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Business Over Tapas (16th May-13)

By Lenox Napier and Andrew Brociner

miércoles 22 de octubre de 2014, 11:21h

A digest of this week's Spanish financial, political and social news aimed primarily at Foreign Property Owners: with Lenox Napier and Andrew Brociner. For subscriptions and other information about this site, go to http://businessovertapas.blogspot.com [email protected]  

Note: Underlined words or phrases are links to the Internet. Right click and press 'Control' on your keyboard to access.

Editorial:

I had dinner on a terrace in Madrid on Monday night and, with a whisky tinkling merrily in my glass, I turned to the next table, a trio of Australian tourists. I told them some stuff about Spain, like how hard it was to get a job here, how Andalucía had an even harder time of it and so on... and they told me a few things about Australia, a country which I discovered has an unemployment rate of just 5.5%. Well, I could have swallowed my kookaburra.

Housing:

From El Mundo comes some figures on house-sales. These will be different from coastal and holiday homes, but not perhaps by very much:          'The sale of housing fell by 24.7% in the first quarter of 2013 compared with the same period of the previous year due in part to the change of the tax treatment of housing that produced a temporary advancement in the decision to purchase, according to the General Council of Notaries.

Between January and March 2013, the average price per square metre fell by 16%, while in the case of apartments, prices fell by 17.3% and the number of transactions contracted by 25.1%.

Statistics also show that the total number of new mortgage loans signed during the first three months of the year decreased by 27% in relation to the same quarter of 2012, and those earmarked for the purchase of housing fell by 35.1%.

Just in March, the number of house-sales recorded a year on year decline by 31.1%, and, in the case of apartments, the volume of transactions fell by 32.3%'...

'A Spanish law allowing some construction to take place closer to the coast was approved by parliament on Thursday, raising alarm among ecologists and opposition parties who say the change could further blight the Mediterranean shoreline.

The new rules, which replace a stricter but oft-flouted law from the 1980s, reduce the area where construction is completely banned from 100 to 20 metres from the coastline, with building to be allowed in exceptional cases in the 80 metres in between.

Spain's ruling People's Party, which passed the law thanks to its majority in parliament, has argued it would give greater security to thousands of home-owners, including many foreigners, who might otherwise have lost their houses because they were in previously illegal areas or had invalid licences'...  (From Reuters)

The Gibraltar Chronicle takes a look at the new Coastal Law:      'A Spanish law allowing some construction to take place closer to the coast was approved by parliament on Thursday last week, raising alarm among ecologists and opposition parties who say the change could further blight the Mediterranean shoreline.

The new rules, which replace a stricter but oft-flouted law from the 1980s, reduce the area where construction is completely banned from 100 to 20 metres from the coastline, with building to be allowed in exceptional cases in the 80 metres in between.

Spain’s ruling PP, which passed the law thanks to its majority in parliament, has argued it would give greater security to thousands of homeowners, including many foreigners, who might otherwise have lost their houses because they were in previously illegal areas or had invalid licences.

A property boom from the mid-1990s led to an explosion in holiday homes, hotels and resorts, especially along Spain’s sunny eastern and southern coast, until the market crashed in 2008 and many indebted developers went bust'...

There was some fuss over the week-end when a senior TV journalist and anchor found her report on the Ley de Costas had the bit about 'the PSOE and ecologists are not happy at this development (etc)'  excised from the main lunchtime news. This as criticism grows about the veracity and impartiality of Spain's public broadcasters...

A town hall meeting in Serón, a small town in the high hills of Northern Almería famous for its jamón and its old mines, has agreed unanimously that the vecinos must look after their old ruined houses in the old town – or lose them. Lose them to anyone who is prepared to 'move in and fix them up'.

But wait, isn't the Spanish coast home to lots of British and international criminals? The Guardian would have us believe that this is the case:  'Cheap property, ex-pats to blend in with, easily obtainable false documents: there are many reasons why Spain remains popular with people who would rather keep a low profile'. An extract from the article:   '...Since 2004, the European arrest warrant has allowed for the speedy repatriation of wanted men, but there are still good reasons for fugitives to choose Spain. The collapse of the Spanish property market means that villas – with or without bulletproof glass – are very cheap. Around a million Britons already have properties in Spain and many more come for holidays so it is easy to blend in. False documents are easy to come by.

Crimestoppers, the charity that helps track down criminals, runs a regular series called Operation Captura with the faces and descriptions of wanted Brits at large in Spain. So far 50 of the 65 people on the list have been caught and the Spanish police are happy to cooperate with their British colleagues and send them home, not least because many of them are involved in drug-smuggling. The latest batch of 10 most wanted includes a couple of men sought for murder. Only last week the Spanish police arrested some Britons in Denia, not far from Calpe, who were found with 700 cannabis plants on their property.'...

Finance:

With the alarming headline: 'Spain is officially insolvent: get your money out while you still can', The Telegraph runs a story that continues    -       'I'd not noticed this until someone drew my attention to it, but the latest IMF Fiscal Monitor, published last month, comes about as close to declaring Spain insolvent as you are ever likely to see in official analysis of this sort. Of course, it doesn't actually say this outright. The IMF is far too diplomatic for such language. But that's the plain meaning of its latest forecasts, which at last have an air of realism about them, rather than being the usual dose of wishful thinking.

Let's take the projected budget deficit first. This is expected to decline quite steeply this year to 6.6 per cent of GDP, but that's mainly because the cost of bailing out the banking sector fell substantially on last year's budget. On a like-for-like basis, there has in fact been very little fall in the underlying deficit. And nor on the present policy mix is there ever likely to be, for that's where the deficit is projected to remain until the end of the IMF's forecasting horizon in 2018'...   El Mundo and others run the story, letting the comments section tell of Spain's indignation at the British article... The writer for The Telegraph article defended his position the following day (last Saturday) with a second piece which points out  -   '...Mine is not a story as such – it is what used to be called a "scoop of interpretation". I've merely taken some quite alarming IMF forecasts and drawn some obvious conclusions from them. Perhaps I'm wrong – that there is no solvency problem in Spain. If so, my words will carry no weight. That's the thing about bank runs'...

'Spanish Economy Minister Luis de Guindos on Tuesday proposed that Europe should provide protection for deposits of more than 100,000 euros in the event of bank failures, arguing that the current guarantee limit of 100,000 euros is “artificial.”

Speaking to reporters in Brussels after a meeting of European finance and economy ministers, De Guindos said that guaranteeing bank deposits of 100,000 euros or less is not in doubt, but that there are moves to reach agreement providing protection for amounts of over 100,000 euros as well, in the case of exceptional circumstances and based on very strict rules.  “We have to send a very clear message: that deposits are adequately protected,” De Guindos said'...  (From El País in English). 

Later in the same article comes: '...Separately, De Guindos said Spain booked a trade surplus for the first time on record in March of around 600 million euros. “Spain had never had, since records began, a monthly trade surplus,” Bloomberg quoted De Guindos as saying. “This shows how exports have improved and that they are the main driver of Spain’s recovery and of the transformation of the economy'...

The new money that is coming in, mainly from America and Britain, buying up the troubled property portfolios of the banks at huge discounts, is known as 'vulture funds'. El Mundo introduces us to some of them here.

'Fresh with having created the Sareb or 'bad bank' to help citizens to be part of the toxic assets from the Nation's banking sector, today we present to you the 'bad motorway', the new company that will swallow, with our help, the toxic assets of Spanish construction companies. All of the autopistas that never went anywhere interesting and on becoming clear that they would not be profitable will pass into the public sector. No doubt we shall be told that this manoeuvre is vital to help get us out of the current economic crisis.

The public company that will help finance the ten motorways at risk of bankruptcy shall forward 608.5 million euros, 'enough to help the companies concerned' according to estimates made by an external and independent consultant to the Ministry of Public Works'...

Story at Gurusblog.

'Maintaining Spain's autonomous communities costs 86.333 million at current expenditure

In total the communities spent 163,000 billion in 2011, representing 15% of the gross Interior product of Spain. (Headline from Libertad Digital, Feb 2012) 'According to the data consolidated by the national accounts, prepared by the Ministry of Finance, the autonomous communities spent in 2011 more than 86,000 million euros in operating expenses, representing approximately 8% of the GDP. This means that almost one-tenth of the value of all goods and services produced in Spain in 2011 were intended to keep the autonomic system afloat.

Current expenses include salaries of staff in the service of the autonomous communities, the expenditure necessary for the operation of its various services such as maintenance of buildings, rents, electricity, phone and other supplies, and finally financial expenses to meet the interest on the debt that all of them accumulate'...     There is a certain justification in Spain to scrap the autonomies and return power to Madrid, which would certainly lead to massive savings (and rather less ambiguity, corruption, waste and so on). Without going any further into the subject, the autonomies have 114 'embassies' in different capital cities across the world, which cost 150 million euros a year (Periodista Digital)... London has Andalucía, Cataluña and Valencia; Stockholm has Castilla y León; Paris houses Andalucía, Cataluña and Galicia and so on...

'Lloyds Banking Group has snubbed British ex-pats with its decision to sell its branch network in Spain. The bank, partly owned by UK taxpayers, is offloading 28 branches to Spain's fourth-largest bank Banco Sabadell as it scales back its international businesses.

The branches, which mainly served about 50,000 ex-pat mortgage customers, were originally branded under Lloyds or Halifax but have traded under the Lloyds Bank International banner since 2010. Lloyds will take a £250m hit from the loss-making business, which has suffered as a result of the faltering Spanish property market'... (From The Telegraph)

'The State has approved a deal in which Unicaja, Andalucia’s biggest savings bank, takes on Banco CEISS without paying a cent. Banco CEISS was formed out of the ruins of Caja España and Caja Duero. It too, promptly went bankrupt. The taxpayer has so far injected 525 million euros into this train-wreck. A free bank and write-off of 525 million in taxpayer money – excellent stuff! However, Unicaja has, very sensibly, refused to accept ANY of the liabilities of CEISS. Instead, all assets of CEISS will be turned over to Unicaja, giving the savings bank a lot of new offices; the taxpayer sends all of the bad debt, liabilities and taxpayer loans to the FROB, the state owned “bad bank”.'...   (From David Jackson)

The AVE high-speed train that will whoosh through our quiet corner of Almería, stopping now and again at the Vera station to allow an elderly lady in black with her chicken to get off, has been put on the back-burner or worse, as the European Commission has decided that the Almeria-Murcia link is expensive and without much point. At least until 2020, Brussels says it won't put in any cash, and that Spain will have to go it alone on that stretch of line, which it is unlikely to do. The so-called European Corridor will connect Algeciras, via Granada, to Murcia and Cartagena. The port of Almería also loses out in favour of both Algeciras and Cartagena... (From The Entertainer Online)

The Spanish tourist board is currently excited about 'Health Tourism'. Wealthy people coming to Spain for a cure. Two pieces from Europa Press here and here:         

'...Health tourism has acquired greater relevance in Spain in recent years, since it attracted more than 20,000 international tourists in 2012, according to the Secretary of State for tourism, Isabel Borrego. She pointed out that increasingly, national and international tourists visit the Spanish spas or carry out health-related travel. In particular, last year 21,868 international tourists voluntarily chose to come to Spain to carry out treatments for health, according to data provided by Turespaña, with an expenditure of visitors who opted for this segment of tourism of 12.1 million euros'...         

'...Representatives from American World Clinics (AWC) recently visited Las Palmas de Gran Canaria as part of a trip that aims to promote a project of more than 150 million euros of investment to build a new hospital. According to the platform in a press release, this proposal will promote health tourism in the region and the creation of over 200 jobs'...

From a Caribbean site called Devibes, discussing the activities of AWC which runs a hospital in The Bahamas, there is this:    ...'“No one is going to places with cold climates for medical tourism,” said the president of AWC Robert Priddy. “We believe The Bahamas is a perfect location in this region and gives us an opportunity to provide the best of global health care to patients from around the world and here in The Bahamas.”

Using a business model involving the export of US medicine, AWC hospitals target medical travellers, the expatriate community and local patients seeking the US standard of medicine and medical care in some of the world’s most desirable tourist and business locations. Once established, AWC will staff its hospitals primarily with US-trained physicians – which include local doctors — and will seek the most advanced accreditation standards for its facilities.  AWC has targeted Barbados, The Bahamas, the Canary Islands, Uruguay and several Far Eastern locations as flagship enterprises. It is working closely with local governments in developing their hospitals and presents a unique public-private partnership model that will bring considerable wealth to the host countries'...

World Asset Declaration:

Just after the final date to declare one's world holdings, comes a call to the Government freeze the World Asset Declaration from the Town Hall of Jávea. The story comes from The Round Town News:  'A Costa Blanca town hall has called for the Ministry of Finance to put its controversial asset declaration law on ice and rethink how foreign holdings should be reported.

Jávea Council has officially declared its opposition to Law 7/2012 and regulation 720 under which Spanish nationals and ex-pats considered tax residents must declare overseas assets worth more than 50,000€ - or face prohibitive penalties.

The town hall is the first to take such a stance and has called on other municipalities with large number of foreign residents to support its stance.

It urges Madrid to place a moratorium over the legislation in order to properly inform all taxpayers of the regulation and to adapt the model with simple, easy to understand forms that did not require submission by digital means “and the removal of disproportionate penalties.”'...   Later, Business over Tapas received word that the nearby town of Benissa has passed a similar draft motion.

The Telegraph runs sort of a 'puff' as a story on the World Asset Declaration which begins: 'Expats feeling the pain in Spain should think twice before fleeing.  There have been reports that Brits are leaving Spain due to new financial reporting requirements - but the new rules needn't spell the end of their dreams'. The story here.

Politics:

'The new deficit target of two percent of GDP that Prime Minister Mariano Rajoy plans to grant Catalonia has triggered criticism from other regional premiers who say they want the same preferential treatment.

While the official target is 1.2 percent for all the Spanish regions, on Saturday Finance Minister Cristóbal Montoro stated that a deficit of more than two percent for the Catalan nationalist government of Artur Mas is not negotiable.

Leading members of Spain’s ruling Popular Party (PP) have expressed dissatisfaction with this asymmetrical system.

Extremadura premier José Antonio Monago has warned Madrid that he will not allow Catalonia to benefit from other regions which are “compliant” with the target. He accused the Treasury of wanting to be flexible “with those who say no to the Constitution and to the Treasury,” meaning the Catalan government and its pro-independence rhetoric. Monago also noted that the deficit targets for the period 2012-2014 were reached by consensus, and said any region wishing to exceed the 1.2 percent ceiling must “ask for other regions’ votes.”... (From El País in English).

Following on from the above, at Ideal:   'Several autonomous communities governed by the PP have responded to the request of Mariano Rajoy, to negotiate the distribution of the deficit across the autonomies in a fairer fashion and have asked that he rewards those regions have made more efforts to reduce it. The Presidents of Galicia, Madrid, Extremadura and the Valencian Community have echoed the claim made by Rajoy when he asked the communities to show 'intelligence and grandeur', as well as 'good sense and generosity' to achieve a mutual agreement together on the regional distribution of the deficit'...  Later, two more PP fiefdoms, Cantabria and Castilla y León, joined the group critical of any preferential treatment for Catalonia. 'We don't approve of a citizen of Castilla y León being obliged to pay for the Catalonian public television, their independence lunacies, their politics or their embassies', said a spokesperson for the Junta de Castilla y León. 

Pedro Pacheco, the ex-mayor of Jeréz de la Frontera, has been handed down a 4,5 year jail sentence for obstruction of justice, embezzlement and forgery. Some say that he also made the political blunder of not being a PP or PSOE mayor (Pedro was an Andaluz nationalist in several similar-sounding parties and was mayor from 1979 to 2003).

Various:

From USA Today: 'The former treasurer of Spain's ruling party – indicted. The former head of the country's Supreme Court – resigning in disgrace.

These are a few of the 1,600 cases involving embezzlement, tax evasion, kickbacks and Swiss bank accounts by high-level officials that have hit the desks of prosecutors since the euro crisis began five years ago and devastated Spain.

But the scandal being talked about around Spanish water coolers and in cafes and bars is a case that could land a Spanish princess in jail and topple the Spanish monarchy.

Last month, Princess Cristina was indicted on charges of complicity in fraud, tax evasion, money laundering and embezzlement, the first member of a European royal family to be charged in a serious crime in centuries.

The principal case revolves around her husband, Duke of Palma Iñaki Urdangarin, who is accused of fraud, tax evasion, forgery and the embezzlement of $7.8 million from regional governments through inflated contracts via their non-profit organization, Institute Noos'...

'Large corporations today are much worse than were those fearsome and authoritarian kings of medieval times. They are more dangerous because they are not sensitive to the population at large but would rather that they would become their accomplice, making them supporters of their existence. They want to get into our head the idea that 'if it is good for the company, it is good for society and therefore for our safekeeping', and that of course is the worst way that we can think', explains Peter Linebaugh in Midnight Notes'... (which appears to be a Marxist collective). Taken from La Marea.

 

The Spanish Economy

By Andrew Brociner

Bleak House

Last time we looked at the new statistics which came out – confirming our assessment of the Spanish economy – as growth was revised downwards by the IMF and debt upwards. We looked, in turn, at what lies behind the statistics, but this time it would be instructive to continue elaborating on just what the situation is and what it implies for the future of Spain.

First of all, the situation is worse than some people might realize and especially worse than politicians want people to know. Some of the ramifications are even worse than the politicians realize. That growth was revised downwards was perhaps no surprise to many people, but if we think that growth was -1,4% last year and forecast to be -1,6% this year, the situation is clearly troublesome. The government continues every year to delude the population that there is an impending recovery just around the corner, only to have to accept that it has not taken place yet, but that next time will be different. Indeed, the government even had the effrontery to say that it will turn the latest IMF predictions around. As we have said before, there is nothing at the moment to suggest that growth will resume again and, at most, we might see some marginal growth oscillating around zero, but certainly not the kind of rebound the government is alluding to.

If we look at the revised set of IMF predictions for growth over the next few years, we see that growth in Spain is forecast to be about 0,5% for 2014 and then to climb to 1,5% by 2016 and to remain there until 2018, which is quite optimistic, but at least has been revised down and, therefore, displaying some realism. The same organization predicts much stronger growth of  2,7% for Ireland and 3,3% for Greece by 2018. Given that the IMF’s new optimistic forecast is 1,5% for Spain all the way up to 2018 – and, as said, it will most likely be revised down again – the worrying underlying implication is that the IMF sees the future trend growth rate for Spain as now lower than before. To put this in other terms, even in the best of scenarios, do not expect Spanish growth to resume to anything like what we might have considered normal before, because the underlying parameters have changed.

From our vantage point, 2018 is quite a long way away and the forecast – even at it s most optimistic – is not going to be much cause for rejoicing. And what the forecast and its horizon implies for unemployment is very worrying. The IMF forecast for Spanish unemployment in 2018 is 22,9%, and even that is assuming its high estimate of growth of 1,5%! In fact, we can see, in the next graph, that the slope of the curve more closely resembles the kind of unemployment reduction we were seeing during the boom than what will no doubt occur in the next few years.

In other words – and any way you care to look at it – Spanish unemployment is not expected to decrease below the 20% mark any time this decade. This is an enormous concern because it implies that the problems we are seeing will not go away any time soon and a whole generation will be resigned to this state. If a more realistic forecast for growth of 0,5%, or even 1%, for those years is assumed, one has to ask a fundamental question: how can anyone expect any job creation to take place? We really are talking about a lost generation, with all the related problems we are witnessing now. Meanwhile, the government – which is trying desperately to buy time until “something” (and, at this point, there are doubts the government itself has any idea of what that “something” is) happens – is still trying to deceive people with its poppycock of growth and job creation and the end to the crisis taking place just next year – which, until very recently, was supposed to begin at the end of this year! The reality of the situation is quite different: the government’s deplorable inaction is prolonging this situation and its consequences to such an extent that we no longer speak of crisis, but of a way of life. It is important to note that 2018 is a full decade after the onset of the crisis and if we fast-forward to that date, we can imagine what the forecast will be then: unemployment to fall below 20% by 2023, not to speak of unemployment among the young. Someone who was just 25 in 2008 would be 40 by then. Unfortunately, a multitude of people will live with this situation for what is the most productive part of their lives.

Finally:

Ben Cardew writes in El País in English about how he misses the freedom of being a tourist in Barcelona. An extract:             '...I have found myself lately envying the endless tourists sunning themselves on the beach or queuing for the Picasso museum. In them, I see the same feeling of freedom I experienced some 20 years ago.

Why does Barcelona, home to staggering youth unemployment and a shocking number of bank repossessions, represent such freedom? It’s hard to say. On the one hand, for visitors from Britain the laws on things like selling alcohol and opening hours are far more relaxed. You will get told off by the police and possibly fined for cycling on the streets in London. In Barcelona, no one really seems to care.

Then there’s the place itself: cities on the sea and great ports always seem to possess a great freedom, as if the sea and the transitory population it brings cannot stand to be cooped up and enslaved. Barcelona, with both beach and port, gets a double helping.

It is in the politics too: Barcelona’s fierce left-wing history and spirit of independence – much like a sunny Manchester - can be felt in the city’s streets. It seems right, somehow, that Barcelona should be one of the last bastions of the anarchist movement in Western Europe'...

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