister Wolfgang Schaeuble, backed by colleagues from Sweden, the Netherlands and Poland, urged the meeting to agree on a more cautious approach when assigning new duties to the ECB.
EU leaders called for a single supervisor in June as a condition of bailout assistance directly to euro-area banks. Such a mechanism would be designed to decouple government funding to prop up failing credit sectors, breaking the link between sovereign and banking debt that has been blamed for compounding the crisis.
While Schaeuble argued that such a “sizable apparatus” would require more time to take in more than 6,000 euro-area financial institutions, other finance ministers wanted to stick to the Commission’s timetable.
“We can’t waste time,” French Finance Minister Pierre Moscovici told reporters in Nicosia.
Rajoy Meeting
Shuttle diplomacy will continue this week, culminating with back-to-back high-level meetings, as Spanish Prime Minister Mariano Rajoy travels to Rome for talks with Italian Prime Minister Mario Monti on Sept. 21. The next day, Chancellor Angela Merkel will hold talks with French President Francois Hollande at a commemoration in Ludwigsburg, Germany.
An initial test of market confidence could come in Spain, where Rajoy is considering whether to request further euro-area assistance, an issue that’s sparked further division. Schaeuble last week cautioned Spain against seeking a full bailout, countering pressure from France. The country “would be daft” to ask for a bailout on top of the 100 billion euros ($131 billion) for its banks if it didn’t need it, Schaeuble said.
Rajoy’s government will unveil new measures by the end of the month based on recommendations made in July, including a possible increase in the retirement age, shifting from labor to consumption taxes and deregulating closed professions, according to European officials. Spanish Economy Minister Luis de Guindos in Nicosia reaffirmed the country’s ambition to cut its deficit to 6.3 percent of GDP this year from 8.9 percent.
Spanish Protests
Such measures are giving rise to a growing backlash in Spain, with union leaders demanding a referendum on budget cuts as 65,000 protesters marched in Madrid over the weekend.
“It’s time to give a voice to the people again,” Comisiones Obreras General Secretary Ignacio Fernandez Toxo, a union leader, told protesters blocking the center of the capital. “With the support of the people we will take this as far as the government wants us to. This doesn’t end here.”
In Greece, the government continued its bid to win more leeway to meet its obligations to the country’s troika of international creditors -- the Brussels-based Commission, the ECB and the International Monetary Fund.
European officials in Nicosia concerned that a confrontation with Athens could up-end the reform drive and sully the market bounce signaled that Greece may get its way.
Troika Delay
“Greece has already produced a huge effort but will have to continue to do so,” IMF Managing Director Christine Lagarde told reporters during the Nicosia meeting. “There are various ways to adjust. Time is one. That needs to be considered as an option.”
The troika’s verdict on Greece’s progress, which will determine whether the country where the crisis originated continues to receive funding, was put off until October, possibly coinciding with a leaders summit in Brussels.
To be sure, some analysts predicted that the market rebound will likely be extended even amid the current euro scuffling. Erik Nielsen, global chief economist at UniCredit Bank AG in London, said that attention in coming months could shift away from Europe and toward the election and budget fight in the U.S. and the leadership transition in China, as that country confronts a slowdown in growth.
“I think this rally still has some weeks to run,” Nielsen wrote in a note to clients yesterday. “The capital misallocations driven by (irrational) fear were so big that it almost certainly takes more than a couple of weeks to correct.”
Voice of America
Caroline Arbour
September 17, 2012
SEVILLE, SPAIN — University, primary and secondary school students are returning to classrooms in Spain against the backdrop of an economic crisis that is affecting education. The loss of subsidies coupled with the increased costs of education also are having an effect in other troubled European economies.
Antonio Caseado is lining up at the unemployment office. After two years working as an interim high school teacher, he is out of a job.
Caseado is one of 4,000 teachers in the Spanish province of Andalusia who have been laid off as a result of a 21-percent budget cut included in the government’s austerity package, unveiled last spring.
Unions estimate that tens of thousands of primary and secondary school teachers are finding themselves in Caseado’s position. Those who remain have seen their teaching hours increase and in some regions, the number of students in their classrooms has grown.
Spain’s largest labor union worries these are not temporary measures to bring the country’s finances out of the red.
"The government is trying to change our education system," said Labor leader Manuela Martínez, who heads the General Workers’ Union in Granada. "And they are using the crisis as an excuse to do what they are doing. If they continue, nobody in Spain will really recognize what we had.”
There is another problem. Cuts to subsidies for textbooks and for cafeteria meals, coupled with the increases in the value-added tax, have made back-to-school very expensive for families.
The consumers’ defense organization [OCU] estimates parents will have to spend an average of about $670 per child.
Spaniards seeking access to higher education also will feel the impact. Scholarship programs have been reduced and tuition at public universities has gone up by as much as 50 percent in some places.
Adding to the grim situation, about one-in-five unemployed Spaniards is a university graduate.
The Organization for Economic Development says Spain spends 21 percent more than the average OECD-member country spends on education, yet its students have some of the worst outcomes on international tests.
And a recent OECD report warns of the effects of further cuts on accessibility.
OECD Deputy Director for Education Andrea Schleicher said the crisis highlights the need for more highly-skilled workers.
“Over the past decade more than two-thirds of economic growth in the European Union was driven by labor-income growth. That is basically better skills,” said Schleicher.
He added that it has driven growth in the majority of EU countries, even in the midst of the recession.
But even if higher education may be key to dampening the effects of the crisis, other debt-ridden countries, like Spain, have chosen to slash spending in that area.
Greece has decreased its education budget by 23 percent since 2009.
Italy cut university scholarships by 90 percent and laid off more than 100,000 teachers, though deeper measures were averted by widespread protests in 2010.
Additionally, the European Students’ Union reports thousands of Portuguese university students have been forced to drop out because of reductions in support services.
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