What is happening in Spain’s economy and what is the outlook for 2013?

Hi Shaun,

So BFA & Bankia are bust. It would be nice to see real capitalism in action.

1 ) Shareholders told to stump up the rescue funds or shut up and accept a total loss on their shares. : No state largesse for shareholders.

2 ) Bank directors required to tell the whole truth. Drip feed of bad news requires fraudulent misrepresentation at the time of first rescue. Failure to be honest should result in jail and finance industry disqualification.

3 ) No state aid for banks – this is illegal under European rules. Bust banks should be wound up. : The surviving banks would be more circumspect when they understand they are not too big to fail ….

Hi ExpatinBG

Usually would agree with you. But in Bankia’s case the ones who are going to get hit hardest are the ‘little guy’.

http://uk.reuters.com/article/2012/12/27/uk-bankia-idUKBRE8BQ06T20121227

Quite a lot of recent Spanish government comment has stressed the ‘brilliant’ performance of exports, much of the total being vehicles, especially commercial vehicles, sold by Spanish companies owned by German, Japanese and US entities. The problem with this PR spinning is that Spain’s exports are about one fifth of those of Germany and are well below Belgium and Holland’s figures. The last two are considerably smaller countries. So it’s improvement from a very, very low base. Of course this is where Spain has to concentrate and it will be good to see at least a doubling from the current level, but ideally that would be done by indigenous companies, not those shifting their profits to lower tax regimes outside Spain. One thing the Spanish can’t afford to do is re-start the catastrophically oversized construction industry. They have well over a million new houses ‘in stock’ to which must be added a huge unsold balance of used ones. But they are still building away, presumably finding finance from somewhere. House prices in Spain look like falling another 30% in 2013. Sorry, banks, you will have to admit the problem quite soon now!

Shaun
I have a question for you. At what point does unemployment become not an economic and personal tragedy but also a political disaster, as in revolution?
I only ask because I just don’t see how the staggering unemployment in Spain doesn’t lead to people demanding a new system and, if the government won’t give it, perhaps they will just take it.
I know that you don’t do politics but the economic figures are so ghastly that I am amazed that there isn’t much more anti-Euro feeling

Hi Shaun

Just came across this which may go further to answer the question you posed on 24th.

http://www.streettalklive.com/daily-x-change/1413-chart-of-the-day-claims-not-translating-into-full-time-jobs.html

Back to topic, Spain’s ‘old wealth’ is probably merely inconvenienced by this situation. Peasants just returning to their previous state , only 30 years ago. Not really an issue for those always accustomed to ‘going to school’ with the elite from Germany, Italy etc. Is there a popular movement outside the control of these people strong enough to stop this? Doesn’t look like it. To a lot of people the EU and Euro are the only defense against national tyranny, sad isn’t it?

[...] we wait for Mariano Rajoy’s press conference…. economist Shaun Richards flags up that Spain’s GDP data for 2011 has been revised down [...]

I agree it’s harsh, but why should the taxpayers cover this ?

[...] the article here: What is happening in Spain's economy and what is the outlook for … ← US Will Reach Federal Debt Limit on New Year's Eve – Herald [...]

Hi James,

I think that will partly depend on how many of the unemployed work in the black economy? I’ve heard this is currently one of the few areas of growth in Spain! If you are registered as self employed in Spain you have to pay a flat €250 social security payment each month, then there are other taxes on top of this. If you have suffered a large income drop and are struggling to keep a roof over your head and feed a family, I would imagine the pressures to de-register and become part of the black economy must be considerable!

Hi Expat and JW
This is a truly bad story but I would distinguish between ordinary shareholders and those who were missold the preference shares and bonds. Whilst it is grim the ordinary shareholders are frontline equity and this will have to be cut.
But there was an enormous amount of misselling of preference shares and the like which went on and I hope that the private investors sue. However this just poses another problem for Spain.
As Oliver Hardy put it “That’s another fine mess you put me into”
Meanwhile other here Hector Sants who headed the FSA through the LIBOR and many other scandals has just got a knighthood. #rewardsforfailure

Hi Barncactus

The Spansih export performance has been good and when combined with the fall in imports due to her economic contraction (not so good) has turned around her balance of payments. Back in the boom years this was accelerating away in the opposite direction. So there has been quite a turnaround which may see her move into surplus in 2013.
Unfortunately the housing and banking collapse is an even bigger problem and as you point out there is no point expanding housing again when so many units are empty. So 2013 looks grim.
However if Spain had gone to the IMF for example and taken the old “balance of payments” targets things would be looking much better now. But she would also need her own currency rather than one which recently has been appreciating….

Hi James
On the officla numbers she must be very close I would have thought. The main relief comes as Rods has pointed out below from the black economy which in this repect we end up hoping is large than thought! Although the second order effect is that it will be harder to raise tax revenue to help with the fiscal deficit.

Hi JW

Thanks for the link. It also reminds me that unless a fiscal cliff solution is found those on extended unemployment benefit are about to lose it.
As to Spain I am trying to find the link to an article I read which pointed out that the wealthy in Madrid seem to be spending more on expensive consumer goods and that this category was up circa 30%. Back to the 1%/99% argument or as you say for Spain going back to the Franco era in economic terms at least.

Hello Shaun,
I know you are a keen football follower so I thought I would draw a (questionable) analogybetween the success and failure of the Spanish economy, and the rise and fall of Spanish football team Villarea (this is after stumbling across the name of a one-time shirt sponsor of the team) For those who don’t know, Villareal is a smallish town of 50000 souls just north of Valencia. It is an important centre for Spanish ceramic tile manufacturing.
In the recent past the football club enjoyed unprecedented success on the field, the highlight being the reaching of the Champions League semi-final knocking out some illustrious clubs on route (Man. United, Rangers and Inter Milan.) During this purple period one of the club’s shirt sponsors was ‘Castellon Airport’ while the club’s main backers were the wealthy ‘Patrons’ of Spanish tile industry. Also during this period the Spanish economy seemed to be having a successful time.

However as the Spanish economy went into decline with the collapse of its banking and constrution industries and a fall in exports, so Villareal began downward spiral into the Spanish second division. Firstly ‘Castellon Airport’ ceased its shirt sponsorship deal ( Odd that a airport, built at the cost of 200m euro, and which has never had a commercial plane land or seen a passenger pass through its terminals should have money to sponsor a Spanish football league club) and secondly the Spanish ceramic tile industry lost international market share to producers in other countries, principally the Chinese. And thus the ceramic tile magnates had to reduce their funding of the club.

I draw the conclusion that the both the Spanish economy and Villareal football club were essentially castles in the sky being built without soild foundations and never likely to succeed.

On the upside, should ‘Castellon Airport’ suddenly become operative and succeed in attracting commercial airlines to its runways, and thus see hundreds of thousand of visitors pass through its terminals. And should the Spanish Tile producers regain market market share from the Chinese and others, then the benefits for the Spanish economy and for Villareal football club will become apparent, and both will climb upwards in tandem.

Anyway, in the meantime, I will go back to drinking Gluhwein and reminiscing of xmas past when a troika was sleigh pulled by three horses and Sub Prime was the reserve who brought the oranges on at half time.

Wishing you and your family, and all your loyal followers a happy New Year.

Hi Taurus
Sorry for the ‘football diversion’.
Isn’t it true that really Villareal are a club within the greater Castellon area the town has a population of about 200,000, sufficient to support a club in La Liga. Saying its in the district of Villareal is like saying Man United are supported by the population of Trafford a district of Greater Manchester. Incidentally Villareal have never beaten Man United. In the year in question they drew twice with Villareal going through the group with Benfica. A link between the clubs is Guiseppi Rossi, whose injuries over the last 2 years may have had as much to do with their decline as economics, that and losing a great manager.

I try to export from Greece, Spain and Portugal to the UK ( I say try because I often fail due to the high cost of goods in Euros) and visit these countries often enough to have witnessed their decline and to have heard first hand of the problems the people suffer. Whilst there are many clever schemes to move money around within the Eurozone to plug the leaking dykes of national economies, and even better PR to announce them, I am always brought down to earth by my visits to these countries. I look around at the economic chaos and realise that despite everything I see and hear,the currency of Greece ( or wherever; i.e the Euro) is actually appreciating against Sterling! And there is the fundamental problem that will not go away. In any sane world the currency would have fallen like a stone and competitiveness be restored. So the ECB et al can fiddle around forever with their financial alchemy but until I hear a solution to this basic issue, I will believe that the Euro is a failed concept.

Hi Shaun

The other day you suggested “We’re turning Japanese”. Quite appropriate when our regulators are toothless yes men and our politicians, namely Tony Blair gets rewarded by “ascent to heaven”. It is hard to understand how Tony Blair legitimately adds millions of value at JPMorgan when his economic nous included presiding over an uncontrolled house boom and championing UK Euro membership. Maybe his value lies in reducing risk of regulatory action ?

Hello JW

Without wishing to ‘overdo’ the football theme, your are correct that Man. United were not knocked out by Villareal in a Champions League head-to-head but finished below them in the mini-league. Also, while the catchment area for the team is much more than the population of 50000 they have share it with local rivals Castellon so it would be much diluted.

No, my main interest was in their shirt sponsors ‘Castello Airport’ who to my knowledge have never turned over a euro in revenue. Apparently it cost close to 200m euro to build and was paid for by the European tax payers so that makes us all team supporters!

It’s an interesting notion, that a revolution can come about that destabilises a government by crippling tax receipts, rather than through a more structured, collective action on the part of the 99%. Government’s the world over have made it very difficult for the average person to avoid paying taxes left, right and centre. If a black economy grows to the point that it prevents the rioting that continued growing employment would inevitably bring, how hard is the decision to try and restrict it.

Actually, after the demonisation of the unemployed, collective bargaining, worker’s rights movements, and rejecting calls for living wage, it kind of inevitable that individuals would look to re-rig the game in their favour, but due to the level of unemployment in Spain, this begins to have the appearance of a concerted movement designed to affect change.

It’s not the explosive action movie that Forbin has been stockpiling popcorn for – but an interesting show nonetheless. more

‘reviving the “good day to bury bad news” theme’

Not as such, as Boxing Day is not a public holiday here.