Story of a Crisis

Why the Spanish economy will not improve in the short term

2013-05-17T02:59:00.001-07:00

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

2013-01-31T12:54:00.002-08:00

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?

A PP regional government awarded a construction company with a contract to build a bridge (i.e.).
The company paid illegal money to the party for granting that contract.
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

2013-01-21T10:13:00.001-08:00

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

2012-12-18T09:56:00.000-08:00

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

2012-12-03T10:45:00.002-08:00

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

2012-11-25T16:05:00.000-08:00

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

2012-11-18T15:35:00.000-08:00

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.

Why does the Spanish Stock Exchange Shrink?

2012-05-27T18:08:00.002-07:00

Spain entered in recession last month for the second time in three years. This country has been economically struggling after the 2008 financial crisis. The harsh austerity policies passed by the conservative government have not tackled the two main economy troubles of the country: The high unemployment rate and the very damaged financial sector. Therefore analysts are not very optimistic about the future of the Spain´s economy. In fact, the IMF expects the Spanish economy to shrink by 1.7% during this year.

Consequently, the Madrid Stock Exchange has continuously fallen since July 2011. Have a look at the graph.

However, some European countries economies have grown in the last two years or have recovered somehow after the 2008 financial crisis. For example Germany.

But why does the German economy increase while the Spanish hits the bottom? Let's have a look at the companies that make up the DAX 30 and the IBEX 35 indexes in Frankfurt and Madrid Stock Exchanges respectively.

This is Germany

Among the 30 most important companies in Germany there are:

10 Chemical, Technological, Medical or Pharmaceutical firms.
4 Automotive Companies.
2 Banks.
2 Insurance Companies.
2 Personal and Home Care manufactures.
1 Steel Company.
1 Cement Producer.

This is Spain

Among the 35 major Spanish companies there are:

7 Banks.
6 Construction and infrastructure corporations.
2 Steel companies.
1 Pharmaceutical.
1 petrochemical.
1 Solar Power company.
1 Wind Power company.

Germany has a large number of firms that manufacture diverse products. Automotive, Chemical, Technological, Medical, and Pharmaceutical industries are big job creators. Those businesses need from very low-skilled level workers to very-highly educated employees. In other words, from assemblers and transporters to scientist. Besides, the large scientific community in Germany assures the country to have very innovative top level firms.

The two main activities by the 35 major companies in Spain are banking services and construction. Precisely, the two industries most affected by the 2008 economic bubble.

Construction suddenly stopped after the bubble. This industry propelled Spain's economic growth in the 2000s making around 10% of the GDP and employing 9% of the labor force in 2009. Construction is also a huge job creator that pushes other industries such as steel manufacturers. But Spain has over built infrastructures, buildings, and houses. In fact, Spain built more houses than Germany, Italy, and France together during the bubble. There is nothing else to be constructed. Therefore, one of the largest industries has halted its economic activity triggering massive layoffs. Now, unemployment is at pre-housing bubble levels (1994-1996). The jobless rate decreased but once the bubble exploded Spaniards are at the same situation as when it started.

On the other hand, Spain has a crippled financial sector. Banks have accumulated numerous toxic assets from unpaid mortgages. Instead of depreciating the value of those properties to the current market prices, Spanish banks keep reporting in their balance sheets that the value of those assets is the price paid before the economic in order to avoid reporting loses. But those prices are not fixed the current. Consequently, nobody invest in real state keeping those toxic assets in stock having banks full of properties but short of liquidity.

Therefore, banks lend no money. Despite the fact that the Spanish government bailed-out many of the cajas (savings banks), banks have used that money to pay the debts they had with other institutions instead of injecting money into the economy. Thus, there is no credit for individuals or companies. There is no fuel to start the engine.

Therefore, having the two main industries severely damaged the economy is stagnant. Unlike Germany, there are no other industries that can carry the economy into a better scenario. The main problem of Spain is Spain itself. Until this country invests in different industries unemployment will be an endemic disease in this nation.

Published on Economic Interest.

The King and the Elephant

2012-04-14T16:02:00.000-07:00

King Juan Carlos, 74 years old, was operated on yesterday in Madrid to replace his hip after an accident during a private hunting trip in Botswana. The accident occurred on Friday morning after tripping on stairs in the chalet where the head of state was staying.

After the new was published, many Spaniards have responded with a mix of anger and criticism. Whereas the government announces cuts, increases taxes, and unemployment soars King Juan Carlos enjoys hunting elephants in Botswana, a not very austere activity.

Gaspar Llamazares, deputy of the communist-led party United Left claimed that going on a vacation trip to hunt elephants does not meet the message spread by the public institutions of shared effort in hash economical times.

Antoni Gutierrez-Rubi also agrees in "El Pais" that this trip has been inappropriate. Mr. Gutierrez claims that activities like this one do not benefit the monarch fostering an image of opulence and luxury linked to power.

However, what if King Juan Carlos had not fallen? Basically, the public opinion would have never been informed and therefore we had never known about it. The Spanish Royal Family has been largely criticized of its lack of transparency over the last years. Whereas the British Royal Family publishes yearly a detailed report of their finances, the Spanish Monarchy published them the last year for the very first time.

Lisa Bend pointed out in this article in Time magazine : "The country's media — not even the gossip rags — made few or no coy references to mistresses or financial misdoings, nor did they whisper about unseemly meeting with Arab sheiks or a special fondness for diet pills." The big media outlets have constantly refused to criticize the Monarchy fostering the image of opaque institution.

The lack of transparency from the Spanish Royal Family alongside the economic recession, which makes every expense to be double-checked, and Iñaki Urdangarin´s corruption scandal (the King´s son-in-law) have fostered a growing opposition against the Monarchy. Furthermore, the surgery took place in the most inopportune day. Yesterday April 14 was 81 years ago when the Spanish Second Republic was established after kicking out King Alfonso XIII (King Juan Carlos´grandfather), a monarch that enjoyed the pleasures of life instead of being concerned of sorting out the problems in the country. Unfortunately, attitudes like hunting elephants in Africa are closer to the former behaviour, not the latter.

King Juan Carlos is on the right-side

Spanish football clubs owe €752 million in taxes to the Treasury Department

2012-04-09T19:18:00.001-07:00

The Spanish football is going through harsh economical times. Currently, all the Spanish football teams together account for approximately 3.5 billion euros (4.5 billion dollars) in debt. However, that figure belongs only to the First Division. According to the football economist Jose Maria Gay de Liebana, if we added the total debt of the rest of the teams in all the professional leagues (Second Division, Second Division B, and Third Division) the total figure will rise up to 6 billion euros. Mr. De Liebana said this debt will not be paid.

This situation of crisis is due to mainly two factors. First, the clubs have spent more than their earnings. In order to be competitive, they have signed some players for enormous sums of money. For example, Cristiano Ronaldo cost €94 million ($132 million), Kaka´s price was around 65 million euros (111 million dollars) and Ibrahimovic signed for Barcelona for €66 million euros (86million dollars). These are the most expensive signings in the last years by the two main clubs (Real Madrid and Barcelona). Furthermore, the smaller teams have also paid huge amounts for players. For example, Atletico de Madrid signed the Colombian striker Falcao for €40 million ($52 million).

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Second, the Spanish clubs have been hit too by the economic recession. In fact, some clubs are very close to bankruptcy such as Mallorca, Racing, and Zaragoza. Furthermore, Mr. De Biedma claimed that there are 23 insolvent clubs in Europe and 22 of those are Spanish teams.

In addition, the Spanish government exposed that the teams owe 752 million euros (983 million dollars) in taxes to the Treasury Department. Atletico de Madrid is the club that owes the largest amount of money accounting for €120 million (€156.8 million). However, the Treasury Department has granted three extra years to the clubs to pay their taxes. Otherwise, they will be expelled from the competition.

This year the budget of the Ministry of Education has been cut €830 million compared to the 2011 budget. That amount could have been almost afforded with those €750 million if the football clubs had fulfilled their commitments with the Treasury Department. However, instead of being penalized, they have been given a three year extension.

Javier Tebas, attorney specialized in football, pointed out in an interview that if this was the situation of any other company, that business would have been closed down. However, the football clubs enjoy certain privileges that other industries do not have. However, Mr. Tebas said that we might see one or two clubs in liquidation in the next years.

In the current times, politicians consider that entertainment plays an important role to cool down social unrest. Furthermore, Spanish politicians always embraced the ideal of the Roman Republic of giving bread and circuses to the people to make them happy. However, bread starts to lack and some circuses are shaking. The question is whether they will dare to tear them down or not.

Corruption in Spain is a worrisome issue

2012-04-04T15:53:00.000-07:00

Published first on BlogCritics.

Over the last decade, corruption cases in Spain have increased significantly. Spaniards regard corruption as thefourth main worrisome issue and 93% considerthe public administration as a corruptinstitution.

The following map shows the location of the ongoing corruption cases by cities and it displays the accusation if we hit on them. Unfortunately the information is in Spanish. Hit here to be linked to the interactive map.

This one is just a picture:

And do not forget the Canary Islands:

There are currently 390 open corruption cases.

We can notice from both maps that to a large extent of the cases focus in three areas:

The centre of Spain. Specifically in the Madrid autonomous community.
Alongside the Mediterranean Coast. From Huelva to Castellon.
The North Coast. Many of them in Galicia and the Basque Country.

First of all, we can realize that there is a link between public fraud and population density. Those areas with large population tend to have more corruption.

The richer the area, the larger the population is. Consequently, there are more politicians and businessmen. Looking at both maps, it is possible to realize that there is less fraud in sparsely populated areas. Then, we can assert that there is a link between the economic development of the area and the corruption level.

Many cities and regions experienced and economic development during the Spanish property bubble from 1998 to 2008.

Price per square meter in euros

The construction industry propelled Spain´s economy, making up to 8% to GDP in 2007 (it was only 4.7% in 1997). Prices per square meter soared from 1,000 euros ($1300) to around €2700 ($3500) in those ten years. Therefore, many cities and regions have experienced an economic development during the Spanish property bubble from 1998 to 2008.

In 1998, a standard 100m²(1,076.39104 ft²) house cost 100,000 euros ($131,000). The same house increased to double its price by 2004 (200,000 euros or 262,000 dollars), and almost tripled it by 2008 (approximately 270,000 euros or $355,000).

Therefore a large extent the malfeasance cases that appeared on the map are somehow linked to businessmen, construction companies, or real estate developers. In many cases, they bribed politicians at a local or regional level in order to obtain favorable contracts, rezone neighborhoods and other areas, and build properties in "green areas" (Land that should have been used to create parks or public spaces to foster the common welfare instead of real estate) among other tricks. Thus some politicians seized their influential position to make dirty money.

Corruption grew alarmingly in the coastal populations. During the property bubble years, a large number of new buildings were built in the coastline. Hence, the coastal cities decided to foster construction in order to make their cities attractive to tourists. Consequently, they invested in bricks: new hotels, new harbors, amusement parks, new properties, golf courses, refurbished sea promenades, and so on. There was a stream of money going up and down through the town halls, tempting public workers to commit fraud. And eventually some of them fell to temptation.

In the Mediterranean Coast, from Huelva to Castellon including the Balearic Islands, the construction industry is involved in 21 out of the 29 public fraud scandals.
In the North Coast, from Galicia to the Basque Country, there are 16 trials related to public fraud. In all of them the construction industry is involved.
In the Canary Islands, there are another 16 politicians accused of corruption and 13 of those show links to the former industry.

Furthermore, the situation becomes more dramatic when we realize that the two main parties in the country are involved in 305 of 390 corruption scandals. The People´s Party (PP) accounts for 177 public fraud cases (45.38% of the total) whereas the Socialist Party ranks second having 128 open trials (32.82%). Both make up 78.2% together. The other 21.8% belongs to regional parties that have large support in their areas.

The accused public workers shown on the map have ongoing trials but the judiciary system is slow. Jose Ignacio Navas Oloriz, civil law notary, asserted that the Spanish judicial process is slow because of essential lacks of personnel to handle the cases. In addition, the former General Prosecutor of Catalonia, Jose Maria Mena, said that corruption accused individuals have good attorneys that know how to hinder the process and, eventually, get short imprisonment sentences for their clients. Many Spaniards consider that political corruption is unpunished.

Consequently, the Spanish people are monitoring the trial against Iñaki Urdangarin (King Juan Carlos´s son-in-law) who was involved in November 2011 in the "Palma Arena" public fraud case. In short, it seems that he persuaded some Spanish administrations to sign agreements with his company (the Noos Institute) that was supposed to be a non-profit organization. Because of Mr. Urdangarin´s high position, this case will work as a good thermometer to assess to what degree the judiciary system is independent and how well it operates.

Spain has big trouble with corruption. Even though many of the public administrations work transparently, several corruption cases have arisen in the last years, worsening the overall image. In harsh economical times in which politicians demand austerity, Spaniards claim justice and political honesty.

Published on Newsvine

Spain´s government announces 27billion euros in budget cuts

2012-03-30T13:47:00.001-07:00

Spain's new conservative government announced 27billion euros (35billion dollars) in budget cuts to reduce the public deficit. The People's Party will raise taxes and reduce departmental budget by 16.9%. The government pushes austerity in order to meet the 5.3% deficit imposed by Brussels two weeks ago.

Compared to 2011 budgets, the largest cuts by percentage will be carried out in the departments of Foreign Affairs (50%), Public Works and Transport (36%), and Industry (31.9%). The smallest will be in the ministries of the Presidency (3.8%), home affairs (4.3%) and Justice (6.3%).

Besides, there will be cuts in Health, Education, and Labour and Social Security. The Ministry of Health will have 365 million euros less than last year. Therefore, laws as the so-called "Ley de Dependencia" (Law of dependency) will be removed from the budgets. This legislation was passed by the former Socialist government in 2006 and provided financial help to disabled people that cannot be self-suficient.

Concerning the department of Education, the budget will be reduced by 20% (830 million euros less) in an area that Spain has still to improve. Around 31% Spaniards between 18 and 24 years-old did not finish high school. This rate doubles the European average. Furthermore, Spain ranked statistically below the OECD average in every category in the Program of International Student Assessment in 2009. Consequently, some programs that struggle to improve the educational level might stop.

On the other hand, ministry of Economy Cristobal Montoro announced a tax amnesty so that undeclared income may regularize with a levy of 10%. Mr. Montoro claimed that a tax amnesty is a recommended action by the OECD for countries in harsh economical situations and has successfully worked in other European countries. Therefore, the government expects to raise 2.5 billion euros with this measure. However, when the current prime minister Mariano Rajoy leaded the opposition in 2010 he claimed that a tax amnesty was a mistake.

Despite everyone expected it, the VAT was not finally increased (yet) although it is one of the smallest in Europe (18%). The government said that they do not want to damage consumption. However, the Spanish government chose to raise corporate taxes.

Furthermore, Industry Minister Manuel Soria announced that electricity bills will increase 7% and rise gas bills 5%.

Javier Diaz Gimenez, professor of economics at IESE Business School in Madrid, said to BBC that the budget seems to be non-credible. "They will not be making the 5.3% target agreed with Brussels, because the cuts are insufficient given the growth forecast," told Mr.Gimenez to BBC News. The Bank of Spain estimated that the Spanish economy is poised to shrink 1.5% this year. Furthermore, the IMF forecasts two years of a new recession.

Yesterday the general strike was largely supported as we can see in the aerial pictures took by El Pais. However, the strike was not going to stop the labour reform or the new budgets, as this web said, but it showed that many Spaniards are angry and worried towards the future of the country. The government should be very careful when carrying out austerity policies that could lead towards larger demonstrations and social conflict.

But, is it impossible to implement austerity without triggering social unrest? Unfortunately not. The government has a series of international commitments and has to fulfill them regardless the people´s opinion. Hard economical and social times are yet to come in Spain.

General strike in Spain to protest against labour reform

2012-03-28T19:53:00.000-07:00

On Friday 29th Spain´s two largest unions have called for a general strike against the labour reform carried out by the new conservative government. This is the third labour reform implemented in the last two years in order to reduce Spain´s high unemployment rate (around 23%). However, this new law is part of the package of austerity measures imposed by the European Union to meet the former 4.4% and current 5.3% deficit target that Spain agreed.

Basically, the reform makes easier and cheaper to lay off workers. For example, this law reduces the maximum severance pay that employees can receive from 45 days to 33 days. Furthermore, a worker that has nine absences in a month can be easily dismissed even if he was on sick leave. Furthermore, Spanish workers had a 42 month´s maximum lay-off payment. Now, they will have a 12 month´s at most.

Besides, the new legislation creates greater flexibility to adjust working conditions. Unions will loose power when employers negotiate a new contract with the worker. Consequently, companies can establish shorter pays, lower wages, or even both. In short, the labour reform creates a precarious labour market.

On the other hand, this regulation will be beneficial for employers. There are currently many companies with troubles that need to reduce their workforce. Besides, if a company register looses nine months in a row the firm can reduce their employees wages. Therefore, the labour reform seeks to improve Spanish competitiveness (making employment cheaper) and regaining international investors confidence. Once Spain cannot devaluate its currency, the government has decided to carry out an internal devalutation in order to attract foreign investors.

However, several economics experts believe that this reform will not improve employment. Juan Rosell, the president of the Spanish Confederation of Employers´Organizations, welcomed the new legislation but he claimed that it will not foster the creation of new jobs. Furthermore, Mr. Rosell said that the reform will be effective when economic times will be buoyant. However, those buoyant times are not foreseen in the short-run. The IMF forecasts two years of a new recession in Spain.

On the other hand, the two main unions (Workers´Commissions and the General Union of Workers) have largely criticized the new law arguing that it will be inefficient to foster job creation and called for workers to go on strike. However, trade unions convening power have been weakened in the recent years especially among the young. Besides, many people do not want to put their job position at risk due to the high unemployment rate. Therefore, unions are afraid of not receiving a large support.

Opinion polls suggest that around 30% of employed adults will go on strike. That is not a challenging rate to stop Mr. Rajoy´s new legislation. In fact, Luis de Guindos, the finance minister, claimed that the general strike will not change the labour reform at all.

However, there is a sector that may complícate Mr. Rajoy´s ideal scenario. The Spanish indignados (indignant). “The indignados launched the global Occupy movement last summer with their city encampments and an emphasis on openness and direct democracy”, states Katherine Ainger in her article the Guardian.

Leaded mainly by the young, the indignados symbolize the dissatisfaction with the current political and economical system (youth unemployment in Spain rates around 50%). Like the Occupy movement they seek new ways to protest peacefully. For example they called on a general consumption strike for tomorrow. They will also participate in the general strike with the minority trade unions.

Last year on May 15th , about 40 individuals (at that time they were not named indignados yet) settled their tents in Sol (the main square in Madrid). At night the police kick them out from there while somebody recorded and uploaded it on Youtube. Next day there were not 40 people camping, but hundreds. That triggered the Spanish protests, a movement that lasted for a month opening a political debate in Spain and complicating the last days of the former Socialist government. The indignados look for another spark that could mobilize the Spanish society. That should be Rajoy´s greatest fear of tomorrow´s general strike. Not the strike itself.

The People´s Party won Andalusia without making an absolute majority

2012-03-26T11:15:00.003-07:00

The conservative dream came true: For the very first the People´s Party won the Andalusian parliamentary elections making 50 seats in 109. However, Mr. Arenas did not make an absolute majority, thus he will not be able to form a government in that autonomous community.

This has been the fourth time that Mr. Arenas runs for election in this autonomous community and it has been the best result his party ever obtained. Despite the ERE fraud case (involving some members of the Socialist Party of Andalusia) and the crippled Andalusian economy (makingover 30% unemployment rate), the People´s Party has not been able to end with a 34 year socialist rule in Andalusia.

Compared to the 2008 election, the Socialist Party lost 9 seats and around 600,000 votes. Consequently, the conservative party took 3 of those seats (jumping from 47 to 50)while United Left got 6 of them (rising from 6 to 12 seats).

In addition, abstention increased 11% compared to the last ballot. While 1.5 million people abstained in 2008, around 600,000 Andalusians decided not to exercise their right to vote (making up to 2.3 million people).

The rising of United Left (IU in the graph) and the large abstention suggest that the left-wing voters disappointed with the socialists have either moved further to the left, supporting United Left or abstained from voting. In fact, even though the People´s Party increased their number of seats, they received less votes that in the last election (about 200,000). Therefore, Andalusia will keep on been socialist for another 4 years making up to 38 years of government in total when the next elections hold in 2016.

The People´s Party are the favourites to win the Andalusia Parliamentary Elections

2012-03-24T15:57:00.008-07:00

Tomorrow March 25th, elections to the regional parliament of Andalusia will be held. It is the fourth time that the People´s Party candidate Javier Arenas runs for election in this community. The conservative party has traditionally been defeated in southern Spain. However, opinion polls suggest that Mr. Arenas will be elected as the first right-wing president of Andalusia. Consequently, it would be the very first time that the Socialist Party loses this autonomous community in more than 30 years.

The economic recession and the latest corruption scandals linked to the Socialist Party in that community have decreased their voters confidence. In addition, Andalusia accounts for the largest unemployment rate by region peaking last January at 31.23%.

Joaquin Aurioles, professor of economics in the University of Malaga claims that Andalusia has never had less than 12%-14% unemployment rate even in economic bonanza days. Consequently, its tourism and agricultural-based economy is very vulnerable to economic recessions.

On the other hand, the ongoing ERE fraud case has worsen the socialists image in Andalusia. Even though, it is not clear yet whether some members of the Socialist Party were involved in the scam or not, allegedly they overlooked it. The socialist candidate Jose Antonio Griñan has recognized that this case will affect his electoral results.

The People´s Party will have to win an absolute majority in order to govern Andalusia for the next four years. Otherwise, the socialist are very likely to join in a coalition with the left-wing party United Left. According to an opinion poll conducted by electometro.com, the Mr. Arenas would win an absolute majority getting 57 seats in the Parliament of Andalusia. On the other hand, the socialist would lose 15 seats compared to the 2008 election falling from 56 to 41.

Therefore, if polls are right the electoral map of Spain will have another blue-coloured community (colour of the People´s Party). Catalonia and Navarra are still governed by their nationalist parties (CIU and UPN respectively). On the other hand, the socialist govern in coalition in the Basque Country and Canarias. However, the socialist are expected to win the elections to the General Council of Asturias that are held also tomorrow.

Even though it is important to win Asturias, it would be a small victory overall for the Socialist Party. The fact is that the conservatives would run 12 in 17 autonomous communities and the National Government opening the door to rule the country freely.

The Euro Group sets a new 5.3% budget deficit target for Spain

2012-03-14T16:11:00.118-07:00

The Euro Group rejected Spain´s 5.8% budget deficit for 2012 submitted by Mariano Rajoy last March 12th. The finance ministers of the eurozone suggested the Spanish Government to cut an extra 0.5% of gross domestic product in order to reach a 5.3% deficit this year. Therefore, Mr. Rajoy will either increase taxes, or reduce public expenditure, or both measures at the same time.

Last March 3rd, Mr. Rajoy announced that Spain was not going to meet the initial 4.4% deficit target agreed. This was a very risky move by the Prime Minister of Spain. Fortunately for him, the Euro Group´s decision has not been as bad as it could have been. However, Mr. Rajoy has to cut an extra 5,000 million euros ($6,663 million dollars) to accomplish that 5.3% deficit.

In the meantime, Spaniards expect the government to increase the sales tax. Even though the former prime minister Jose Luis Rodriguez Zapatero increased the VAT in 2010 (from 17% to the current 18%) Spain still has a one of the smallest VAT in the European Union overcoming only Luxembourg and Cyprus. Therefore, Mr. Rajoy has the perfect excuse to rise that tax.

Rajoy announces a new budget deficit

2012-03-05T16:33:00.006-08:00

Last March 3 the President of Spain, Mariano Rajoy, announced in the European Council that the country will not achieve the 4.4% deficit of GDP that he committed to 2012. Therefore, Spain´s new goal is a gentler 5.8% in order to reach 3% deficit by 2013 which is the important target according to the Spanish Government.

The conservative party led by Mr. Rajoy won the elections last November. Since them, he has carried out several austerity policies as increasing taxes, a labor reform (fostering a labor flexibility), and reducing public expenditure in certain areas. He has been Mrs. Merkel´s most advanced pupil so far.

However, he has rebelled against his mentors with this decision. Mr. Rajoy announced the new budget deficit target in Brussels in order to reinforce the idea that the important goal is the 3% deficit in 2013 and avoid possible sanctions from The European Union.

During the November elections, the Socialist Party (former party in power) stated that they were on the way to reach the European Union´s 6% deficit target that they committed to before leaving power. However, last week Cristobal Montoro, the Budget Minister, unveiled that the real figure was 8.5% (2.5% over the established target). Therefore, the European Union might not be willing to allow Spain to let them down twice.

The Spanish economy is heading into a second recession and the unemployment grows monthly. The Spanish GDP is set to shrink by 1.7% and the unemployment rate has hit 23% last month. Therefore, we can expect that there will not be an economic recovery in 2013.

Reaching 4.4% deficit this year would be a dramatic situation in Spain. More cuts in the budget would trigger social unrest (which is very high), demonstrations, and protests. Mr. Rajoy will not cut any more in the very short-term but might increase sales tax (which is one of the lowest in the EU at 18%).

However this depends on whether or not the EU decides to sanction Spain. If they did the People´s Party will have the perfect excuse to increase sales tax. Once again, a national policy is conditioned to a foreign decision. Something that has become usual in the southern European states lately.

German President resigns while Spanish politicians linger

2012-02-22T21:53:00.004-08:00

Last 17 February Christian Wulff, the President of Germany, resigned the office after being involved in a corruption scandal in December 2011. Allegations emerged over Mr. Wulff´s relations with affluent businessmen. Apparently he received freebies and benefits in exchange for favors to rich friends that were legal but considered unseemly.

Mr. Wulff said that he was stepping down because this event has diminished his credibility, producing a lack of confidence from broad spectrum of the people.

This event contrasts with Francisco Camps, president of the Valencian Community from 2003 to 2011, who was involved in a similar corruption scandal known as the Gürtel Case from 2009 to early 2012.

Like Wulff, Camps was accused of accepting freebies from a circle of businessmen in order to favor their private companies with public contracts. Despite the extensive evidence, Mr.Camps was declared "not guilty" by a popular jury on last 25 January. Having a popular jury is not something usual in Spain, thus that has been largely criticized by some groups.

However, there is a big difference between the Spanish politician and the German. While Mr. Wulff resigned only two months after his implication in that case, it took two years for Mr. Camps to step down from presidency because of popular pressure (he was implicated in the Gürtel Case in February 2009 and he resigned the presidency in July 2011).

In addition, Mr. Camps was able to run for re-election for the Valencia presidency in the regional and local elections in 2011 despite the charges. Furthermore, there were over 100 candidates involved in corruption trials that ran in those elections.

The immunity that the political class demonstrates and their lack of social responsibility, have made corruption and fraud rank as the fourth issue that worries the most to Spaniards in last January (after unemployment, the economic situation, and the current political class).

Seeing what has happened in Germany has triggered the anger of many Spaniards who look enviously at Germany. I believe that any politician involved in a corruption trial must immediately step down. It goes against the ideals of transparency that the public administration should represent. But none of those 100 Spanish politicians seem to share that idea. Mr. Wulff´s decision should set a good example for all of them.

Christian Wulff Francisco Camps

Short film that shows the unemployment situation in Spain

2012-02-04T13:50:00.002-08:00

The three minutes long short movie "La Entrevista" ("The Interview") directed by Daniel Ortíz García competes ione of the most important Internet-based short film festivals in Spain: Notodoflimfest

La Entrevista offers a bitter view of the unemployment situation in Spain. In this short movie, a well-educated, experienced, and successful business woman faces a job interview to be employed in a new company. This short film is subtitled in English. Click here to go to the festival´s website and vote for it if you like it.

Telecommunications engineer with 10 years of experience - €450 monthly

2012-02-01T09:44:00.003-08:00

This screenshot has been taken from the Spanish online job website infojobs.net.

English Translation:

Click here to see the offer.

If infojobs has deleted the offer it is possible to see it here and here.

However we should not take that example as a norm because of two reasons:

First, the job is not offered in a main city but in a small town in Murcia (Alcantarilla). It is comparable to a job offer in Norman, Oklahoma.
It is far from reality. Even though the labour situation is complicated, €450 ($600) per month is too low for an experienced engineer with ten years of work in the field. In addition, I have to point out that the salary is gross without deductions included.

However, this grotesque job offer does tell us something really important. It tells us that the large amount of qualified workers and the high unemployment rate (above 20%) have dropped professional labour conditions in Spain to the degree that someone is trying to hire a well-prepared engineer for a ridiculous amount of money.