The Commission consider this to be discriminatory and not compatible with EU agreements: They may take the Spanish government to the European Courts if the legislation is not amended.
The immovable property mountain
In spite all the efforts by politicians, property developers and the remaining real estate agents, the property mountain barely shrinks. The government reports there were 766,038 unsold new dwellings for sale at the end of 2011 (in addition to at least a million resale dwellings). Only 98,094 sales were registered last year compared with 165,215 in 2010. 121,043 new dwellings were completed in 2011 (100,000 less than in 2010). The Valencia Region with 139,273 has the most unsold dwellings, followed by Andalucía with 107,138, and Catalonia 102,814.
August saw a 3% increase in property sales compared with the ‘very low’ August of last year.
Most unsold dwellings on coast
Most of the new unsold dwellings are in the coastal regions. Barcelona has 8.8% of the total; Castellon 8%; Alicante 7.3; Valencia 5.2; Murcia 4.4; Almeria 3.7 and Malaga 2.8%. Madrid accounts for 6.7% of the unsold dwellings, Toledo 3.9 and Santa Cruz de Tenerife 3.5.
Price for resale dwellings down 50%
Tecnocasa (real estate taxation company) and the University Pompeu Fabra, report the price per square metre for resale dwellings has fallen 50%, from 3,500 euros at the beginning of 2007, to 1.633 euros now and that in the first half of this year alone prices fell 20.73%.
Spain’s culture in crisis
Following the VAT increase from 8 to 21% on entries from the 1st September it is reported fewer people are going to cinemas and theatres. In Barcelona numbers fell by 28% in September, and cinema owners fear 20% of establishments will be forced to close.
This year film producers will have to suffer a 15% cut in the support subsidies, which will increase to 20% next year.
‘Laws and woman to be violated….’
The recently promoted PP President of the Council for Spanish Citizen Abroad, Jose Manuel Castelao Bragana, is reported as saying, ‘The laws, like the woman, are to be violated’ Now, following pressure from the PP leader Rajoy, who is facing regional elections in a few days, Castelao Bragana has been forced to resign.
Spain to lose 1 million inhabitants
Spain stands to lose almost 1 million of its population over the remainder of the present decade, in spite of an anticipated 450,000 immigrants arriving per year up to 2020. The reasons are a low birth rate, an aging population (3 out of 10 of the population will be over 65 in 2040) and emigration exceeding immigration.
Politicians are principal problem
In a government poll carried out in September it was revealed that 26.9% of the population believed politicians and political parties were “Spain’s principal problem.” In July the percentage was 25.4; June 24.3; May 22.5 and in March 18.1%. An increasing section of the population believes politicians are the country’s main problem.
73.2% see the political situation as bad or very bad and 88.9% consider the economic situation as the same.
British taxpayers to pay the bill
The Rivero and Soler families, both huge property speculators, have had been forced into bankruptcy with debts totalling 1,627 million euros. The Royal Bank of Scotland, owned by the British taxpayers, is one of the main entities who stand to lose up to 212 million, as a result.
Catalonia out of EU?
The Spanish Vice President of the European Commission, Joaquin Almunia, in an interview made it clear that if Catalonia separates from Spain, under the agreement with the EU, it must also leave the Union, and thus, the Euro Zone too.
Ley de Costas Reformed
The Government has now approved changes to the 1988 Ley de Costas (the rules governing buildings within the coastal limits) and the new Proyecto de Ley de Protección y Uso Sostenible del Litoral.
Private homes may remain within coastal limits for up to 75 years and beach-bars and commercial properties will now enjoy extendable four-year licences. Other illegal buildings (in reference primarily to the Hotel Algarrobico) will be demolished (there is a Government estimate of 7.2 million euros for the demolition, 'once the court process has been concluded').
The Government say the new rules will, 'Better protect the coast against urban excess and will generate confidence and fresh economic activity.' The unwieldy named Ministry of Agriculture, Food and the Environment (Ministerio de Agricultura, Alimentación y Medio Ambiente) note that the new rules will 'save 10,000 buildings currently threatened with demolition which are within the Maritime Zone, of which 1,100 would have been listed for demolition by 2018.' Minister Miguel Arias Cañete said, 'Such a massive demolition of homes would not help Spain’s image abroad.’
Existing buildings will not be allowed to increase in size and there will be some modest new controls will be implemented for beach use and its protection.
Ecologists, particularly Greenpeace, WWF and Ecologistas en Acción, have been quick to criticise these new rules.
A blog called El Espiritu de Cho Vito, based around an 'illegal' maritime village in Tenerife, notes the new rules have been formed (in Cañete's words) to 'improve the confidence of foreign investors and to help with the sale of current 'housing stock' that, thanks to the image of legal uncertainty in Spain, leads to decreased investments in coastal areas.' The blog considers that the policy is more to attract European confidence and investors, rather than concern for current property owners.
Spain quip adds to Romney's foreign policy trouble
'... Just last week, the Republican candidate, who plans a foreign policy
speech Monday, raised eyebrows in Spain by holding it up as a prime example of
government spending run amok.
The comment left Spaniards confused, and threatened to reinforce Romney's perceived handicap in international affairs, precisely at a time when lingering
questions over the September 11 attacks against the U.S. Consulate in Benghazi,
Libya, have President Barack Obama on the defensive.
"I don't want to go down the Spanish path" Romney said Wednesday night
during the first presidential debate. He argued that government spending under
Obama has reached 42 percent of the U.S. economy, a figure comparable with
America's NATO ally. "I want to go down the path of growth that puts Americans
to work."
The remark was Romney's latest to cause international offence during a
campaign which is being closely monitoring by much of the world …….
The weekly crisis
We are waiting for Rajoy....
The permanent European rescue fund ESM has been inaugurated, with start-up capital of 200,000 million euros, to be augmented to 500,000 million over the next 18 months
The International Monetary Fund disagrees with the Spanish government’s prognosis, as contained in their budget proposals, that the economy will fall only 0.5% next year. The IMF expects 1.5% this year and 1.3% next.
The Spain’s country risk is now 434 points and the interest rate on 10 year bonds stands at 5.8%.
More than 700,000 Spaniards invested significant sums in what the banks called ‘preferred shares’ which they now want to forget. Many have lost their life savings
Industrial production was down 3.1% in August, compared with same month last year. It’s the 12th consecutive industrial monthly fall
The Canary regional government has asked for 757 million euros in aid from the central government to pay its debts
The IBEX has lost value over the last days, falling to 7.745 points on Wednesday morning
“The Economist” warned in its last issue that Spain may be in a ‘death spiral’, similar to that of Greece
The bubble city of Valencia
This is a résumé of an article published by the national newspaper ”El Pais” and some of our comments, describing the present sad situation of some of the Pharaonic projects imagined or started in the heydays of the property bubble, which have contributed to bring Spain close to ruin, and having to be ‘rescued’ by the tax payers of Northern Europe:
The harbour basin
It was the ‘American Cup’ sailing event which made the reckless Valencia politicians pour in hundreds of millions of euros in rebuilding part of the harbour with elaborate quays and boat wharfs. Today a few tourists are wandering about, hardly finding anything open.
Once a year the harbour is host to the Formula 1 motor race, covered by worldwide TV, but bringing few tourists and little business to Valencia.
The most luxurious building
Porta de la Mar is the most luxurious building. It was the building company Lubasa that in 2006 bought the old building, that had housed the courts of Valencia, for 105 million euros and started to reform it. Today Lubasa is broke, and the building has been taken over by Bankia, BBBV and Banco de Valencia, that financed the project.
The building was finished in 2011, the ‘on plan’ sales commenced in 2009, but due to prices starting at 1.7 million for the cheapest one, the promoters did not manage to sell any apartments, nor offices or commercial premises.
Zona de Actividades Logisticas
12 years ago the authorities expropriated 300 small land owners and destroyed 70 hectares of cultivated land in the area La Punta to build a big business park. Not one company has been established in the park.
The new football stadium
Plans for a new football stadium in the centre of the town were presented in 2006 by the president of the club, Juan Soler, the mayor of Valencia, Rita Barbera, and the then president of the Generalitat, Francisco Camps. The stadium, with seating for 75,000 spectators, was to be finished in 2009 and financed completely by the sale of the land on which the old stadium stood. In 2009 was only some of the structures and the work stopped. Valencia FC players are now having difficulties getting their salaries.
The new city
The urbanisation plan for les Moreres, in the south eastern part of Valencia was to consist of 2,189 dwellings on 317,000 m2 land. Today there are some scattered buildings in the area, but mostly abandoned building sites. The banks are trying to get rid of the constructed dwellings, with Banesto offering them from 99,800 euros. One of the neighbours complains: ‘In one year nothing has happened. To buy a loaf of bread or get a coffee you have to use the car.’
Metro line 2
The work on Metro line 2 started in 2007, with the plan to connect the centre of the town with the city of art and science, el Carme and Natzaret. Now, five years later, the work on the unfinished line has been abandoned, without any plans for its completion.
And this is what New York Time wrote about Valencia region:
In the Time of Skinny Cows
By ROGER COHEN
VALENCIA, SPAIN — A vast theme park south of this coastal city is called Terra Mitica, or mythical land. That is not a bad term these days for Spain, a country rubbing its eyes in post-bubble bewilderment at the alarming cracks in the national edifice.
Terra Mitica, in and out of bankruptcy since its opening in 2000, is one product of the Valencia region’s giddy building boom fed by cheap money, venal politics and galloping illusion.
An underused 14-story opera house perched like an avant-garde spaceship on a lapping pool, a soaring suspension bridge over nothing, and an unused airport at Castellón where pedestrians can picnic on the runway are other examples of the fever for tallest, biggest, grandest that gripped Spain’s third city. Valencia was always a little envious of Madrid and Barcelona.
Now the tab is in for its delusional swoon. Hosting the America’s Cup and Formula 1 races make headlines but not sustainable development. The opera and surrounding complex alone cost over $1 billion. Today signs on Valencia pharmacies say the local government “finds itself — again! — without money to pay for medicines.” Schools are starved of cash.
In Spain, the euro zone’s fourth-largest economy, the good times are those of “vacas gordas,” or fat cows, and the lean years those of “vacas flacas,” or thin cows. Hispanic cattle, no longer fed on funny money, are super-skinny in this season of bust and brooding.
Valencia, like most of Spain’s 17 autonomous communities, is heavily in debt. It needs money from Madrid. The central government, headed by the hesitant Mariano Rajoy of the center-right People’s Party, in turn needs money from the European Union — and perhaps an international bailout.
As for Spaniards, they just need money from wherever: 15,000 of them lined up the other day outside offices of John Deere, the U.S. agricultural machinery manufacturer, after 150 jobs were advertised.
One way to look at Spain is as Europe in miniature: Threatened by crack-up, constitutionally flawed, uncertain of the relationship between central and regional powers, awakening to structural flaws under the pressure of economic crisis and high unemployment.
Separatist Catalan nationalism is nothing new; what is new is the spur given it by sharp financial pressures that provoke resentment — especially when the right, with its centralizing instincts, is in power.
Catalonia is, with Valencia, Spain’s most indebted region. In Spain, even a couple of generations on from the death of that ruthless centralizer Francisco Franco, it never takes much to stir historical wounds.
It was precisely to assuage such wounds — to triangulate old problems — that the European Union was created. Spain’s membership, long embraced with enthusiasm but now sometimes questioned, remains an important source of stability. Crisis may also be a form of growing pain, for Spain as for Europe. Old habits will have to die and new models emerge. I’d wager that Spain, like General Motors, is too big to fail.
The old Spanish model went something like this: Cheap money poured into the country from Brussels and European banks; a building boom fed by foreign demand from sun-starved North Europeans and a welter of dubious mortgages turned the coast into a construction site; regional politicians, in cozy relationships with the local savings banks known as “cajas,” could not find an airport or high-speed train or luxury condominium they didn’t want to build, however superfluous; layers of administration, from local to central, multiplied waste and obfuscated fraud; long after danger signs started flashing in Madrid the government opted, on the Citicorp model, to dance until the music stopped.
“We were very slow to react,” said Joaquín Moya-Angeler Cabrera, a prominent businessman. “When a politician wanted to get rid of another the consolation prize was always to become at least director, if not chairman, of a local savings bank.”
In Valencia, as elsewhere, the lack of professional bankers took a toll. Banco de Valencia went under, was rescued by the central government, and is now being sold off. Caja de Ahorros del Mediterráneo (CAM), collapsed after it was found to be more than $10 billion in the red, but not before its executives helped themselves to millions. Another savings bank, Bancaja, was forced to merge.
Close to a dozen local politicians are facing charges. Real estate assets, once prized, are toxic. Valencia’s bonds are rated junk. Bilbao has its Guggenheim, a galvanizing attraction: Valencia has its problem-plagued opera. As in the run-up to the 2008 meltdown in the United States, everyone cashed in; risk was a quaint, old-fashioned notion.
“Our model was speculation,” Ignacio Blanco, a politician from the left-wing Esquerra Unida told me.
Valencia was bad, other regions scarcely better. If Castellón has its ghost airport, so, at cost of over $1 billion, does Ciudad Real in the center of the country, another runway picnic spot.
Close to 25 percent of Spaniards are now officially unemployed and over half of young people: The numbers are exaggerated — many work in the black economy while claiming unemployment benefits — but they still tell a real story of pain. For the first time, young professionals are leaving in droves.
Carol Vera, a 30-year-old pharmacist, said the store where she works was still waiting to be reimbursed by the local government for medicines bought six months ago. Her boss depends on a dysfunctional state; she depends on her boss for a job that pays the mortgage. “They keep promising to pay,” she said, “but meanwhile I worry.” She’s starting German lessons and wondering if she and her boyfriend may one day have to move.
Like this pharmacist looking up and seeing a void, many Spaniards are reassessing their country, reborn through the 1978 Constitution after the decades of dictatorship. Franco had tried to expunge Catalan and Basque identity; the bizarre creation of 17 autonomous communities was in part a way to satisfy Catalan and Basque demands for self-government while camouflaging the concessions in something wider. The system is not working.
The crisis has not only revealed the need for radical banking reform. It has revealed a need to rethink relations between the autonomous communities and the central government; peel away layers of expensive functionaries; and arrive at a form of federalism that keeps Spain together while empowering regions.
Having Madrid as the tax collector redistributing to Barcelona and Valencia is cumbersome and provocative. The country’s new high-speed trains are impressive, but it’s striking — not least to Catalans — that all lines lead to Madrid.
Rajoy, a moderate in a party that stretches to the far right, is going to have to get over the old centralizing ardor of Castile to reach a new accommodation. He is also going to have to prove a lot more nimble and determined than he has until now to tackle the crisis. “Whoever is in government now is probably going to lose the next election, so Rajoy may as well do what needs to be done,” said Moya-Angeler.
In Catalonia anger is rising. Some 10 percent of the region’s population of 7.5 million joined a huge independence rally last month. Tax grievances have stoked old urges. Artur Mas, the nationalist leader, has called an election for next month that will be a surrogate vote on becoming the “next independent state in Europe,” as one popular banner has it. Catalans have no love for Rajoy’s People’s Party, longtime opponent of its self-governing ambitions.
But already the Catalan business community is muttering. Secession would be hugely expensive; the Constitution bars it. In former times, Spain would have devalued the peseta to regain competitiveness; now it is obliged by the constraints of the euro to tackle its fundamental problems — a painful but necessary process.
In the same way I think the triumph of practical compromise that ushered post-dictatorship Spain into the European Union must offer the model for necessary adjustment — including possible constitutional reform — and the bulwark against fracture. Spain is agonizing but it is not mythical.
Christopher T. Mahoney
Christopher T. Mahoney is a former Vice Chairman of Moody’s.
No, Prime Minister, Spain Is Not Uganda
“Aguanta, somos la cuarta potencia de Europa. España no es Uganda.”
---Text message from Spanish prime minister Mariano Rajoy to his finance minister earlier this year.
I’ve been in the credit analysis business since 1978 and I have seen more than my share of “good” credits turn bad. Among them: Continental Illinois, E.F. Hutton, Drexel Burnham, Latin America, Security Pacific, BofA (the first time), the New York money center banks, the Texas and New England banks, the entire S&L industry, Mutual Benefit Life, BCCI, Mexico (again), Credit Lyonnaise, WestLB, Thailand, Korea, Russia, Lehman Bros. (the first time), Argentina (again), Enron, Arthur Anderson, the entire merchant energy industry, the California utilities, WorldCom, Global Crossing, Bear Stearns, Northern Rock, IKB, Allied Irish, HBOS, Lehman Bros. (the second and final time), Merrill Lynch, BofA (again), Citigroup, Greece, Ireland, Portugal, and now.....Spain.
When credit is all you do, your gut sense should become as educated as your intellect. Good credit people should be able to smell bad credits. When Enron began to unravel in the fall of 2001, I read their 2000 Annual Report. As I read, I got a pit in my stomach, almost a panic reaction. Enron’s glossy and entirely invented report was a blinding array of flashing red lights and warning klaxons. I felt in my stomach the utter bottomlessness of their financial situation. Similarly with Thailand and Korea.
What each of these credits (and many of the other catastrophes listed above) had in common was this: a credit whose trajectory was upward. Bad credits (like Uganda) don’t have credit crises, because they don’t depend on market confidence. It is only the “stars” and the “tigers” and the “most admired” companies and countries like Spain that suffer crises because their psychology and their finances were geared for growth, not for reversal. Bad credits are generally ponzi schemes in the sense that they must continuously borrow more to stay afloat.
Recently I have began I to feel that same fear with respect to Spain, the fear that, like Enron, it is beyond rescue. Like Enron, Spain’s finances are not structured for a credit crisis, only for ponzi-like growth. A cut-off of credit is fatal. I am worried that rescuing Spain is beyond the capability of the mechanisms established to do so. A rough estimate of the price tag for Spain is EUR one trillion, although it could be higher. That is an astronomical sum.
We are not talking about a $30 billion Enron, or a $100 billion Mexico or a $35 billion Greece. Spain is the largest sovereign credit problem since Germany in 1931 . Spain owes the world about a trillion euro in a currency that she doesn’t print.
Unlike the LDCs, she can’t simply impose a payments moratorium and reschedule her bank loans, because her debts are in bonds and deposits, not loans. It is true that many of her official creditors can roll her debt if they choose, and they will have to. But the bulk of her debt remains in unofficial hands, which will not voluntarily roll it as it matures. Spain needs to borrow money from somebody to repay her debt maturities as they come due. That’s hundreds of billions between now and the end of next year. I also don’t know if the ECB will be able to replace all of her banks’ market liabilities with its various loan programs, no matter how low its collateral standards. That’s another huge challenge.
Draghi recently gave a speech in Berlin in which he tried to put a brave face on the situation. Here is the nugget of his remarks:
“My central message to you today is that, provided that all policy-makers persevere with the necessary reforms, we have a number of reasons to be positive about where the euro area is heading. We are seeing signs of improved sentiment in financial markets and we expect the economy to return to growth next year. At the same time, considerable progress is being made on all fronts to strengthen the foundations of the euro area.”
Does that make you feel even slightly better about Spain? When I read this I got that bad credit feeling again. I got the feeling that the captain of the ship wants us to believe that morale-strengthening exercises will restore market confidence, and the ship will sail on.
I have given up on deciding whether Draghi is smarter than all of us, or is himself delusional. In the end it doesn’t matter. Like King Canute, he cannot stop the tide from rising. There is no relationship between what Draghi is saying and what he would ultimately have to do to rescue Spain. So what if he knows the truth? What difference does that make? How is he going to come up with the money he needs as long as the eurozone's price-stability suicide pact remains in place? He has no path to victory, only more of the same disastrous policies with minor tweaks here and there. He says that the OMT is unlimited, which means in practice one trillion euros: can he do that with his current governing council?
This is where my head is at on Spain, that it is a “caso perdido”. Short-term, it can get rescued and the OMT can help. But the restoration of market confidence and market access seems like a chimera. Spain can’t throw her engines into reverse because there is no such lever on her control panel. She needs a new central bank, quickly.
Si (
No(
