Why the Spanish economy will not improve in the short term

1. There are around 6 million people currently unemployed. This drags down consumption and, at the same time, hampers companies growth. If businesses do not grow, they cannot hire new employees. Besides, having 25 percent of the labor force unemployed makes the state pay out a lot of money in subsidies, instead of spending it in other areas. 

2. Banks only grant 30% of the loans that companies ask for. In 2006 this rate hit 45% so almost one in two loans was granted. According to the Bank of Spain, this low percentage means that either companies' do not get cash or they obtain it at worse conditions than they did eight years ago. Money needs to flow a little easier if  the economy is to recover. 

3. Public debt hit 90% of GDP and it is set to reach 100% by 2017. Consequently the state has to set aside millions of euros for paying interests.  

4. Spanish GDP will shrink by 1.5% this year according to the Bank of Spain. 

5. Spain has neither strong industrial hubs nor big firms. The country was so dependent on construction that once this sector shut down, the whole economy stopped. Spain needs to develop new businesses and invest in new economic sectors to overcome the recession. But it will be almost impossible without private or public investment. 

So far, the only plan to ignite the economy has been Eurovegas, a casino project to be sited at Madrid. In other words more  fiesta, sangría, and olé. Three leading businesses for a country that already masters those areas. 

@storyofacrisis

The mother of all corruption cases in Spain

Luis Bárcenas 
People´s Party treasurer from 2008 to 2009

Spain´s ruling People´s Party (PP) has not had seven days of calm waters since it won the election a year ago. Some weeks the bail-out threat is around the corner while others there are strikes, protests or political instability because a region wants to become independent.

This week´s problem has been corruption. Yes, once again.

The PP´s treasurer between 2008 and 2009, Luis Bárcenas, was investigated for his involvement in a corruption scandal known as the Gürtel case.

Then the Swiss authorities informed the Spanish judiciary last week that Bárcenas had €22 million ($29 million) in a bank account. It is not illegal to have an account in a Switzterland, but not report it to the Spain's Treasury Department is a felony. Bárcenas case was the latter.

When the judge asked him the reason for travelling so regularly to Switzerland,  Bárcenas claimed that he loved going to the great outdoors. It seems now that the mountains was not the only thing he liked of the Alpine state.

The fact that a person who has been responsible for the finances of one of the main political parties has evaded taxes shows to what extent corruption is widespread in Spain.

Nevertheless, evading taxes is the lesser crime he has been accused of so far. The newspaper El País disclosed the PP´s secret accounts from 1990 to 2009 that show cash payments to high-level party officers.

For example, Prime Minister Mariano Rajoy would have earned  €25,200 ($34,200) a year.

Furthermore, former and current Government deputies would have also got some of these payments when the conservative party was in power from 1996 to 2004. Therefore this would be a felony because deputies cannot have any other income than the official.

Bárcenas would have been involved in this business because he held top management jobs from 1987 to 2008 before becoming the treasurer.

And how did Bárcenas manage to get the money?

1. A PP regional government awarded a construction company with a contract to build a bridge (i.e.).
2. The company paid illegal money to the party for granting that contract.
3. Part of that sum was used to pay those extra salaries.

Whereas the rest of the corruption scandals have taken place at a local and regional level, this one has directly affected the Spanish Government and the PP´s structure as a whole.

Mr. Rajoy suggested last week that all the political parties in Parliament should agree to a pact in order to put an end to public fraud. As I said, that was last week. This week would be the right time to specify what measures will that pact include.

The Government will limit Spanish majors salary, a first step to reduce politician privileges

The Government announced last month that Spanish mayors´s payroll will not exceed €68,000 a year and their salary will depend on the city´s population. So the larger the city, the higher the salary. Around twenty mayors already surpass that figure.

So far, local politicians can set their salary through just a voting in the city´s council, in which they usually hold an absolute majority and, hence, can establish any remuneration wished. Consequently, eight majors earn more money than the Prime Minister, Mariano Rajoy, who makes €78,000 a year. 

This reform has been led by the two major political parties, the Socialist Party (PSOE) and the conservative People´s Party (PP), in order to put an end to the current status of anarchy at a local level.

Despite the fact that this reform will affect many of their militants, the PP and the PSOE actually intend to please Spaniards and calm down outrage toward politicians.

People in Spain have seen large budget cuts in health care and education, among many other items, while politician privileges have remained far from being cut. This reform is a first step in doing so.

Nevertheless, there are several things to be done if they really want to close the gap with the regular people.

Whereas average Joes have to pay the income tax for 35 years to get the highest pension when retire, Spanish congressmen, senators, and deputies have to hold their position for only seven years to grant it. This is regarded as something unfair by many taxpayers.

Members of the Parliament earn €2,813 as base salary a month, which is not a very high amount. But congressmen payroll actually ranges from €4,000 to €10,000 because they have additional jobs within the party and Parliament in addition to food and travel expenses. However none of these payments have been reduced.

Lowering those expenses will not be enough to lessen public deficit without avoiding further budget cuts but it would definitely be a good gesture towards citizens. "Practise what you preach", says the saying. 

In addition, legislators have to enforce stronger laws against public fraud and punish those 300 politicians that currently face corruption charges, if they are eventually found guilty.

A poll published by "El País" suggested that 95% of Spaniards believe that corruption is widespread among the major political parties (PSOE and PP). The same survey also claimed that people think that those parties have covered those militants involved in fraud instead of publicly condemning them.

While budget cuts can be supported or even understood by some, plundering public finances is not. Thus, politicians should begin to criticize their party fellows instead of backing them and call for end to corruption.

All those kind of things give the impression that politicians live in a world apart and their image will not improve until they take action. Otherwise, it can only get worse.

Congressmen in Madrid have decided to start reducing their local colleagues salary first than their own. As I said, it is a first step but there is much left to be done.

Four positive economic indicators in Spain

As everybody knows, the Spanish economy is going through a prolonged recession. High unemployment, a crippled banking system , and a huge private debt, among other issues, are some of the signs that have led to stagnation. Nevertheless, some economic indicators allow having an optimistic look at the current scenario as the president of the European Central Bank, Mario Draghi, announced today. 

1. Spanish 10-year bond yield decreased. Thus, it is cheaper for the Government to borrow money to fund public expenditure. In July, Spanish 10-year bond peaked at 7.5% whereas it currently rates around 5.5%. Still high but smaller though.

                                        source: bloomberg

2. Exports increased by 27% since 2009. Once domestic consumption has shrunk, some Spanish companies are selling their products overseas. However, this rate has been pushed by reduction on labour unit costs. 

3. Productivity. Worker productivity increased by 11% and is at its highest level since 2008 but this indicator is also related to the latter issue. These days, it is cheaper to produce goods because firms spend less money in workers salaries. Hence, Spain´s labour market towards into the German precarious "Mini-jobs" initiative in order to enhance competition and productivity. 

4. Tourism does not stop. Tourism still makes over 10% of Spain´s GDP, employs thousands of workers, and grew around 7% from 2010 to 2011. Britons and Germans still find coming to Spain as cheap way to spend their holidays. Even though we cannot expect that tourism will lead the economic recovery, it is  good news that this industry did not fall. Otherwise the recession could have been deeper, if it were still possible. 

Spain´s PM breaks promise on public pensions

Mariano Rajoy, the Prime Minister of Spain, announced this weekend that public pensions will not increase for retired people at current CPI that sets the country´s inflation in November at 2.9%. Then, Mr. Rajoy  has broken another promise, despite the fact that he declined to cut or even freeze retirement subsidies on numerous occasions.  

Thus pension payouts will rise by 2% for those that receive over 1,000 euros monthly (74% of the retired population) and by only 1 percent for those under that amount. By doing so, the government forecasts to pay out around  2.8 billion euros in pension subsidies this year. Therefore, Spain will be closer to meet the deficit target agreed with the European Commission of 6.3% of GDP.

Spain´s population is rapidly aging and 30% of Spaniards are expected to be older than 65 by 2050. Pension expenditures represent nearly 40% of public spending and many believe that there will be no money left for them when retire. 

On a different matter, Mr. Rajoy´s ability to break his promises is amazing. This one is the fifth lie during his term so far. 

• Firstly, he denied that Spain will not be bailed out. Eventually, Spain asked for a European bailout to recapitalize the country´s banking sector. 

• Secondly, the Prime Minister promised not to implement a co-payment scheme for medical prescriptions. Finally, It was implemented last summer.

• Thirdly, Mr. Rajoy increased income and property tax, despite the fact that he spent the whole electoral campaign saying that he would not rise any of those.

• Fourthly, VAT was also increased up to 21%. Guess what? Yes, he also promised not to do it.

An opinion poll conducted in August showed that 77% of voters have little or no confidence in Mr. Rajoy. Even if it damages his popularity, the PM wants to fulfill every agreement that Spain has with the European Union. However the Internet has become flooded with pictures of Mr. Rajoy as the picture on the right. Not very creative but shows that some Spaniards feel about him and many are already waiting for his next broken promise. So do I.  

Catalan nationalists win regional elections

The nationalist party Convergencia i Unió (CiU) has won the parliamentary elections in Catalonia but it has not been able to make an absolute majority to hold a referendum on independence as opinion polls suggested.  

Analysts expected that CiU would maintain its number of seats (62) in the assembly but the right-wing nationalist party´s leader, Artur Mas, has lost 12 legislators and about 120,000 votes compared to the 2010 regional election. 

The unpopular austerity measures implemented during Mr. Mas´ term have eroded voter´s confidence in his political programme. Therefore, many claim the Catalan leader brought up the debate on independence to  draw a veil over his presidency and be re-elected.

However, the debate on independence did not benefited CiU but favoured those parties in the opposite side of the political spectrum. On the one hand the pro Catalan-State left-wing Esquerra Republicana de Catalunya (ERC) and on the other hand, the unionist People´s Party (PP). The former has doubled its number of legislators rising from 10 to 22, whereas the latter has gained just one seat and increased its number of votes by 100,000 compared to the last election. 

There are two issues that should be highlighted. In the first place, the three separatists parties (CiU, ERC, and CUP) account for 74 seats out of 135 in the Catalan parliament. Thus, they overcome the 68 seats needed to make an absolute majority. However, these parties have gained less support in sum than in the previous 2010 election when they made up to 76 legislators

In the second place, the voter turnout has increased by 10 percentage points rising up to 69.56%. Hence, Catalans were very interested in the polls outcome and wanted to show their opinion unlike in past occasions.

The separatist debate will be set apart in the next days. Mr. Mas´ priority is to be backed by other parties to become the Catalan President for the next four years. Afterwards, the show will go on again. This is not the last episode on Catalan independence, but just an interlude.

Catalan leader falls short to win majority mandate according to polls

The Catalan nationalist party Convergencia i Unió (CiU) will win parliamentary elections in Catalonia on November 25, but it is unlikely that will make an absolute majority needed to hold a referendum on Catalonia´s independence from Spain as an opinion poll published in the newspaper "El País" suggested.

This survey predicts that CiU´s haul would not change at 62 seats in the 135-member Catalan parliament after next Sunday´s polls. The nationalist party would be close to the 68 legislators to govern without the support of the six other parties expected to garner seats. However, the Socialist (PSC), which currently is the second biggest party in the Catalan parliament, would fall from 28 to 18 legislators 

The Catalan President, CiU´s leader, Artur Mas has promised that if he wins the election he will hold a referendum on independence for the region, an action that the Spanish Government has claimed illegal. Once the Mas Administration has undertaken unpopular budget cuts to cope with recession during his two year mandate, he played the romanticist card in order to be re-elected.

However, the debate on independence seems to have benefited those parties on opposite side on the political spectrum. On the one hand the Catalan left-wing nationalist party, Esquerra Republicana de Catalunya (ERC), would double its number of legislators raising from 10 to 18. On the other hand, the two main anti-referendum parties, the People´s Party and Ciutadans, would also obtain better results than in the last 2010 regional elections.

After this survey was published, Mr. Mas has stated that he will be the last Catalan president that the Spanish Government tries to "ruin" because his region will no longer be dependent on Spain in a short period of time. Once CiU will not make an absolute majority, Mr. Mas should begin to think which party he could form Government with if he wants to carry out the referendum.