For once, when surveyed on a nationwide scale, the Spanish population’s biggest worry is no longer local, separatist terrorism. The biggest worry for the average Spaniard is now the country’s financial situation. As one newspaper puts it, “El paro ‘quita el sueño’ al 75,2% de los españoles” – The fear of unemployment keeps 75% of Spaniards awake at night.
And well they might worry. As the unemployment figures creep towards 4 million, some say things will get as bad as 5 million unemployed by the end of the year, accounting for an unprecedented 20% of the working population.
Madrid keeps it’s head held high, it’s economics based largely on wealthy service industries, but the situation on the Mediterranean coasts must be going downhill quickly. Where once there were always new houses to be built, equipped and furnished, now there are no more eager buyers, and nothing to be built.
The question is, for a country that has experienced and enjoyed exceptional growth and prosperity over the last 10 years, what might a Spain with 5 million unemployed workers soon look like? And can anything be done?
bill (Legazpi)
12 Mar 09 at 11:59 am
And can anything be done?
Nope it’s too late.
Spain should have had higher interest rates during the construction boom in order to take the heat out of it. Regulation against corruption would have helped too.
When the construction bubble inevitably burst 2 years ago Spain should have immediately slashed interest rates to lessen the impact on the economy. Now Spain should be doing everything possible to stimulate the economy: such as the quantitive easing that is taking place in the UK and USA.
Of course Spain couldn’t and can’t do any of this because it doesn’t have it’s own currency. The Spanish government can do nothing to help the people who elected it, the Spanish are instead dependent on the actions of people in Brussels who they didn’t elect, and who have no accountability towards them.
However it will be very difficult for Spain to leave the euro, reinstate its currency and devalue it because the country’s debts are in euros. Any devaluation will cause those debts to increase.
So nothing can be done.
Tom
12 Mar 09 at 4:29 pm
We’d probably be worse off if we had the peseta. Spain was hardly world renowned for looking after its currency anyway.
No, the problem was the bubble and the world financial crisis. Emphasis on the word ‘world’ there.
If the world had adopted a more realistic financial system than the insane smoke & mirrors one we had (and which Gordon Brown, Barack Obama et al seem intent on reinstating), we mightn’t have a crisis at the moment.
As it is, modern liberal capitalism is essentially designed to crash at times and no amount of tinkering or fiddling will ever change that.
I feel really sorry for anyone who’s been made unemployed or is worried about their situation.
jon
12 Mar 09 at 6:42 pm
isn’t this the third or fourth time the building bubble has busted in Spain since the 70s?
bill (Legazpi)
12 Mar 09 at 6:55 pm
@Tom
I agree that the peseta was never a strong currency however that was a reflection of the weaker economy Spain had. If a country’s economy is weak then I think it is better that it has a weak currency. Anyway it’s all a bit academic at the moment.
Yes the system we’ve had has failed and yes liberal capitalism requires that companies/banks/etc can fail in order to get inefficiencies out of the system. The fact that we got to the point where banks were not allowed to go bust because they would have brought the whole system down implies that system we had was not liberal capitalism – perhaps it was state capitalism?
I’m no expert on banking systems but it seems the Spanish banking system is very resilient: the Spanish banks are relatively healthy in spite of having lent a lot of money to bankrupt construction companies. Maybe the Spanish banking model should be adopted by other countries?
bill (Legazpi)
12 Mar 09 at 7:12 pm
@jon – I don’t think Spain ever had a building bubble burst like the one that just burst. There was a downturn around 1993 but that’s about it: the rest of the time had been continuous growth since the time of Franco. One might say that it has been one long 30 year bubble just waiting to burst.
Part of the problem, as Tom indicated, is that although economies cycle, politicians don’t like the downturns to occur when they happen to be in power. So they engineer ways of putting off any downturn until after the next election. And then the election after that, and so on.
jonk
12 Mar 09 at 9:50 pm
Creeping up to 4 million is bad enough. I worry about my job here down under and we’ve only just risen to unemployment of 5.2% I think it is. Spain is what, 12%? When I was there so many of my friends were looking for work, and looking very hard too… I feel bad for the Spanish right now, they’re copping it far worse than nearly every other Western nation out there.
Tom
13 Mar 09 at 2:24 pm
@bill “perhaps it was state capitalism?” – nah, it’s liberal capitalism until the bankers are too liberal and lose all their cash. Their response to this was to say to the governments: “If you don’t give us the cash we say we need, you’ll be ruined” and the governments appear to have had very little choice in the matter.
Far from being a ‘state capitalism’ system, in fact what we have seems to be an argentocracy where it’s the banks that call the shots, even if from time to time, a ceremonial head rolls and makes us thing the state can actually do something. In the current system, the state is effectively powerless: a placid drone that does the bidding of the system like some kind of stupid ox.
bill (Legazpi)
13 Mar 09 at 5:04 pm
@Tom – if the system couldn’t allow certain banks to go bust without it collapsing then – by definition – it was not a system of liberal capitalism. Liberal capitalism requires that all companies within it can go bust.
It is the state that is bailing out the banks and nationalising them overnight, and it is the state that will force people to pay taxes under the threat of prison in order to pay off these debts, also it is only the state that can print money, and it’s only the state that can command entire armies to enforce its will if things get really bad.
So when you say that it’s the banks who call the shots and that the state is effectively powerless, I’d like to know which banks you are talking about.
Staysure
13 Mar 09 at 5:05 pm
Unemployment levels are rising fast and the governement also wants to take measures to make firing permanent employees easier.
jon
13 Mar 09 at 8:25 pm
Bill – thanks for this reply:
@jon – I don’t think Spain ever had a building bubble burst like the one that just burst. There was a downturn around 1993 but that’s about it: the rest of the time had been continuous growth since the time of Franco. One might say that it has been one long 30 year bubble just waiting to burst.
I just was remembering Torremolinos in the 70′s, they were building like crazy and a lot of sites just shut down. I was too young and not interested in the state of the national (or world) economy to pay attention to the causes. Maybe that was just a local snag…
Do you think that the long-term building boom since the demise of Franco was really a ‘bubble’, or just a natural response to the entrance of Spain into the post-war European world? I understand that the building market has dropped drastically – but do you think that the Spanish were floating their own bubble, or has their building world collapsed because of outside influences?
Bill (Legazpi)
14 Mar 09 at 12:08 am
@Jon – I’m no expert on the Spanish economy, however I personally feel that the Spanish construction bubble really got out of control from 2001 onwards. After about then property prices got completely detached from what anybody could afford and construction continued at a rate that far exceeded the demand. It was all based on speculation.
Before 2001 the market was high, but I personally wouldn’t have called it a bubble back then – it still had a chance to level off without crashing.
My remark about it being a 30 year bubble was more to do with the fact that as a whole, the market had been growing for at least 20 years without a bad crash. People believed “house prices only ever went up” in Spain, thus sowing the seed for the rampant speculation that occurred from 2001 to 2007. Even though the bubble didn’t really become apparent until 2001, it had been 20 years in the making.
moscow
14 Mar 09 at 7:58 am
@Bill, Tom,
Things are a bit more complex. Spain’s economy has expanded 8-10 fold since the mid 1950′s (until 2008). But Spain has never had a housing-bubble bust like this one. This is Spain’s first major housing bubble bust in history. It is also Spain’s first crisis as a (ex-?) rich country.
That doesn’t mean that Spain hasn’t been through downturns since the 50′s. There was the one in 1975-6 due to the first oil crisis. The one in 1980-1981, due to the second oil crisis. And the recession in 1993 (when Spain dropped out of the ERM).
Bill, you are absolutely right when you say that the government has lost command over monetary policy. But some people think that is actually a good thing. But you are wrong when you say that there is nothing the government can do but sit out the recession. It can.
jon
14 Mar 09 at 10:56 pm
Bill – your description of the Spanish building boom/bubble over the last 20 years sounds a lot like California over the same time period.
moscow – what do you think the government can do to get throught this recession?
John
15 Mar 09 at 2:05 am
This is completely anecdotal, but I remember having lived in a somewhat depressed Burgos in 2002-03. I didn’t return until 2007, and in that time the amount of building that had been completed or was in the works was ridiculous. When I asked my friend, who is an architectural foreman working on some of those sites, he told me that all of that building was primarily speculation, and that in a city that wasn’t really growing. It made no sense to me at all, but was very indicative of the white-hotness of the real estate market in that time. This must be crashing down big time at present.
John
ValenciaSon
16 Mar 09 at 12:13 am
Will there be a shift from fashionistas to frugalistas en España?
ClareH
16 Mar 09 at 5:47 pm
ValenciaSon – the phrase ‘recessionista’ has been coined in the UK to describe a former fashionista trying to economise. Could catch on en Espana?!
V interesting reading everyone’s comments. I may be wrong on this but I read that the Banco de Espana is actually in a pretty good position compared to other banks as only they made provisions for the hard times when things were good. Sounds sensible, I have to wonder why the other banks didn’t do the same!
I agree though that 5 million unemployed is a massive percentage, it’s hard to get your head around that 1 in 5 people able to work may be out of a job soon. Does anyone know what the welfare system is like in Spain? From what I understand the idea is that families support those members who are unemployed, as opposed to benefit payments?
My best wishes and thoughts to anyone who has been made redundant or worrying about their job prospects anyway.
Tom
18 Mar 09 at 12:47 pm
@ClareH – basically, you pay into a social security/benefits account as you work. If (when?) you become unemployed, you can start receiving monthly payments from that account… I think for about 2 years (assuming you’d worked for enough years previously). When that money runs out, you drop to a very low level of benefits indeed, barely enough to live off. So yeah, family support would definitely be needed once one’s contributed paro funds are exhausted.
ClareH
19 Mar 09 at 1:29 am
@Tom – thanks for the info! I wasn’t aware they had a self-funded system, thought it all came from family. I’m considering moving to Spain at some point so these things are worth knowing!
JH
25 Jul 09 at 12:39 am
The present capitalist system toguether with the political direction has failed to continue the way it was going. It has been going to fast, to greedy, to liberal, to tolerant and going in one direction only. The only accepted religion has been money and in the same time making cuts on people real income. Therefore the system simply had to slow down like a vehicle running out of fuel. The fuel tank has to be filled in order to continue the unending Journey of the invisible goal.