Spanish life is not always likeable but it is compellingly
loveable.
-
Christopher Howse: A Pilgrim in Spain.
There's an FT overview of the Spanish economy at the end of this post. It seems pretty accurate to me, at least as regards the past 10-15 years. Which I've observed, of course. Oftimes not believing what I was seeing. Here's a couple of negative observations from the Bad Times: PP mayors, ministers and presidents engaged in an orgy of waste, corruption, embezzlement and illegal party funding . . . . The combination of mismanagement, hubris and greed, coupled with a banking system that lent according to political not financial criteria, proved disastrous. Worth a read. Of course, things are much better now and - as a VP of the EU Commission recently said - post Brexit reformed Spain now has a golden opportunity to assume the leadership of Europe.
I've more than once said that there's a different attitude to risk here in Spain. In general, I still think, this is a good thing. But, of course, it has its downsides. Such as the reckless attitude of ADIF/Renfe to the risks inherent in the steep curve on the railtrack as it approached Santiago de Compostela. And then there are the cretins on bikes in Pontevedra's old quarter. Like the one I saw this week, careering downhill along the main street (Rua Real) which serves as the camino. This inconsiderate imbecile was weaving in and out of the pedestrians at great speed, earphones inserted and his hands behind his back. And he's not unique. But no one except me - not even the mothers with toddlers - seems to take exception to this. Just as the police do nothing about the cyclists at night without even a reflector on the back of their bikes. It beats me.
Talking about foreigners . . . Here's The Local's list of the things we do which befuddle our Spanish hosts. Seems accurate to me. Even I am confused by some of these now.
And here's the ever-reliable The Local with a list of Easter dishes around Spain.
Which reminds me . . . Most Spanish pastries are sweeter than those in other countries. No exception was the pastry given to me yesterday by the waiter in my regular bar. They're called cortadillo polvorón and they contain cider. I struggled to eat both of them.
It was nice to see a Spanish commentator saying yesterday that stupid comments about colonies weren't confined to The Sun and The Daily Mail. He cited the President of TV España who'd denied that Spain had colonised most of South America. Rather, he insisted, she'd been on a mission centred on evangelising and civilising. Quite a profitable one, it has to be said.
Finally . . . Some links for worried Brits resident in Spain:-
- Are we expats or immigrants
- The Brits in Spain Group
- The Bremain folk
Today's cartoon:-
"The should ban parents from these games" |
ARTICLE
Spain: Boom to bust
and back again The Financial Times
As you leave Valencia’s
old town and head east towards the port, you come face to face with
two decades of Spanish economic history frozen in concrete, steel and
glass.
First come the gleaming
spikes and waves of the City of Arts and Sciences, a €1.3bn complex
that includes an opera house, museum and Europe’s largest
oceanographic aquarium. Built at the height of Spain’s property
boom, the project symbolises the reckless ambition of the time.
Vastly exceeding its €300m projected cost, it blew a hole in the
regional budget that haunts Valencia to this day.
Next up is the Formula
One racetrack, built during the same period, but abandoned after just
five races. It runs past another relic of Valencia’s great sporting
ambitions: a string of buildings that housed the America’s Cup
regatta in 2007 and 2010. Despite their enviable location overlooking
the yacht harbour, most fell into disuse once the event was over.
Now, at last, there are signs of life: one building houses a business
school. Another serves as a gastronomic centre.
Boom and bust,
recession and recovery — Valencia embodies the recent story of
Spain like no other place. When times were good, this was the city
that borrowed more rashly, built more lavishly, and invested more
foolishly, than any other. When the property bubble burst, Valencia
fell hard.
“The entire economy
was built on bricks and mortar,” recalls Mónica Oltra, an
opposition leader during the boom years, and now vice-president of
the Valencia regional government. “It was like being at a party of
drunks . . . People thought it would never end.”
Today, the hangover
from that party is receding — both in Valencia and the rest of the
country. After three years of impressive economic growth, Spain is
about to pass a crucial milestone on the road to recovery: according
to official calculations, the country will exceed its pre-crisis
level of gross domestic product any day now. Nine years after Spain
slid into a long and bitter recession, the country is back where it
was in 2008.
For some, not least the
Spanish government and Europe’s political establishment, this is a
moment of relief and vindication. In their view, the recovery of the
eurozone’s fourth-largest economy shows that the unpopular policies
pushed through at the height of the crisis worked. Despite causing
initial pain, Spain’s decision to reform the labour market,
overhaul the banking system and cut the deficit paved the way for a
return to growth. It is a message Madrid would like to resonate
beyond Spain’s borders: countries can reform their way out of an
economic crisis, even while being locked into the single currency.
There is, however,
another view. Critics, mainly from the left but also from parts of
academia, argue that the country’s recovery is not just incomplete
but that the price of austerity and reform was too high.
The unemployment rate may have fallen sharply, but at 18.6
per cent it remains far above the pre-crisis level and almost double
the eurozone average. Ms Oltra is one of many who bemoans the
creation of a new class of “working poor” in Spain. Inequality
has increased dramatically and public finances continue to bear the
scars of the crisis: Spanish government debt is 100 per cent of GDP,
up from 40 per cent before the crisis.
The lost decade, and
debt accumulated along the way, will weigh heavily on Valencia as
well. Almost a quarter of the government’s annual €4bn budget is
used to service the region’s vast debt pile. “We are paying for a
lot of broken plates,” says Vicent Soler, the regional budget
minister since 2015.
Amid the debris of the
downturn, however, some sense that the outlines of a new economic
model for Spain are beginning to move into view. Analysts caution
that crucial vulnerabilities remain — from the low productivity of
Spain’s private sector to the still-towering unemployment rate and
the poor state of the country’s education system.
There are also
lingering concerns about the health of the eurozone, which Madrid
feels needs further reforms and more aggressive instruments to help
deal with future crises. But a deeper look at the origins and causes
of the post-2007 downturn suggests that Spain has tackled some of the
country’s old weaknesses. The once decrepit banking system is on a
sound footing, companies have become more competitive and the
over-reliance on construction is gone.
“It’s too early to
declare victory,” says Javier Andrés, a professor of economy at
Valencia University. “[But] Spain is growing again, and it is
creating jobs. It has shown that it can change.”
The origins of the
crisis are today broadly understood: when Spain joined the European
single currency in 1999, it seemed like the gates to economic heaven
had opened. A country with a history of high inflation and high
interest rates was suddenly able to borrow at dramatically reduced
rates. The arrival of the euro sparked a credit and property boom
that neither the European Central Bank nor the Spanish government
were able, or willing, to stop.
That boom coincided
with the arrival of millions of migrants from Latin America, eastern
Europe and north Africa, fuelling demand for homes that eventually
reached fantastical proportions. In 2007, Spain accounted for more
housing starts than Germany, France, Britain and Italy combined and
2.7m Spanish workers were active in the construction sector —
equivalent to 13 per cent of the national workforce.
In Valencia, the boom
was even more pronounced, helped by two factors that had nothing to
do with central bankers in Frankfurt. One was the decision by the
regional and local government to sink billions of euros into one-off
events and pharaonic architectural designs. The other was the
proximity between political leaders and the cajas, or regional
savings banks, under their control. Poorly run and poorly supervised,
the cajas provided the rocket fuel for Spain’s housing boom,
dutifully funding one unviable project after another. Despite
swallowing more than €17bn in public rescue aid, not one of the
three main cajas from the region of Valencia survived the crash.
Local politicians had
little incentive to urge restraint, if only because so many of them
stood to benefit personally from the boom. For more than two decades,
the city and the region were in the grip of Spain’s centre-right
Popular party. With few checks on their power, and a compliant local
business scene, PP mayors, ministers and presidents engaged in an
orgy of waste, corruption, embezzlement and illegal party funding.
Since 2011, prosecutors have arrested and charged dozens of PP
leaders in Valencia and beyond in multiple cases of fraud and
misconduct. Some are serving long prison sentences.
There was nothing that
Valencia, or Madrid, could do about the low interest rates. But the
combination of mismanagement, hubris and greed, coupled with a
banking system that lent according to political not financial
criteria, proved disastrous. As the bubble continued to inflate, it
touched on the lives of more and more people: teenagers left school
without any qualifications to work on building sites. Orange farmers
pulled up their groves to build apartment blocks. Owners of family
companies abandoned them to sell real estate. A region that once
prided itself on its manufacturing industry succumbed to the dream
of dinero fácil or easy money.
Today, growth rates are
nearly back to levels during the boom years. The Spanish economy
expanded by more than 3 per cent in both 2015 and 2016, far ahead of
its European peers. That is expected to continue this year, with GDP
forecast to rise at least 2.5 per cent.
More important than the
headline figure, however, is the composition of Spanish output. In
the years before the crisis, the volatile construction sector
accounted for more than 10 per cent of GDP. Today, that share has
fallen to 5 per cent. At the same time, Spanish exports of goods and
services have risen from 25 per cent of GDP to 33 per cent. The
country’s exports are also more diversified, with more companies in
more sectors selling to more markets.
The export boom
reflects, among other things, the country’s recent competitiveness
gains. Spanish unit labour costs have fallen 14 per cent since 2010,
in response to long years of wage restraint as well as the new
flexibility granted to companies by the 2012 labour market reform.
The vast Ford plant outside Valencia is one of several car factories
that have added jobs and production lines since the recession.
Another important sign
of progress shows up in the current account, the measure of a
country’s trade position with the rest of the world. In the boom
years, Spain ran annual current account deficits of as much as 10 per
cent of GDP — a level economists regard as a sign of acute
vulnerability. Today, the numbers tell a different story.
“For the first time
in recent history, we have a recovery that is not associated with a
deficit in the current account. The economy has been growing strongly
for more than two years and still we have a significant surplus,”
says Raymond Torres, chief economist at Funcas, Spain’s savings
banks foundation.
Possibly the most
important break with the past has come in banking. Messy and costly
as it seemed at the time, Spain’s 2012 banking bailout and
recapitalisation package turned out to be vital for the country’s
recovery.
“Spain did a textbook
bank rescue,” says Angel Ubide, a managing director at Goldman
Sachs and until recently a senior fellow at the Peterson Institute
for International Economics. “It shut down the banks that couldn’t
survive and recapitalised the ones that could. And then it moved all
the bad assets into a bad bank.”
The overhaul killed off
the cajas, which were either folded into larger private banks or
forced to become normal lenders, free from political influence. But
it also meant that markets regained trust in the broader banking
system relatively quickly. Balance sheets were cleaned up, bad loan
ratios fell and loan loss provisions started to decline.
Most importantly,
credit started flowing to the private sector and to households once
again. Analysts seeking to explain the difference between Spain
and Italy in terms of recent economic performance usually cite
credit flow and the banking system as key factors.
“The banking issue
was crucial, and it was the root of the crisis,” says Luis
Garicano, a professor at the London School of Economics, and an
adviser to Ciudadanos, the centrist Spanish party. “If you don’t
restructure the financial system, as Spain and Ireland did after the
crisis, it is very difficult to have a real recovery.”
Away from hard
economics, there are other signs of change in Spain. Recent election
results show that voters are less tolerant of political corruption,
and more reluctant to hand the country’s establishment
parties the huge majorities they were accustomed to. Spain has a
minority government at the national level, forced to build consensus
even for marginal issues. Elsewhere, the PP and the Socialists have
had to take on coalition partners, limiting the scope for abuses of
power. Some of the country’s darkest corruption black spots,
such as Valencia, are under new management. Political rhetoric
has changed accordingly, as have priorities. Before the bust, the
talk among Valencia’s leading politicians was all about “putting
the city on the map”. Today, regional ministers speak in low-key
terms about the need to strengthen the industrial base, and ways to
help small and medium-sized companies tap into foreign markets and
access new technologies.
Some believe the
changes go even deeper. Sandra Gómez, a 31-year-old Socialist who
became deputy mayor of Valencia two years ago, argues that her
generation has learnt a bitter lesson. Too young to carry any blame
for the bubble, but not young enough to escape the bust, young
Spaniards have been the big losers of the lost decade.
“There is more
awareness of how difficult it is to find work if you are not
prepared. Everyone knows that you have to study, that you have to
train and that you have to work hard. And that you must never choose
the easy path,” says Ms Gómez. “I think my generation, the one
that lived through all of this, we will not make the same mistakes.”
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