Spain Is Doomed

http://www.theatlantic.com/business/archive/2012/04/spain-is-doomed-why-austerity-is-destroying-europe/256032/

by mattobrien • 14 years ago

110 222 14 years ago

christkv2• 14 years ago

There is a fair bit of people who considers the euro to have been planned to cause a crisis to driver deeper integration in the Euro zone.

Spain is grim BUT it's important to understand how big the black economy is here. A lot of the unemployment numbers are colored by people actually working on the side while putting the dole in their pockets.

Also GDP debt is not that bad and the government seems able to actually push through reforms in comparison to Italy or Greece.

I would prefer to see the percentage of people on the "ajuda" that is the only thing available after you loose the unemployment benefits.

Living here there is one massive obvious issue. The property prices have not dropped as massively as in the states. My theory is that the banks are not selling property as they don't have to mark to market. If they had to write the market value of all that property I figure the whole Spanish banking system would be bankrupt.

mipapage3• 14 years ago

Yeah, people always quote the unemployment rate but don't seem to get that there are a LOT of people working and collecting "paro" as unemployment insurance is called here. That said, if you are out of work and not working illegally, life is hard.

As for property prices, banks aren't lending either. What I see is that people aren't buying or selling; they are moving into old family homes (la casa del campo) and moving in together or back with their parents.

The real pain is how bad the situation is and how shameless the politicians are.

muyuu2• 14 years ago

Spot on.

Spanish society isn't up in arms precisely because of the black economy, rendering unemployment indicators really ineffective.

I was in Spain in the early 2000s, and there was a huge Real Estate bubble. People came in droves into the country, illegal immigrants made 3000 euro per month (~5000 US$) tax free without any qualifications, and they couldn't come fast enough. Even then, when demand for workers was IMMENSE, official unemployment figures never came under 9%. That's pretty much the bottom over there.

Rajoy already introduced a less protective employment legislation and he will have to lower the barriers to make contracts further.

No doom and gloom. Hardship, yes. The biggest hurdles are already being taken upon in just about 100 days since the socialists left power:

- forcing banks to re-provision on their massive mortgage leverage. Basically, take the hit and admit that housing prices need to FALL big, and they will have to take a big hit.

- reform in sacred areas like education, healthcare and - most importantly - standard contracts.

joelreymont3• 14 years ago

http://www.cincodias.com/articulo/economia/parados-cobran-ay...

There are 5,27 million of unemployed in Spain. 3 million of them receive unemployment benefits of some sort which leaves 43% without any sort of benefits. The two million that do not receive anything at the moment could become 2.5 million by the end of the year.

Of the 3 million with unemployment benefits, 53% receive 426 euros (557 USD).

N.B. I live in Tenerife, Canary Islands (Spain).

mipapage3• 14 years ago

"There are 5,27 million of unemployed in Spain... which leaves 43% without any sort of benefits"

Sure, but how many of those people were unemployed before this mess? I live on the mainland, and honestly there are a lot of people "working", if you know what I mean. No benefits, no real job, but money comes in. The worst part is when they admit to it (or working illegally and collecting benefits) and laugh it off, then follow with "we know its wrong, its just the way we are". THEN they complain about the politicians? Who are... Just like them, but at a bigger scale?

DanielBMarkham5• 14 years ago

What happens when you keep spending more than you have? Your economy contracts. Can you inflate it with easy currency? Sure thing -- up unto a point.

This Keynesian conversation is going to be very interesting to watch over the next few years. Lots of countries trying different things. I imagine no matter how it turns out, there will be quite a bit of spin, though. But still, it's better to have examples than just listen to theory, even if the examples are murky.

From what I hear, more QE is coming from the ECB. That might have a generally good effect on many economies. Or it might just be fun to blow through for a few months. We'll see.

nextparadigms2• 14 years ago

This article seems to suggest that money printing has led to price increases for everything in Europe:

http://www.businessinsider.com/7-gasoline-thanks-ben-2012-4

yequalsx2• 14 years ago

I don't think Keynesians advocate "spending more than you have" forever. The thrust, as a I understand it, of their arguments is that deficit spending can be useful in getting out of a downturn and can have beneficial aspects. Of course, if done improperly, it can have bad effects.

CWuestefeld8• 14 years ago

I don't think Keynesians advocate "spending more than you have" forever.

As you indicate, Keynes by-the-book does not. He would have us actually save during booms, so that we can pump up the economy in the busts.

However, in practice, those in power who follow Keynes seem to be doing so not because of any belief in the economics, but because it justifies their wish to buy greater power by wielding more money. Thus, they don't follow the invest-when-booming part of the model. The result is that the government spending is at best balanced, and much more often it's in deficit.

narag• 14 years ago

The problem here is not spending more than we have, but spending it in the wrong things. And now cutting the wrong things. Banks are using the money to keep their balances healthy, not to lend money to productive business.

yummyfajitas9• 14 years ago

The article goes off the rails pretty early: What matters for a nation is its GDP. That's a country's equivalent of personal income.

GDP is not income, it's a sum of flows. The classic illustrative example is a man marrying his maid:

Unmarried: Man earns $200k/year, pays his maid $25k/year. GDP = $225k.

Married: Man earns $200k/year, pays his wife $0. GDP = $200k.

In both cases, the ability of this pair of humans to service debt and purchase goods and services remains the same. Both couples are equally wealthy, you've just tweaked an accounting identity.

Retric• 14 years ago

Actually case 2 probably pays less taxes and is therefore better off.

In countries where tax evasion is high enough, the standard of living can be fairly high while the government is failing see Italy and Greece.

to3m• 14 years ago

And now there is a government employee who is correspondingly worse off...

DanielBMarkham5• 14 years ago

One of the things I'm beginning to suspect is that the metrics are rigged. That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly.

But I am simply an observer. I love watching smart people argue about stuff, so economics fascinates me. One thing is for sure, there is a ton of diverging opinions about the Euro and the sovereign debt crisis.

beagle311• 14 years ago

The metrics, GDP being an example, are selected for political rather than merit. And then they are rigged. See e.g. http://www.shadowstats.com/ for an attempt at an honest (or at the very least, consistent with 30 years ago) measurement of inflation and unemployment. The results are not pretty.

My only surprise is that so many people are unaware of it. The government's income is indexed to the real inflation (by being an essentially constant proportion of salaries/profit), and expenditures are indexed to a computation the government is able to redefine at will. Is it a surprise that it is, in fact, redefined often, and that it always makes the government look better?

excuse-me8• 14 years ago

GDP was invented in the days when trade was ships full of iron ore - it screws up the figures for any country with significant banking/financial services

By GDP, Luxembourg and Lichtenstein are the worst countries in the world - with national debt ratios of $10M+ per person.

It even effects large economies, one of the (many) reason for the UK not joining the Euro was that the size of London's financial industry meant that it's debt/GDP figures would never meet the requirements even if the government never borrowed a penny.

chimeracoder• 14 years ago

> That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly.

Actually, the problem is that people infer terms to mean things that they don't mean, oftentimes because the terminology is (regrettably) overloaded, even when the technical meaning is very precise and limited. Understandably, people interpret these terms literally, which sometimes leads to conclusions that seem paradoxical or impractical[1].

Remember that economics is really just the study of choices: choices in the small (microeconomics) or choices in the large (macroeconomics). Choices may involve money, but money is not inherent in economics - it just so happens that there are many advantages to a monetary system, which is why most economies develop some form of currency, and which is also why many (but not all!) economists deal with money. Even though it uses similar terminology, macroeconomics is fundamentally different[2] from microeconomics at its core. One is the study of individual decisions on a small scale, and the other is the study of the non-random patterns of many independent decisions.

GDP is not the perfect measure of what it's meant to gauge (macroeconomic economic 'health', which is itself a problematic term). GDP systematically overestimates the health of oil-backed economies with huge wealth disparities, for example. That said, there's no metric that's much better for the general case - all have similar systematic flaws in some way.

Furthermore, GDP has the advantage that it's completely unambiguously defined. That doesn't mean it can be measured perfectly, but having an unambiguous definition is a key step. When you start talking about these contrived indices (the 'happiness' index, the 'corruption' index, etc.), you get the problem that there's little underlying justification for the way that the model is constructed, so even if the end results are useful for a particular domain-specific application, they don't generalize well. GDP, on the other hand, can be derived quite easily from first principles, so it generalizes very nicely. Furthermore, GDP happens to correlate very well with most things that we would classify as 'good' (quality of life, corruption, happiness, etc.), so it's a nice proxy for these intangible 'goods' (no pun intended), which are more difficult to measure precisely.

So back to your question: maybe the measurements themselves are rigged - that just gets at the question of who is actually doing the analysis. But the construction of the model is no more 'rigged' than any other model. You just have to be careful to know that, like all models, its application is still very limited, even if it's one that we happen to use quite frequently.

As George Box says, 'All models are wrong, but some models are useful'. GDP is 'wrong', but it also happens to be by far the most useful way of describing the patterns choices on a large scale.

[1] This is by no means specific to economics: it happens in statistics as well, and (to a lesser extent) in computer science.

[2] That is to say, they aren't mutually exclusive, but they are based on completely separate assumptions, so principles from the small do not necessarily carry over into the large scale.

pchristensen• 14 years ago

This 1 hr podcast is a great example of that: http://www.econtalk.org/archives/2012/04/burkhauser_on_t.htm...

Basically, by changing the way you look at the numbers, the story changes from "The middle class has disappeared over the last 30 years" to "The middle class has done great and become wealthy over the last 30 years"

mattobrien3• 14 years ago

I don't think that proves what you think it proves. You're missing what he would do with that $25k if he marries his maid. Maybe he would spend it on something else. Maybe he saves it and the bank loans it to someone else. In either case, it does matter what happens, because it gives us a clue into the velocity of money.

GDP measures the value of all the stuff and services we produce. Which shows how much income we earned. So, you're wrong.

aqme28• 14 years ago

I think you're missing the point. Either way, it's 200k split between the two of them. Unmarried, he has 175k and she has 25k. Married, they both share 200k. He doesn't get to divert that 25k once they marry, because she will consume resources as well.

yummyfajitas9• 14 years ago

In the more detailed version of the hypothetical (i.e., the careful econ textbook version), it's explicitly stated that the wife continues spending the exact same amount as before, and she was already a live-in maid.

Welfare has improved - the husband and wife have all the same goods and services as before (a house paid for by the man, which is cleaned by the woman), and they are now having sex (which is presumably welfare improving). Yet GDP has gone down $25k.

GDP measures the value of all the stuff and services we produce.

No, it doesn't. If you believe it does, I have a great stimulus package: ban joint bank accounts for married couples and require the higher income partner to pay a salary to the lower income partner.

This will certainly increase GDP. Could you explain how this would have any effect on anything else?

streptomycin• 14 years ago

That doesn't really debunk the main thrust of the article, though. Yes, GDP isn't really like personal income, but less GDP growth is generally bad. And in this case, there are plenty of other economic metrics showing how bad the situation is, such as unemployment which was mentioned in the article.

yummyfajitas9• 14 years ago

GDP is often positively correlated with welfare improvements, but it doesn't have to be. The focus on maximizing GDP rather than welfare is merely an example of gaming metrics.

For a problem like unemployment, the question to ask is why the market isn't clearing. There might be a lack of demand for labor, but why haven't prices fallen until supply meets demand? The answer isn't as simple as "not enough GDP."

jpdoctor2• 14 years ago

> Unmarried: Man earns $200k/year, pays his maid $25k/year. GDP = $225k. Married: Man earns $200k/year, pays his wife $0. GDP = $200k.

At a 10% income tax rate: First case is $22.5K/yr, second case is $20K/yr.

So yes: GDP is the same as income for the gov't for practical purposes.

pyre4• 14 years ago

1. The government does not tax GDP.

2. IIRC, GDP includes government spending, which means that those tax dollars also go towards the GDP number (which are also less in the second case).

zmj• 14 years ago

In the sense that flows are taxed to provide income for the government, GDP is analogous to income.

yequalsx2• 14 years ago

True but in a country of 300 million people the measure is meaningful. There are not[1] a lot of such examples. It's not merely tweaking an accounting identity. It can be but in the aggregate, with a sufficiently large number of people, it isn't.

[1] Added the important word "not".

fleitz2• 14 years ago

A great example of GDP is government spending. A cut to government spending reduces GDP whether that money is productive or flushed down the toilet. Spain's GDP will shrink simply because the government spends less, the reduced spending should stimulate the local economy by transferring the money back to the people to spend.

loverobots2• 14 years ago

Exactly. Or, I put in in savings you go out and buy crap. Just to be sure you also load up on credit cards. GDP goes nuts...for a while.

Symmetry6• 14 years ago

True but not that important in this case. These factors tend to make it hard to compare GDP across countries or across time frames large enough for societies to change, but if a countries GDP suddenly falls by 5% it isn't because a bunch of people got married. In the long run GDP correlates with wealth, and in the short term it correlates quite well. And since it's easy to measure, we can legitimately use it in the way that the article uses it.

yummyfajitas9• 14 years ago

...if a countries GDP suddenly falls by 5% it isn't because a bunch of people got married.

True, but that's not the only pointless transaction one can make that would raise GDP.

Here is another: taxing some people and using the proceeds to pay others to do valueless work (e.g., digging holes and filling them in). A well designed austerity measure will attempt to reduce such payments. This will reduce GDP, but not welfare.

(That's not to say a poorly designed austerity measure can't be welfare reducing, I'm just pointing out that you need to dig deep into the specifics to make that determination.)

If you want to argue against austerity, explain why it's welfare reducing. Pointing out that it might reduce GDP just doesn't cut it.

viandante7• 14 years ago

Are you sure of this example? It does look like GDP is 200k in both cases. The first case looks wrong, if he pulls 25k from his savings, there will be -25k in savings (or investments as they are the same) and +25k in spendings. Effect is 0...

maratd3• 14 years ago

Gross vs Net

viandante7• 14 years ago

Please, don't just downvote. Do tell me where the +25 are coming from in the first case instead. It would something more productive to do.

cynicalkane3• 14 years ago

The maid spends money in the first case, also. In the first case the money flows through a 25k expenditure that it doesn't flow through in the second case.

rauljara3• 14 years ago

There are definitely problems with GDP, but you didn't just identify one of them. To keep things simple (at first) assume that in your example, all of the man's income otherwise goes under a mattress, doing nothing to improve the economy. The case of the man giving a job to maid is definitely worth more to the economy than the man who sticks it all under the mattress.

In the real world, the money doesn't go under a mattress, of course. It gets spent, invested, etc. Your example doesn't represent reality at all, because both men, whether giving money to the maid or not, add way more than $200k to the economy, because by buying goods and services they are basically giving fractions of jobs to workers all across the economy.

GDP tries to measure the economic activity of a nation. Saying it's a bad measure of individual wealth, while true, is completely beside the point. It was never meant to measure that. Someone who puts themselves into debt building a business will have a negative net wealth for quite a while. Doesn't mean they aren't adding value to the economy.

yummyfajitas9• 14 years ago

The case of the man giving a job to maid is definitely worth more to the economy than the man who sticks it all under the mattress.

Why? If the man sticks money under the mattress, he reduces inflation (slightly) and increases the buying power of the rest of the world. In practical terms, a person who was a marginal purchaser of maid services is now able to have a clean home.

I.e. for simplicity suppose there were 1000 people willing to buy maid service for $25k, 1 person willing to buy at $24,999 (the marginal purchaser) and 1000 maids. If the man becomes a miser, the price of maid service drops to $24,999 and the marginal purchaser has a clean home.

Saying it's a bad measure of individual wealth, while true, is completely beside the point. It was never meant to measure that.

Tell that to whoever wrote the article. You and I seem to be in complete agreement.

csomar• 14 years ago

So per my simple understanding of GDP, the GDP will remain the same. The next flaw in your example, is that if this person is in $25K/year deficit, marrying the maid will solve his problem.

beagle311• 14 years ago

It's even worse than that:

I render a service to yummyfajitas for $10M; say, sending a text message "you rock!" yummyfajitas renders similar service to me for $10M; say, sending a text message "you sock!" back.

GDP = $20M+$0.20 (cost of text messages). Net change to economy: 0

You can (and indeed, countries do) inflate GDP for various reasons, such as GDP/debt requirements.

astine• 14 years ago

I'd argue that the economy was richer by two text messages, each valued at $10M by the recipients. Measuring the strength of an economy is a fundamentally hard thing to do because value itself is quite arbitrary.

jshen10• 14 years ago

You're assuming that prices don't reflect value. Isn't that a sketchy premise?

redthrowaway2• 14 years ago

The specific analogy isn't particularly apt, but the general point of the article stands. When you have crushing unemployment and an income crisis, the solution is not to make further deep cuts in the misguided pursuit of austerity. You should be promoting growth, first and foremost.

I know HN has a libertarian, small-government bent, but there's a reason public spending is included in GDP: it's expansionary. The government pays people to do things, then those people buy things. This spurs growth. As with many things, it's a spectrum and going too far in either direction (austerity v. public ownership of economy) is a bad thing.

What is clear is that, when you have a quarter of your country out of work and fully half your future workforce untrained and non-contributing, you don't further reduce the consumptive power of your population. Unpopular an idea though it may be in these parts, Keynesian economics works in regards to recovering from recessions and depressions; disciples of the Austrian School have yet to show any ability to do so and their policies look set to spell the end of the Euro.

The private sector is fundamentally better and healthier in the long run for a nation's economy than its public counterpart, but when the private sector is depressed and getting worse through negative feedback loops, the public sector has to step in. It's the growth driver of last resort.

kazoolist• 14 years ago

Counter-point.

Public (gov't) spending "counts" in GDP, not because it's "expansionary", but because it's an expenditure on final goods and services. Even if government spending was contractionary, it would count towards GDP. That's just how GDP works.

Likewise, there are reasonable arguments that government spending is/can-be contractionary. (I won't try to show that such spending _is_ contractionary, just that it may be).

All that needs to happen for it to be contractionary is for each dollar of government spending to reduce (crowd out) private spending and/or investment by more than a dollar. Harvard economist Robert J. Barro has been arguing this is the case.

jstalin2• 14 years ago

The article's title tells me that the author doesn't understand what's going on. "Why austerity is destroying Europe." How about the reality of the situation -- overspending and borrowing have destroyed europe.

Iceland seems to have fixed the problem the correct way: default.

Greece just did the equivalent of a credit card balance transfer while converting the loan to a secured transaction. In the name of "saving" the banks of Europe, Greece has been financially raped. Spain is next.

Oh, and Japan and the United States aren't too far behind.

nextparadigms2• 14 years ago

I think US would rather devalue the dollar by 30% in a very short amount of time than get in trouble over its debt. That would still be a catastrophic outcome, but I'm just saying that's most likely the option they will take.

jstalin2• 14 years ago

I agree. I think the reserve-currency status of the US places it in a position where inflating out of debt will be less devastating than in other parts of the world.

GoodIntentions• 14 years ago

I think you are right.

Why default when you control the currency that all your foreign debt is denominated in? The us has an option other countries in this position do not.

Symmetry6• 14 years ago

Printing money to repay the debt will tend to both devalue the debt through inflation and repay it directly, so to reduce the debt by 30% we would need way less than 30% inflation. And looser monetary policy would tend to reduce unemployment and raise tax revenues anyways. Thanks to having our own currency which our debt is denominated in, the US has far, far better options than Spain does.

_wp3r3• 14 years ago

Japan is one of the major lenders of current secure debt in Europe. Japan would only have to default if the primary borrowers defaulted, which is possible.

unreal37• 14 years ago

Didn't Greece's creditors have to take a pretty nasty haircut with that swap - a 79% reduction in value that is being viewed as a default?

ebaysucks• 14 years ago

That's still 21% too much they got to keep.

kls3• 14 years ago

Iceland seems to have fixed the problem the correct way: default.

This is the part that dumbfounds me, Iceland ignored the common wisdom when they common wisdom said that very bad things would happen to them if they did not listen to the "smart" people. They went ahead and did it, and none of the bad things happened, further things got a lot better. But somehow we allow everyone to convince us to ignore the blatant evidence that Iceland presented that those saying don't default are pretty much lying through their teeth, because they have a conflict of interests.

nl3• 14 years ago

common wisdom said that very bad things would happen to them if they did not listen to the "smart" people

That's not true. The "smart people" understand Keynesian economics and said that pretty much any policy was better then austerity.

Unfortunately, there seem to be social pressures that seem to encourage the very thing that will make things worse during a recession. How many times have you heard things like "everyone is suffering and the government must share that pain and tighten its belt too"? In fact, the "smart people" are screaming to do the opposite!

zacharypinter• 14 years ago

It might have been the best decision for Iceland, but it's not all roses:

http://www.npr.org/blogs/money/2012/04/13/150586792/should-i...

jellicle2• 14 years ago

> How about the reality of the situation -- overspending and borrowing have destroyed europe.

How about the reality of the situation: Spain was a paragon of fiscal virtue prior to the crisis:

http://krugman.blogs.nytimes.com/2012/04/15/insane-in-spain/

Spain had low debt and a large budget surplus.

recoil• 14 years ago

Low public debt, sure, but private debt was high and the housing crash left Spanish banks in a precarious position.

It turns out though that the private debt of large banks is a form of public debt in disguise, at least as far the "solutions" to the debt problem have been implemented by every country with the exception of Iceland (i.e. the public purse has been used to bail out the catastrophically over-indebted banks directly or indirectly).

pessimizer5• 14 years ago

"Spain was running budget surpluses and had a considerably lower debt to GDP ratio than Germany."

http://www.cepr.net/index.php/blogs/beat-the-press/spain-did...

excuse-me8• 14 years ago

I earn $100K and have a $400K mortgage, so I have a much worse debt:gdp than the homeless guy collecting cans in the bus station

antirez• 14 years ago

It is hard to read the Europe crisis without taking into account that is a model that, while flawed, traditionally tried (hard) to provide decent conditions for the poorest segments of the population. This huge national expenses (and taxation levels) of most EU countries are sometimes just stupid wastes, but also the result of a set of services that we know take for granted but are not granted in many places outside Europe.

If our model will fail there will be to reconsider a lot of things, but if it will survive this crisis it will show that it is possible to create developed nations where a decent level of public health care, school, and services are possible in the long run.

StavrosK2• 14 years ago

This didn't sink in until my recent trip to the States.

"So if you're poor and you get sick you just... die?" "Pretty much."

cobrausn2• 14 years ago

No, not pretty much.

Usually you end up in a lot of debt. But it is actually illegal in the US (last I checked) to actually turn away a dying person at the emergency room because of a lack of coverage.

Now, they may wish they had died when they get the bill, but that's another argument.

excuse-me8• 14 years ago

Slightly more complex - and worse than that.

If you are completely poor, you are 'almost' OK. Hospitals don't actually dump people on the street (well a few did). The problem is that the costs for everyone else are hugely inflated to pay for this.

So if you have a job and go to hospital and your insurance doesn't cover you - for some administrative reason, or you just changed job and the insurance doesn't kick in, or it's an existing condition and your new insurance doesn't cover it. Then you are really screwed - you are looking at the price of a new car for a relatively minor case (broken leg, appendix) or your house for anything major.

The major problem (and the reason the US has a 3rd world life expectancy) is that the system really doesn't fit for any sort of preventative medicine. Vaccinations, healthy lifestyle stuff and especially screening are a fraction of what they would be in Europe.

postfuturist• 14 years ago

If you're poor and sick, you get treatment, and you might end up in one of the following situations: 1. You fill out financial hardship paperwork, have most of the cost written off, have a small debt to pay off, 2. You fail to fill out financial hardship paperwork or aren't quite poor enough to get the cost reduced much, you pay it off slowly over time or file bankrupcty.

I've been in both situations when I didn't have insurance. Economically, it would be much better off if we had universal health insurance, so major sickness wasn't so crushing economically, but we don't "just die".

What is true is that people die sometimes because they don't have insurance and can't afford preventative treatment for conditions they don't know about until it is too late.

pessimizer5• 14 years ago

There's nothing wrong with the European welfare state model, just look at Scandinavia. The problem is with sharing a currency with countries that you have large trade deficits with; so not the European model, but the Euro model.

Spain did not run up high public debt.

http://www.cepr.net/index.php/blogs/beat-the-press/spain-did...

http://www.cepr.net/index.php/blogs/beat-the-press/spains-qd...

icandoitbetter• 14 years ago

The European crisis has nothing to do with the inflated public spending. That's just the spin that American and especially conservative media have pursued for obvious reasons. Greece does less public spending than Germany, for example (check the OECD data).

Things that actually caused the crisis: a flawed shared currency system that lacks risk sharing mechanisms, an unregulated government bond market riddled with moral hazard, state corruption.

ajays2• 14 years ago

I'm not an Euro Zone resident, so I have to ask: what's stopping the people of Spain (especially the youth, with their 50% unemployment) from hopping over to Germany and finding work there? Isn't it the case that any member of an Euro country can work in any other country?

retr0rocket• 14 years ago

Europe is not like the USA, there is a significant cultural and language divide between states that stops people from hopping over the fence like that. if i were to pick up and move to california from New York, there would be almost 0 change (other then the stress of moving etc), not quite the same leap from spain to germany even if they are geographically closer

ajays2• 14 years ago

I do understand the language divide at least. But given a choice between unemployment and, say, working in a place where you don't speak the language, I know I'd pick work any day! At least you're picking up work skills and a second language, which is far better than sitting at home twiddling your thumbs.

grimborg• 14 years ago

I moved from Spain to the Netherlands with almost 0 change. Working on IT helps, of course, but it's still pretty easy. Jump on a plane, register on the city council, there you go.

Markinhos• 14 years ago

As a Spaniard who has worked worked in Germany I have to say it is possible but the main problem is that not many spaniards speak German. And this is something that you're likely to need. It can be easier if your job is IT, for instance. Nonetheless many young spaniards are leaving the country, specially the ones with a higher education.

AkThhhpppt• 14 years ago

a) Not speaking German. b) Is there a job in Germany they can and will do? c) I'm in Ireland. There are currently >2 Spanish co-workers working within 20 feet of my desk.

maebert• 14 years ago

That's actually what is happening. A running gag / frequent banner text is that the "Future of Spain emigrates to Germany". In one town, the Mayor even subsidized free German oourses to his people (http://www.spiegel.de/international/europe/0,1518,771736-4,0...).

The problem is that emigrating requires money and mobility, and Germany is looking for qualified people. Hence many of the emigrants have university degrees, and only the lesser qualified remain, which is not exactly helping much, economically.

nhaehnle4• 14 years ago

Anecdotes say that many more Spaniards are now in fact moving at least to Berlin, but my guess is that the movements would be much bigger if the language barrier wasn't there.

Besides, it's not like Germany is paradise either. The official unemployment numbers are low compared to other Eurozone countries, but (a) that hides a lot of underemployment such as in part-time jobs and (b) even those "low" numbers are still pretty high.

hk_kh2• 14 years ago

Subtract corruption and politics from Spain and you get a really good place to live.

Besides, the people being offered jobs abroad are capable of getting a job in Spain.

Usually, people forget about the natural unemployment rate of Spain, which has always been really high. That includes underground economy.

So, yes, there's an alarming problem with unemployment, but numbers shown are imprecise.

muyuu2• 14 years ago

I'd add to the listed reasons that you cannot collect the "paro" subsidy from outside of Spain, and they seem to be serious about enforcing this now.

Right now, and for the first time since Franco times, Spain will be a net emigrant country (2011 stats to be released soon). Germany is a popular destination. UK as well.

mobiplayer3• 14 years ago

UK, Ireland (really), Netherlands seems to be the best options.

joelreymont3• 14 years ago

I think Spaniards are a bit like Americans in that it's hard to find multilingual ones. Young Spaniards do emigrate in droves, though.

N.B. I live in Spain.

gjulianm2• 14 years ago

It's not as easy as that. As people above me has already said , there are a lot of young people hopping over to Germany, some know the language, some not. In my circle of friends, most of us think that the best (or maybe the only) opportunities for us are outside Spain, and this is an extended opinion between the youth people here.

But there is a problem. Many of the young people unemployed come from the construction. People who stopped studying when they finished the ESO (secondary education, from 12 to 16 years old) or even before that, and consequently they don't have any specific formation (and very few know german language). In this situation, they can't migrate to another country, there is no job for them here neither in Germany.

Of course, this is causing a problem on the long term. High-qualified people is migrating. Low-qualified people is staying. Spain can't keep a sustainable economy with this situation. This crisis would not had affected Spain so much if the Real Estate boom had been stopped early and the inversions in education had been increased significantly, and with this panorama the country won't be able to correct the situation, and we will be vulnerable to another crisis like this one.

antr2• 14 years ago

The majority of the unemployed people are from the the real estate and construction sector. If you look at stats, unemployment is made of low-skilled labour and immigrants (non-EU citizens). It is very hard for these people to migrate to another EU country given their lack of skills.

meric4• 14 years ago

All it boils down to is Monetarist vs Keynesian. I'm not too sure Keynesian is good in the long run. points to US's rapidly escalating debt. Oh that's right, according to Keynes: "In the long run we are all dead".

wyan• 14 years ago

People tend to forget that Keynesianism is about counter-cyclic measures. That includes not wasting trillions when the economy goes well -- not what was done in the '00s exactly...

gaius• 14 years ago

They haven't forgotten. They just hope that you have forgotten.

nhaehnle4• 14 years ago

points to US's rapidly escalating debt

... and explain why again this is a problem? Unfortunately, the majority of commentators just take "high debt = bad" as a given, because they confuse their own situation (private household, currency user) with that of the US government (currency issuer).

The US situation basically boils down to: the rest of the world has been crazy for US$ for some time and is therefore willing to send real goods to the US in exchange for numbers in a computer system. This is certainly going to change in the long run. That will drive down US imports and make imported goods more expensive for US residents, but that's only fair. It won't lead to collapse. In fact, if it is semi-intelligently managed, it could lead to a rebirth of US industry.

tomjen3• 14 years ago

Because the US has to pay interest on the loans.

And because while you and I have no problem with the idea of saving for retirement, saving and buying that car in a few years, creating a college fund for the children before they are even born, etc, the US is run by politicians and politicians don't give the rear-end of that prostitute they are fucking about what happens after the next election.

So they will spend the money on frevious things.

meric4• 14 years ago

I didn't say Keynesian would cause economy to collapse. I am just saying it does not achieve its goal of smoothing out boom and busts because it requires too much competence from the governors of the economy

Keynesian is saving money during booms and spending money during recessions. Yet during booms the money saved is too little and during recessions the money spent is too much. The debt will get bigger and eventually you either revert back to monetarism and pay down your debt or you default on it by not paying/printing money, the latter latter choice leading to hyperinflation, while the latter former choice means you're reverting back to Monetarism because no one is going to lend you money anymore.

But remember, the purpose of Keynesian approach was to smooth out booms and busts in the economy, yet what we're seeing is making them lasting longer and falling harder.

During a boom, I think the mentality of politicians goes something like "We have money to spend on buying votes but instead, we are saving it? Insanity!?"

When you're forced to spend lots of money for the sake of spending money, the money is likely to be inefficiently allocated, investing in stuff that leads to more spending (like $900 handouts to each citizen) rather than investing in stuff that increases production in the long run (like building a fast railway network between cities, which require years of planning).

Monetarists would balance the budget and make careful measured investments in the economy. Yes there will be boom and busts but even in recessions the economy is still fundamentally sound, and thus will be sure to recover. See Germany for example.

draggnar• 14 years ago

Germany has a better educated workforce, a much larger amount of flat land that is connected by waterways, and a central location to other high income nations. They are more competitive. For Spain to be competitive, they need to be able to price their goods lower. This means that their money won't be able to buy as many things from abroad, but they will be able to export things and conduct business amongst themselves. The simple fact is the fiscal policies in Europe are united and the political policies differ. The Euro was supposed to help unify the continent and avoid another war but instead has put the southern countries into debt.

drKarl2• 14 years ago

The problem with spanish economy comes from the HUGE construction bubble it had a few years ago. Spain alone was building more than France, Germany and Italy TOGETHER. Government made money, construction enterprises made money, real state companies made lots of money, employment was high, even some citizens speculated buying and selling houses at a higher price some years later. To support that accelerated growth and construction, spanish banks borrowed money (LOTS OF IT) from european banks, mainly german banks. Banks went crazy giving mortgages, just as in the US. Mortgages went up to 25-30 years and beyond. When the bubble burst, prices went down, mortgage interest rates went up, and many people lost their jobs. That led to many people unable to pay for its mortgage, and banks started acumulating real state. Nowadays, banks hold a HUGE real state stock, and they don't want to sell it at current prices, because they would have to admit that their assets aren't worth what they claim. Because of that strategy of the banks, prices haven't go down as much as in other countries which suffered a bubble burst too. There is a very big stock of inmovilized real state in Spain.

drKarl2• 14 years ago

And add to it that Spain issues bonds but doesn't easily find buyers now. ECB (European Central Bank) has given spanish banks thousands of millions of euros at an 1% interest rates, and those spanish banks, instead of giving loans and credit to enterprises and people, they buy spanish bonds (at 5%-6% levels).

cmcewen• 14 years ago

"Europe's policymakers have blundered in the control of a delicate machine, the workings of which they do not understand. They're not evil. But they're almost certainly wrong."

How does this columnist then believe that he understands the economy if policymakers are so clueless? If Spain's economic problems were so easy to fix that everybody could just read this article and solve them, they probably wouldn't exist in the first place.

skylan_q2• 14 years ago

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

-F.A. Hayek

The author isn't claiming they know how to manage it better. He's just suggesting that their management, or philosophy of management isn't correct. (But maybe I'm giving the author too much credit!)

nhebb• 14 years ago

When did writers at major publications like The Atlantic start submitting their own articles to HN? It's one thing when a programmer or other startup / tech blogger submits their own work, but when a magazine does, it just feels like spamming.</rant>

Facens• 14 years ago

This article is totally pointless. It doesn't provide a single argument, just a bunch of assumptions.

hk_kh2• 14 years ago

The alarming headlines on these articles won't help Spain get any better. Sometimes it seems politics and the media just want to see Spain sink.

Maybe it's just that seeing it from the inside doesn't render it that bad.

excuse-me8• 14 years ago

The graphs are meaningless. What they measure is how strict the government is at collecting unemployment figures for young people.

It simply shows 3sets of countries.:

Spain/Greece/Portugal it's presumably very easy to claim unemployment and 50% of those 50% listed are also working for cash

Italy/UK/France it's relatively harder to claim unemployment while working and most of the 15% are actually unemployed

Germany has a much smaller youth population and managed to absorb more of them in youth-training-schemes. And it got doubly lucky that birth rates fell fastest in the east where the unemployment is. It's as if in the mid80s the UK had persuaded everyone outside the M25 to stop having kids.

loverobots2• 14 years ago

Spain today, US tomorrow. Unless we make the dollar even more worthless, $1 trillion+ deficits are not exactly sustainable

kposehn• 14 years ago

Despite many of the very clear comments in this thread pointing out holes in the article, the overall conclusion is unfortunately fairly sound - for the mid term.

The current austerity measures combined with unemployment mean the markets at large do not expect Spain to remain stable enough to invest in. With extremely high unemployment, especially among youth, comes social instability. This kind of instability frightens governments, which typically point to the private sector as the source of all ills and nationalize swaths of industry in order to feed populist sentiment.

This fear is being reflected now, and I tend to agree that I don't expect the mid-term to be kind to Spain. However, in the longer term it may come out better off, provided Germany continues to hold the Eurozone with an iron-wallet.

Germany does (mostly) control the EU by proxy anyway (~ '-')~

fasouto• 14 years ago

I'm spanish and I couldn't agree more. Many scientist and engineers are leaving the country looking for better work conditions. Also It's really difficult to run a business here. No future...

joelreymont3• 14 years ago

I live in the Tenerife. Canary Islands are, supposedly, one the top 3 regions with the most consumer debt.

Unemployment here is also higher than in the mainland since there's not much of an economy. There was construction but that bubble burst. There's tourism... and nothing else.

The interesting bit is that you don't really see the effects of the economic crisis, not directly. Most everyone drives nice cars, the parking lot at the mall is full, etc.

You do see indirect effects, though. There are more security guards at the mall and the supermarket within. One of the cafes installed two video cameras. The pharmacy posted a note that stating that no refunds will be offered on medicine or unused prescriptions.

Oh yes, the property prices here are behind the mainland adjustment-wise. Must be due to our awesome weather.

huhtenberg• 14 years ago

> Spain Is Doomed

So, generally speaking, this should make moving to Spain and working remotely from there pretty attractive, shouldn't it? Can anyone from Spain comment on how the life is like there at the moment (assuming the 100K USD income level)?

mobiplayer3• 14 years ago

100K USD?

I make a third of that (a fourth after taxes) and live happily in a coastal town (Vilassar de Mar, if you want to GoogleMap it :)) 25 minutes by train from Barcelona, with my girldfriend (no income). So, yes, with 100K USD you'll be fine ;)

gjulianm2• 14 years ago

Spain is a nice country to live in. With that level of income you can live without any kind of economic problems. Our sanitary system is free and pretty good (for now), so no worries about medical insurance.

Crime rates are low, so no security problems neither. Cities like Madrid and Barcelona offer all kind of services and their public transportation is great (you don't even need a car). And, of course, our climate is really great.

In short: Spain is a good country to live in. Although all the news you can hear with "Spain is sinking, Spain is doomed" we still live (I'm talking from my experience) very well.

harryf• 14 years ago

Is it me or do Euro austerity measures seem to drive a certain segment of economic commentators nuts? The number of articles I've seen raging about "evil" Germany forcing Greece / Italy / Spain to the brink of destruction with austerity measures. It's like they're afraid of something. What if austerity measures work? Is that going to burst someone's bubble?

skylan_q2• 14 years ago

"What if austerity measures work? Is that going to burst someone's bubble?"

Yes. The managerial class. Banksters need reckless spending in order to put more people and nations into debt servitude. If austerity works, people might (gasp) start to look to the free market for answers to economic woes, and start damming the banks and governments for their mis-management of economic matters.

stretchwithme• 14 years ago

Spain's minimum wage is up 50% from 8 years ago. Demand for labor has collapsed.

There's a thing called the law of supply and demand. Price fluctuates to keep both roughly equal.

But when you hold the price artificially high, you get more supply than demand, especially when supply is not easily changed, as is the case with labor.

There is no mystery here. Just people adopting policies whose effects they do not or will not understand.

http://www.google.com/publicdata/explore?ds=ml9s8a132hlg_...

sopooneo• 14 years ago

One of the great things about terrible situations is that everyone agrees on how bad it is. This agreement makes them think they have something in common. But if you prompt them to independently suggest solutions, you usually find that they hardly agree at all. That's happening here with the Euro. The situation is potentially unfixably bad, which gives the advantage that nothing will work and no one will ever have to find out they didn't agree all along.

Spain Is Doomed

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