Next year I will turn 80 years and it’s time for retirement. Over the past few years I have had health problems, making the task of writing the weekly reports more arduous: I have decided the time has come to tread more lightly. Thus, I ask our readers to please stop your permanent transfers to our bank account, which has now been closed.
Help at hand
I know how important a continuing flow of information can be for foreigners with interests in Spain and thus I am pleased to tell you that our long-time associate Lenox Napier will be writing a weekly column on Spain and its foreigners; on a non-permanent, voluntary basis, I will be contributing articles on the economy.
In a separate letter, Lenox will present himself, and his weekly column.
Thanks to all
I want to say thanks to all our faithful readers, some of whom has been with us since the very start in 1982. I also send my special thanks to John Carrington, who for several years has been editing the reports, making my English more precise. Also thanks to my wife, Heidemarie Svensson, who from our home in Hamburg has attended to the administrative end of the operation.
Summing up
This is not the last report, they will continue until Christmas, concluding with a Final Report summing up my past 46 years in Spain, among its foreigners.
Best greetings
Per Svensson
Massive General Strike hits Spain
On Wednesday Spain was partly paralysed by a massive general strike, supported by almost all sectors of economic activity, in a protest against the Government’s harsh cuts in living standards.
Fourth eviction suicide
A 53 year old woman jumped to her death from the window of her fourth floor apartment in Barakaldo (Vizcaya) when she and her family were on the point of being evicted for not being able to pay the mortgage. This is the fourth known suicide due to eviction, and it has unleashed a protest movement, so determined, that the government has had to react.
Several banks have ‘temporarily’ stopped planned evictions, an association of police officers is supporting officers who are refusing to take part and the opposition party PSOE has proposed changes to five laws to stop the ‘inhuman procedure’ which, together with the government, has reached an agreement to avoid evictions in some cases.
Since 2006, courts approved 396,943 evictions; 29,275 of which were in the second quarter of this year.
PP down 8.7% in poll
A public opinion poll, showed the governing Partido Popular is down 8.7%, compared with the election results last year; a serious warning to Prime Minister Mariano Rajoy. If elections were held today, PP would have 35.9% of the vote, against the 44.6 in the last elections.
However, the opposition socialists do not profit from the PP downturn, scoring only 28.6% in the poll, against 28.7% in last elections. Leftist IU is up 2.52 points to 9.4%, and UPyD has a following of 7.3%. The Catalan secessionists in CiU are losing support on 3.9%, against 4.17 last year.
2.5 million in severe poverty
A survey carried out by the Foundation of the bank La Caixa, has revealed 2.5 million Spanish are living in severe poverty (income of less than 3,700 euro p.a.) with more and more people searching for food in rubbish containers.
Inflation reaches 3.5%
Prices increased 0.8% in October, bringing inflation to 3.5% on October last year; the fourth consecutive month of price-hikes. The increase is mainly due to more expensive clothing and shoes, and increases in the cost of education and food.
Value of dwellings down 12.5%
According to research by the respected agency Tinsa, the average value of dwellings in Spain fell 12.5 in October, with the largest falls reported in the capitals and major cities.
The Agency maintains that dwellings along the Mediterranean coast have fallen on an average 39.8% since the peak in 2007.
IBERIA wants to sack 4,500
IBERIA, losing 1.7 million euros a day due to the high cost of operation, is planning to sack 4,500 employees, 15% of the staff. The company is now negotiating the plan with the trade unions; the final decision will be made in February.
The company is also proposing a reduction of 47% in the salaries of the ‘overpaid pilots’.
242,241 less mobile phone customers
The number of customers using mobile phones fell by 242,241 in September, due mainly to fewer Movistar and Vodafone customers, the eight month of decline.
Movistar lost 253,520 customers in September, Vodafone 178,300, whilst there were gains by Orange up 24,660, OMV 124,870 and Yoigo 40,040.
Cost of dying 3,700 euros
The cost of dying and being buried in Spain has a average price tag of 3,700 euros, plus VAT of 21%. Funeral services providers have been forced to reduce prices due to the crisis, and are now offering financing for the costs.
IMF pressures Spain on rescue
The International Monetary Fund is increasing the pressure on Spain to apply for a rescue from the European Union, to avoid high cost for their financing. In a document they say that the countries under pressure must implement adjustments and if necessary use the rescue program agreed recently.
EU: Higher Spanish deficit
In a forecast recently published by the European Commission, the picture for Spain is grey, if not black. It is anticipated Spain will have a deficit of 8% this year, 6% in 2013 and 6.4% in 2014. The expectations of the Government are 6.3% this year, 4.5 in 2013 and 2.8 in 2014.
Moreover, the Commission expects economic activity in Spain will fall 1.4% this year and the next, recovering to 0.8% in 2014.
The crisis of the week:
The country risk has increased to 465 points and the interest rate on 10 years public bond is at 5.97%
Economics Nobel prise winner Joseph Stiglitz, says, ‘there is no basis for saying that we are closer to the end of the crisis…..’
The collective of technicians at the Ministry of Finance estimate that the loss of 504,500 jobs in the third quarter means 1,314 million euros less tax income for the state
The big three banks, Santander, BBVA and Caixabank, lost 3,633 million euros in profit in the first 9 months of the year, a reduction of 63% compared with last year. The reason being provisions for the reduction in the value of property loans
In a case of criminal management of the entity , the judge has imposed a bail payments totalling 10 million euros on five former directors of NovacaixaGalicia
247,172 million euros of direct investment left Spain during the first eight months of the year, meaning a multiplication of 620 on that of a year ago
The Norwegian pension funds (Oil Fund) in reducing its investments in Spanish and French public bonds, is continuing the trend of last year, when their investments in Spanish bonds were cut by 29%
The New York Times has published the names of rich Spaniards who have large sums in foreign banks, not declared to the Spanish tax authorities. The newspaper mentions first of all the Botin family, the very influential owners of Banco Santander, who have had 2,000 million euros stashed away in the Swiss bank HSBC since the Spanish civil war. The newspaper
prints the names of 569 Spaniards, mostly from politics and business, including former Prime Minister from PP, Jose Maria Aznar; the father of Catalonia President, Artur Mas; PP General Secretary Dolores Cospedal; former President of the International Monetary Fund and the floundered Bankia, Rodrigo Rato; Cesar Alierta, President of Telefonica; Narcis Serra, socialist party of Catalonia; Eduardo Zaplana, former PP President of the Valencia Region; Miguel Boyer, Minister of Finance in the first socialist government; Carlos Solchaga, also a socialist Minister of Finance; Abel Matutes PP politician from Ibiza and Angel Acebes, Minister in the PP government of Aznar…..
Hundreds of thousands Greeks took part in a general strike against the proposal for new cuts in salaries and pensions (already trimmed 30%) and 40,000 demonstrated before the Parliament building. Obviously, Greece is not able to meet debts due this month and the Eurogroup is divided on how to meet the situation. Greek debt now stand at 327,000 million euros, 128,000 million to countries in the Euro Zone.
Real Estate Companies
El Mundo reported that in January 2012, the number of real estate companies stood at 175,201, up 1.3% from a year earlier. However, despite the growth in the number of registered companies, the negative performance of the business in recent years has meant that many of them are inactive, in a situation of bankruptcy or liquidation.
Companies without any salaried employees in January 2012 accounted for 74% of all real estate companies, and those which registered a staff of one or two employees accounted for 21%. Thus, less than 9,000 of the around 175,000 registered companies had more than two employees, while only 53 companies exceeded a hundred employees.
The top ten companies in terms of turnover in 2011 registered revenues of 3,436 million euros, compared to the 4,859 million euros recorded in 2010, marking a negative variation of 29.3%. The evolution of the top 20 and top 30 groups of companies was slightly more negative.
Thus, the 30 biggest Spanish real estate companies accounted for a combined turnover of 6,074 million euros in 2011, which was 32% less than that registered in 2010.
The Russians Are Coming
Lenox Napier
The cliché of all bona fide estate agents, 'the green shoots of recovery', is beginning to resound again along the costas as properties are being snapped up by foreigners. Paying usually in cash, the buyers have been doing their homework on the Internet and they are buying cheap discounted apartments by the hundreds. An estate agent in Benahavís (near Marbella) says that sales have increased in the past year by a satisfying 220%, precisely because 'prices have fallen by up to 70% from 2006 levels'.
This time, it's the Russians who are buying. To not put too fine a point on it, the Spanish Hacienda is hardly bothered by where the cash comes from, as long as it's coming. One of two bed-roomed apartments in the resort towns and estates of the Spanish coast are in demand, usually those going for under 100,000€ .Other nationalities too. The British are still shy, having seen too many 'Paradise Lost' TV shows and read too many articles about Len and Helen Prior, now cresting their fifth anniversary in Vera among the ruins of their home. But the Belgians, the Germans and the Scandinavians are all waking up to the perennial offer of good weather and cheap real estate that Spain is once again able to offer.
These homes being sold by the agents are doing the major banks little good however. The typical toxic promotions now held by the new 'Spanish Bad Bank', the Sareb, were built as apartment blocks in and around the country's major cities. The Spanish, thanks to the extreme crisis, can not afford to buy them, while the foreigners simply don't want them. Barrios on the edge of a bus line in Madrid or Seville will never be the haunts of Europeans or Russians, who would be as out of their depth in an all-Spanish environment as if they moved to Glasgow.
Other foreigners are putting up their hands for apartments as well; but this time, they like the City. In Alicante, for example, Algerians are snapping up second homes. It's just a twelve hour ferry to Oran. A notary in Alicante is on record as saying that some 25% of all house registrations under his pen have come from Algerians, while a local agency called Tecnocasa claims that well over half of its sales since July have gone to Algerians.
However, it's the Russians who are buying the most. According to Masa International, Spain is seen in Moscow as the fashionable place to have a holiday home: in fact, there are now 250 agencies in that city who specialize in Spanish sales. While the Spanish have never quite understood why foreigners like 'to stick together', crafting Spanish towns and resorts as far as possible into mono-cultural conurbations, like the Germans with Mallorca or the British with their Fuengirola or Mojácar, it's clear that the Russians prefer the Costa Dorada. The agency Europa Dom in Tarragona claims that 75% of all their sales are to Russian buyers.
All of this said, with green shoots in the newspapers and Russian language menus in the restaurants, the vast majority of homes bought in Spain this year has been by Spaniards.
SAREB –
The last bullet in the gun of Government
By Per Svensson
Since the property typhoon, unleashed by greedy promoters and silly bankers, departed from Spanish territory, real estate agents, banks and local politicians have been trying to sell the wreckage to unsuspecting foreign investors, assuring them that now ‘all legal guarantees are in place’. The assurances and the road shows abroad have been futile; the foreign property market continues in coma.
With the enormous size of the property bubble which exploded in the face of property speculators and local, as well as national politicians, Spain has become in danger of financial and economic collapse. Tens of thousands of property companies, builders and suppliers are out of business and millions of workers unemployed. Many of the banks and saving banks which financed the bubble have disappeared or have been swallowed by other entities.
The wily politicians have spent enormous amounts trying to shore up the banking sector, the Government requesting help from the European Central Bank and having been given promises of up to 100 billion euros for this noble undertaking. Foreign consultant companies have estimated the financial needs of the Spanish banking sector at 60 billion.
SAREB – the ‘bad bank’
The Government, in great haste, has now set up a ‘bad bank’ by the name of SAREB, to drain the toxic property assets out of the wobbling banks, and will try to sell them on, or eventually will destroy them.
On Friday last week a ‘Royal Decree’ was passed setting up the SAREB, intending to get it up and running by 19th of this month. In a first round the non-selling properties of the banks that are surviving on government aid, including Bankia, Catalunya Bank, Novagalicia Banco and Banco de Valencia, will be transferred to it. This transfer amounts to 44 billion euros, However, the other surviving banks are invited to join in the great rescue party, thus SAREB may end up with assets of 90 billions, in property and rotten loans. The assets to be transferred include all those properties, which the banks have received in exchange for payment of debts by promoters, or which were promotions of their own.
Dwellings with a value of less than 100,000 euros and property loans of less than 250,000 will not be transferred. As we have reported previously, SAREB will be taking over the assets at substantially discounted rates on their ‘nominal values’ that is, closer to their real market value. Completed dwellings will have a ‘haircut’ of 52.2%, unfinished projects 63.3% and building land 80%.
SAREB may form FAB’s, that is Fondos de Activos Bancarios, amalgamating assets to make easier sell-on to professional investors.
The property mountain
At the end of 2011, Spanish banks had 87.5 billion in property assets, represented by 125,000 dwellings for permanent use, 80,000 holiday apartments, 50,000 dwellings not finished and 37.5 billion euros in building land. There are now 1.5 dwelling per household in Spain !
SAREB will be constituted as a bank, and the Government hopes that more than 50% of the shares will be bought by existing banks, capital funds and insurance companies. The Government is calculating that the shareholders in the ‘bad bank’ will get a profit of 15% over 15 years (we have heard many such projections over the years!) by which time it is anticipated the property mountain will have been levelled almost to the ground.
In the Yearly Report of 2010 we calculated that 18 years would be needed to sell all the properties accumulated during the bubble, meaning in 2028. Today the Government itself aims at doing so over the 15 coming years, meaning in year 2027 ! Our judgment could hardly be better.
SAREB may also rent out finished dwellings if they cannot find buyers for them, and it may repair or complete dwellings not yet finished. But they can also demolish unsalable constructions. International property consultants Jones Lang LaSalle estimate that between 60 and 65% of the foreclosed properties and bad loans to be hived off by the banks relate to undeveloped land and half-built projects, and that SAREB will have difficulties in attracting investors for them. Rating Agency Fitch expects that the best property will sell off fast but that SAREB will have problems in off loading the rest after two years.
Time to buy?
The discounts of 54 to 62% for half-built or finished dwellings that SAREB will get from the banks will not automatically be passed-on to potential individual buyers.
Moreover, they are calculated on the book value in the accounts of the bank. Then one must take into consideration the sales costs of SAREB and the promised 15% profit to the shareholders.
SAREB will, no doubt, try to sell on some big promotions to long term investors, impressing the world with important results, but as Jones Lang LaSalle warn, after the first start, sales will stall.
If you are a big investor, I would recommend that you are amongst the first to sort-out the raisins in the SAREB cake, examining the projects very careful before signing on the dotted line. If you are an individual buyer of a home in the sun, which will eventually be for your retirement, I would say: Wait, prices are still on the way down. Do not forget that the tax relief for buying a permanent dwelling expires this year and that the VAT for purchasing new dwellings jumped from 4 to 10% in September!
Last bullet is defective
The Government has fired the last bullet in its gun, but it is obviously defective. The reason is that the important experts in the Ministry of Finance have made a strategic error in planning the SAREB. They thought, all that was needed to move Spain’s property mountain was lower prices. They are wrong. The reasons foreign buyers turned away from Spanish properties in 2006 and in following years, were not only speculative high prices, but the many abuses committed. In every town and village of the so called ‘emission countries’ there are victims to tell their stories. Since the Spanish authorities did not want to listen, the list of abuses was presented by the Association AUN and others to the European Parliament. After several EU commission visits to Spain, the EU Parliament with an overwhelming majority summed up the abuses and defects of the Spanish property market in the Auken Report.
The report was sent the Spanish authorities at the beginning of 2009, but still no answer has been given. That is the defect in the last bullet.
EU, IMF clash over Greece revives debt crisis fears
(Reuters) - A public clash between Greece's international lenders over how Athens can bring its debts down to a sustainable level has reignited fears that Europe's troubles could flare up anew.
Euro zone finance ministers suggested Greece, where the euro zone debt crisis began, should be given until 2022 to lower its debt to GDP ratio to 120 percent but International Monetary Fund chief Christine Lagarde insisted the existing target of 2020 should remain, in an unusually public airing of disagreement.
Beneath her sharp exchange with Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, lies a rift over whether euro zone governments need to write off some of Greece's debt to them to make it manageable. IMF officials have pressed for such a "haircut" while Germany, the biggest contributor to euro zone bailout funds, has vehemently rejected it as illegal.
German Finance Minister Wolfgang Schaeuble told reporters on Tuesday that the 2020 deadline was "a little too ambitious".
"There's a debate about a haircut for official creditors. On that I will say, and most countries have said so in the past few weeks, that that's legally not possible," he added.
Chancellor Angela Merkel has signaled she wants to keep Greece in the euro zone but is determined to avoid losses for German taxpayers before a general election in September 2013.
With so much stake, diplomats remain confident that a deal will be done to release a 31.5-billion-euro tranche of bailout money, which Athens urgently requires to avert bankruptcy.
But it is a way off yet.
Financial markets, which have been calmed by the European Central Bank's pledge to buy euro zone government bonds to shore up the currency bloc, took a dim view of the failure to agree.
The euro dipped to a two-month low against the dollar and safe-haven German Bund futures rose to two-month highs.
"There seems to be quite a big difference of opinion between the IMF and euro zone finance ministers ... but our view is still that Greece won't leave the euro zone," Rabobank rate strategist Lyn Graham-Taylor said.
Juncker said a further meeting of the 17-nation Eurogroup would take place on November 20 and officials said more negotiations could be required the week after that to nail down a new deal.
French Finance Minister Pierre Moscovici told reporters that bailout money should flow by the end of the month.
"Our objective is to reach an agreement in principle on November 20 so that we can ... proceed to the disbursement of funds by the end of this month," he said.
The euro later gained some poise after a German government source said the euro zone could decide to bundle several tranches together in a single transfer of roughly 44 billion euros for Greece, to avoid stoking uncertainty with further deliberations in the coming weeks and months.
But that cannot happen until the lenders reach a broader agreement. The delay left Athens scrambling to meet a 5-billion-euro bond repayment deadline on Friday.
Greece sold 4.062 billion euros ($5.14 billion) of one- and three-month treasury bills on Tuesday and while that sale was insufficient to redeem the 5 billion, the debt agency will accept additional non-competitive bids by Thursday, enabling it to raise the full amount.
With Greece's overall debt pile set to hit 190 percent of GDP next year, the IMF has set 120 percent as the target, saying that anything much above that is not sustainable, given Greece's low growth prospects and high external borrowing requirements.
"All avenues in order to reduce debt on Greece are being explored and will continue to be explored in the coming days," Lagarde said.
NUMBERS GAME
If the IMF, which is concerned to avoid damage to its own integrity, were to walk away from the Greek bailout, the euro zone would have to contribute extra funds and its reputation in financial markets could be severely damaged. Equally, if the IMF were to back down, its authority would be diminished.
The euro zone ministers did agree on Monday to give Greece two more years to make the spending cuts demanded of it but by doing so they face an extra funding bill of around 33 billion euros, according to a document prepared for the meeting.
A target was set in March for Greece to achieve a primary surplus of 4.5 percent of GDP in 2014. That will now be moved to 2016, giving Athens some breathing space to temper a deep recession that is to all intents and purposes a depression.
Despite Greece approving a tough 2013 budget on Sunday, which it hoped would meet conditions for the release of the next tranche of emergency loans under its second bailout programme, Lagarde said more work was needed to cement the budget measures.
"There will be a few, only a few, additional prior actions to be verified in the coming days," she said.
Loans have been held up since Athens, which has received two bailout packages from the euro zone and IMF, went off-track with promised reforms and budget cuts, partly as a result of holding two elections in the space of three months earlier this year.
Until the bailout money flows, Greece is issuing short-term paper to keep itself afloat, although the government owes suppliers increasing amounts. Its debt agency expressed confidence that the 5-billion-euro issue maturing on November 16 will be fully funded.
Three officials told Reuters that the "troika" of international institutions - the EU, IMF and ECB - had concluded that Greece's debt burden will fall only to 144 percent of gross domestic product in 2020 and roughly 10 percentage points lower two years later if current policies do not change.
To get the higher figure down to 120 percent of GDP requires lopping the best part of 50 billion euros of Greece's debt pile.
Among the new instruments under consideration to reduce Greek debt are the removal of the 150-basis-point interest above financing costs on 53 billion euros of bilateral government loans to Greece, and lengthening the maturity of the loans.
Greece may also borrow from the euro zone bailout fund to buy back its privately held debt, of which there is 50-60 billion euros, taking advantage of the deep discount it trades at to save money on redemptions and interest payments.
"It may be that we take some measures to reduce interest rates that will have an immediate effect on the budget," Schaeuble said. "Apart from that, we expect that the problems will be solved within the financial framework of the second programme by allowing more time with additional measures.
European economic outlook is still grim
AP
In this photo taken Sunday, Nov. 4, 2012, a man uses a cash dispenser to withdraw money as homeless men sleep inside a bank in Barcelona, Spain. The Labor Ministry says the number of people registered as unemployed in Spain jumped by 128,242 people in October as the countrys recession showed no signs of easing. The nation's unemployment rate is released separately and quarterly. It stood at 25.02 percent at the end of the third quarter. The jobless rate is 52 percent for those under age 25. Spain, the fourth largest economy among the 17 countries that use the euro, is in its second recession in three years. (AP Photo/Emilio Morenatti)
Andy Bruce London
The fourth quarter has so far brought no improvement in the fortunes of most of Europe’s economies, which now risk shrinking more than previously expected, surveys showed yesterday.
Purchasing managers indices (PMIs), which gauge the activity of thousands of companies worldwide, showed euro zone businesses endured their worst month in October since June 2009, with little hope of a turnaround coming soon.
The euro zone relies heavily on Germany, its largest economy, to generate growth. Business activity there shrank at a faster pace last month.
Survey compiler Markit said the latest PMI was consistent with the euro zone economy shrinking at a quarterly rate of about 0.5 percent.
If the PMIs fail to improve for November and December, the euro zone economy could face a hefty contraction in the fourth quarter rather than the stagnation projected by economists polled two weeks ago.
“Given the stabilisation in financial markets, and in consumer sentiment indicators in some countries, we thought perhaps you would see some stabilisation in the PMIs as well,” said Janet Henry, the chief European economist at HSBC. “What’s disappointing about the [fourth quarter] data is the weakness reflected in the core euro zone indicators – the French and German PMIs.”
There were two bright spots in yesterday’s data. The Irish survey rebounded in October and the Italian services PMI, while still showing businesses are struggling, shot above the highest economists’ forecast.
“It’s not all really bad news, but it’s all consistent with a contraction in the real economy. And that’s not what you want when you’ve got really high debt levels,” Henry said.
That applies particularly to Spain, the euro zone’s fourth-largest economy, as its services sector shrank for a 16th consecutive month. Most are saying it is only a matter of time, likely before the end of the year, that Spain asks for a full sovereign bailout.
The European Commission has set dire economic forecasts for Spain until 2014, a newspaper reported yesterday, shooting down the targets set out by Madrid and potentially pushing it closer to seeking euro zone aid.
Markit’s Eurozone composite PMI fell in October to 45.7 points from 46.1 in September, down slightly from a preliminary reading of 45.8 two weeks ago and marking its ninth consecutive month below the 50 mark dividing growth from contraction.
The survey will do little to alter the view of a majority of economists that the European Central Bank will trim interest rates to a new record low of 0.5 percent, although probably early next year rather than tomorrow.
“Sentiment is still being hit hard as companies worry about the dual impact of weak domestic demand and a slowing global economy,” said Rob Dobson, the senior economist at PMI compiler Markit.
Surveys from Asia and the US released on Monday suggest the euro zone will remain the global economy’s principal laggard going into 2013.
Britain’s services PMIs were released on Monday, and suggested its economy slowed much more than expected in October. That compounded a PMI last week that showed UK manufacturing slumped badly in October, ending a run of more hopeful data. – Reuters
Why the Economic Outlook for Spain Is Positively Dismal
By Lisa Abend / MadridOct. 31, 20121
On Oct. 25, Spain’s economic crisis came home to Miguel Angel Domínguez. Owner of a small bookstore in the southern city of Granada, the 53-year-old was due to be evicted from the shop and the apartment connected to it, a place where he had lived and worked for the past 30 years. But just hours before police showed up to turn him out of his home, a brother found Domínguez dead, his body dangling in the patio out back. For Spain, it was the first known case that the crisis had provoked a suicide. Faced with the loss of his home and livelihood, the bookseller apparently believed he had reached rock bottom.
The same cannot be said for Spain as a whole. With every turn of the market and the news cycle, the urgency of the big questions — will Spain take a bailout or won’t it, will the euro as a whole survive or collapse — advances and retreats. But when it comes to how the crisis is being experienced by ordinary Spaniards like Domínguez, the needle moves in only one direction, and that is from bad to worse. The question now is, How much worse can it get?
Quite a bit, apparently. Released on Oct. 26, new statistics for the third quarter of 2012 put national unemployment at 25.2%, with over 5.7 million members of the workforce out of a job. That’s the highest in Spain’s democratic history. Yet in some regions like Andalucia, the figures were even worse. There, unemployment neared 35%. That dire piece of news was followed by word, three days later, that retail sales in September fell by 10.9% over the previous year. And just this morning the National Institute of Statistics announced that the country’s GDP had fallen by 0.3%, making July-September 2012 the fifth quarter in a row in which the Spanish economy had shrunk. It is perhaps an indication of just how grim things have become that the GDP’s failure to fall an additional 0.1%, as predicted by the Bank of Spain, was greeted as good news.
Certainly for the average Spaniard, the situation continues to worsen. “The problem isn’t just that unemployment keeps growing,” says economist José García-Montalvo, of Barcelona’s Pompeu Fabra University. “But that the cushion that has kept people from going under — having a spouse who works, a pension, unemployment benefits — all those are eroding too.”
Indeed, the number of households in which all adult members who want to work but are unemployed is now at 1.7 million — or 10% of the total. And the erosion mentioned by García-Montalvo is happening while the cost of living rises. Inflation is up by 3.5% over the previous year and an increase in the value-added tax on goods and services, which went into effect on Sept. 1 (and accounts for part of the sharp fall in retail sales), has raised prices on everything from milk to movie tickets anywhere from 2% to 13%. According to the Platform for Mortgage Victims, 159 Spanish households are evicted each day from their homes for failure to meet mortgage or rent payments.
How is anyone surviving? Family support plays a large part, making up for much of what the government’s 400 euros ($520) a month to those who have otherwise exhausted their unemployment benefits cannot. “But by themselves those things are not enough to keep people afloat,” says García-Montalvo. “The rest comes from the underground economy.” One study, published in April by the Tax Research Institute in the U.K., found that 22.5% of Spain’s GDP came from work that was off the books.
As that percentage grows, fewer and fewer people are paying taxes. “It explains why we don’t have complete social upheaval,” says economist Manuel Angel Martín, president of the economic commission of the Confederation of Businessmen of Andalusia (CEA). “But it’s a vicious cycle. The more people working in the underground economy, the more state debt grows. And if that grows, it means more austerity and fewer resources to jump-start the economy.”
A new law, which goes into effect on Oct. 31 and prohibits cash transactions of more than 2,500 euros ($3,200), is designed to reduce tax evasion. But neither it nor other measures the government has taken so far will be enough to stop the bloodletting. “The government instituted labor reform, making it easier for companies to fire permanent workers,” says Ignacio García Pérez, an economist at the Pablo de Olavide University in Seville. “But it left the biggest problem, which is the temporary contract, as it was.” Noting that companies frequently let employees go just because their contract is up, he argues, “What we most need is a single contract, with the same conditions for everyone. One in which the penalties for firing aren’t as high as they are now for permanent workers, nor as low as they are for temporary ones.”
Others contend that the problem is largely out of the government’s hands. “Overcoming the crisis will only happen because of the private sector,” Martín says. “It’s only business that can solve the growth problem. But for that to occur, businesses have to have access to credit. Right now, even though rescue funds are going to the banks, the banks still aren’t giving credit.”
Whatever the solution, it seems clear that there is still more suffering to come. None of the economists consulted for this story see an end to the downward trend before the summer of 2013, and all believe that real growth will not begin until 2014. “We have at least two or three quarters more where things are going to get worse,” says García Pérez. “Six million unemployed? We’re going to get there easily.”
Claudia Stefanie Müller and Roberto Centeno *
(This article has obviously been translated by a digital translation program from German and we ask our reader excuse the gibberish)
Germany must condition European aid to Spain
Today, September 6, Madrid are in the governments of Germany and Spain, accompanied by a group of businessmen , and where you discuss the conditions for granting more financial aid to Spain or its banking system. On both sides has increased tone in recent months and it is with great anticipation that Spain now expects the decision will take the German Constitutional Court, it is crucial that, the 12th, on the compliance or non-rescue European and obligations for the Germans.
In Germany growing criticism against the alleged "party mentality" of the Spanish, in Spain's media are increasingly negative with the supposed hardness of Chancellor Merkel. We think the situation is much more complex than presented both governments and most of the media. Spain is not Greece, but Spain can be a chronic patient if Germany, along with Europe, does not contribute to solving their real problems.
Spain should not get more money without thoroughly change the political and economic system, now in the hands of a political oligarchy allied with the economic and financial oligarchy, and without increasing the actual citizen participation in political decisions. To avoid perpetuating the crisis and the Spanish indebted for generations, the Spanish government must thoroughly reform the administration of the autonomous regions and municipalities, mostly bankrupt and completely out of control, subjecting the model state referendum.
This is the key issue of the future of Spain, because the regions, municipalities and county councils are responsible for two-thirds of public expenditure 118 000 234 000 million from the state in 2011 - excluding Social Security-23 000 million, and this expenditure is made under conditions of lawlessness, corruption waste and totally unacceptable. The real reasons for the crisis in the country, in line with what has been said, have nothing to do with wages too high-about 60% of the working population earns less than 1,000 euros/mes-, pensions too high, the average pension is 785 euros, 63% of the average EU-15, or a few hours, as sometimes transmitted from Germany. In Spain also lacks talent or creativity or entrepreneurship. Has great thinkers, creatives, engineers, doctors and managers excellent class.
The reason for Spain's disease is an unviable state model, all source of all corruption and nepotism, oligarchy imposed by a party in collusion with the financial and economic oligarchies, and the judiciary and enforcement agencies to their Service. In Spain there is no separation of powers and independence of the judiciary, and the deputies representing citizens, only parties that put them in a list. This also leads to an underground economy that reaches 20% of GDP and that stifles competition, efficiency and development of the country. Also detracts resources that could be funded education and health.
Aid for Spain, as for other possible candidates for bailouts, banks should not go nearly bankrupt and heavily politicized. In the CAM, the Government has committed 16,000 million of public money instead of closing, in Bankia, 23,000, and just give the Executive urgently 5,000 million to cover losses rather than close it, and also so strangely aroused all kinds of suspicion. Why the money was used by the Spanish (FROB) instead of waiting for EU funds? It is fair to assume that the reason is this: the banks do not want the EU to investigate their accounts.
Strict control and harsh conditions
Why the money was used by the Spanish (FROB) instead of waiting for EU funds? It is fair to assume that the reason is this: the banks do not want the EU to investigate their accounts
Since the case of Greece has shown that European aid must be linked to strict and harsh conditions. These conditions can not only represent brutal social cuts or tax increases, as does the Government now Mariano Rajoy on the grounds of Europe. You have to change more in Spain to cut social spending, that's still much lower than in Germany, and there are other relevant expenses infinitamentemás be deleted. In addition, cases of corruption are so outrageous, even within the government, one can only come to one conclusion: the money of Europe can not be handled by persons so incredibly venal.
Last week the Minister of Industry also accused Soria-planning corruption in Canary-accused Finance Minister in the Cabinet of blatantly favoring the leading renewable Abengoa, which had been an advisor in the new regulation of these energies, which are more than 7,000 million euros in subsidies annually. And Rajoy, who delivered a letter probation, or said and did absolutely nothing.
No longer can afford this level of corruption, let alone running 17 regions as independent states, with all organisms multiplied by 17, from 17 to 17 meteorological services ombudsmen, with 200 embassies, 50 regional TV channels loss, 30,000 official cars or 4,000 public companies employing 520,000 people, created specifically to hide debt and put family and friends without any control or oversight. Altogether, about 120,000 million, equivalent to 11.4% of GDP, are wasted annually in a system of nepotism, corruption and lack of transparency.
And this has to end, among other things, because there is no money. The latest data from known public accounts last week are chilling. The government deficit to July amounted to 4.62% of GDP, compared to a deficit of 3.5% committed to the EU for the year (6.3% including regions and municipalities). But what is really outrageous is that Spain is spending twice what you input. 101,000 million spending July compared to 52,000 million in revenue, and specifically to finance the waste of regions and municipalities, which are in no way committed to fiscal consolidation.
The deficit issue is something that borders on science fiction, and it illustrates perfectly the credibility of the last two governments of Spain. In November 2011, the government said the public deficit was 6% of GDP by the end of December, the new government said it had been deceived and that the deficit was more than 8%, and it took three months to calculate with precision. In late March, said he definitely was 8.5%, and this was the number that was sent to Brussels. Two weeks later, the Madrid said his figures were wrong and the city like the capital ... and the deficit was 8.7%.
However, last week the INE said GDP in 2011 was overrated and, with the new figure, the deficit was 9.1%, two days later, Valencia said its deficit was more than 3,000 million, that is, we are at 9.4% and the other 15 municipalities CCAA and 8120 have not yet corrected its figures for 2011. All we know is that they are all undervalued. The actual deficit for 2011 may be above 11%, and in 2012 they are spending twice what is entered. As the Government of Rajoy, "we are on the path of convergence." And it's true ... convergence towards Greece.
Clearly, the young Spanish democracy still has many gaps and representative democracy that should interest Chancellor Merkel and also to Europe, if we want to avoid a fivefold Greece and save the euro. This is what has allowed massive waste of European aid, with a crazy assignment thereof, even though the aid has been a figure greater than the Marshall Plan for Europe.
It's frustrating because this nepotistic and corrupt oligarchic system shatter talent and creativity and now many young people are forced to work outside, many in Germany. This situation has led to a distribution of wealth that is the most unfair of the OECD. The once strong middle class is being literally wiped Spanish.
In short, not a lack of willingness to work, as it is thought perhaps some northern European countries, making Spain suffers the worst economic crisis in its history. It is a corrupt and inefficient. The criticism of the German government and its conditions for a bailout of Spain should focus on solving these problems. Otherwise, just get a breed that incompetent and corrupt p olitical ruin the nation for several generations.
* Stefanie Claudia Müller's German correspondent in Madrid and economist, Roberto Centeno is Professor of Economics
The New York Times
Greece Drinks the Hemlock
Published: November 8, 2012
Greece’s Parliament did what it had to do on Thursday. Despite some defections from the ruling centrist coalition, lawmakers narrowly approved a $23 billion package of new austerity measures, including further spending cuts to social services, pensions and public salaries, as well as tax increases demanded by Greece’s European lenders.
In return, the troika of official creditors — the European Commission, the European Central Bank and the International Monetary Fund — promise to consider, but not guarantee, reducing the punitive interest rates they charge Greece for bailout loans and unlocking a $40 billion aid payment Athens needs to avoid a default on its debts.
No responsible Greek lawmaker could have ignored the terrible consequences of voting no. But no one can dismiss the threat to social stability from these cuts. Even Prime Minister Antonis Samaras, who fought hard to push the package through Parliament, characterized the cuts it imposed as “unfair.”
The fact is, just about everything in this austerity package has been tried before and failed disastrously. These unpalatable steps will do nothing to make Greece’s debts more payable, bring its budgets closer to balance or help make the structural reforms Greece needs to revive its economy. Instead they will almost certainly further shrink an economy that has already shrunk by an astounding 25 percent over the past few years, making fiscal improvement nearly impossible.
The austerity approach was supposed to reduce Greece’s ratio of debt to gross domestic product. But that ratio has grown, despite debt write-offs and bailouts, because the economy has contracted so much. The new package is expected to shrink it an additional 9 percent.
Greece cannot pay off its debts when it is shutting down its economy. It has to put people back to work. The only way forward is through more debt write-offs and more low-interest European loans, as well as by opening up restricted job markets.
But measures that extend and deepen Greece’s severe recession are certain to intensify public opposition to labor market reforms that could increase an unemployment rate already over 25 percent. And imposing new fuel taxes and health care charges will hurt ordinary people and make a tax system that is scandalously unfair even more so.
Ordinary Greeks are losing confidence in a political system they feel has failed to protect them from economic ruin. Greek lawmakers know this but feel compelled to do as their European creditors ask. And, we suspect, many of those creditors also know that more austerity is not the answer. But so far, they have been unwilling to challenge the leader of Europe’s biggest economy, Chancellor Angela Merkel of Germany, who continues to believe that only economic punishment will push Greeks to reform.
It may be a winning political formula in Germany, where Ms. Merkel stands for re-election next year. But it is a profound, and profoundly unnecessary, tragedy for Greece.
Euro falls with more losses seen
By Philip Baillie
LONDON | Fri Nov 9, 2012 4:55am EST
(Reuters) - The euro hit a one-month low against the yen on Friday and was seen susceptible to more losses due to weak euro zone growth prospects and uncertainty over aid for Greece and Spain.
The single currency fell 0.2 percent to 100.99 yen on the EBS trading platform. It was also down 0.1 percent on the day at $1.2733, close to a two-month low of $1.2717 hit on Thursday as problems in the euro zone dragged the single currency down to its lowest levels since early September.
Germany's Economy Ministry said on Friday that growth was likely to slow in the fourth quarter and the first three months of 2013, further weakening the outlook for the euro.
This followed comments by European Central Bank President Mario Draghi on Thursday that the euro zone economy showed little sign of recovering before year-end, despite easing financial market conditions.
Traders reported stop loss sell orders in the euro at around $1.2715. The currency could extend losses if it drops below this level, although traders also reported talk of an options barrier at $1.2700.
"It was really nothing new from Draghi yesterday and now we are looking at a game of chicken between Spanish Prime Minister Mariano Rajoy and the bond markets for looking at a bailout," said John Hardy, FX strategist at Saxo Bank.
Investors are waiting for signals that Spain will apply for financial aid, which would allow the European Central Bank to buy its bonds, a measure that would lift the euro.
Spain, however, has so far resisted asking for aid. The prospect of ECB support has driven its borrowing costs down and it has met its 2012 bond issuance target.
The Greek parliament is due to vote on Sunday on its 2013 budget. The budget must be passed to unlock a further tranche of international aid.
CRISIS HITS CORE
Figures out on Thursday showed German exports slid at their fastest pace since late last year, adding to evidence that the euro zone's economic malaise has begun to take its toll on the bloc's economic powerhouse.
Data on Friday also revealed weak French and Italian industrial output in September.
"Germany has benefited from the euro zone debt crisis in a way because a weaker euro helped its exports. But Germany appears to be starting to suffer from deterioration in the euro zone economy," said Mitsuru Saito, chief economist at Tokai Tokyo Securities in Tokyo.
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