Why Crisis in Spain This Week Became More Important Than Greece

http://www.forbes.com/sites/haydnshaughnessy/2012/05/26/why-crisis-in-spain-this-week-should-have-us-more-worried-than-greece/

by Flemlord • 14 years ago

96 88 14 years ago

forbes.com

guylhem• 14 years ago

So what are the opportunities there? Opening shop in spain to take advantage of an educated and competitive workforce?? Or it follows the greek way avoiding it altogether???

ekianjo• 14 years ago

It depends a lot on how the local government want to address the issues of the debt. If it goes through massive tax increase, it's probably not a good time to setup a business there.

johnnyg3• 14 years ago

Best opportunity is to invest in physical silver and gold, as the euro (and by extension the dollar) will not be able to hold their value as the printing presses run ever faster...

modeless• 14 years ago

(and by extension the dollar)

How does an inflating euro cause inflation in the dollar?

confluence9• 14 years ago

Yeah, you're a fool for thinking such a thing.

Seriously, all the commodities guys are. If you look at gold/silver demand guess what the major determinant is - OH YEAH - JEWELLERY! You know the stuff people buy when veblen goods are popular (i.e. a strong world economy).

Your baubles are worth nothing if the 2 largest economies go down.

Everyone dumped emerging markets, the euro and stocks to buy dollars and treasuries (flight to quality during high vol.).

Not because anything drastically changed, but because of the beauty contest dynamic in markets. You predict what others may predict to happen in the short term and act accordingly.

Go buy yourself a gun, food, and some survival training if that is your position. You can't eat gold. You can't live in silver. And you most certainly can't sell it when everything goes down.

Here's a hedge fund analyst's take on it: http://www.quora.com/Why-is-the-price-of-gold-rising.

Notice the graph and its constituents. Gold/Silver guys mock us fiat currency types (i.e. everyone) when they themselves are trading the same trust based tulips as the rest of us.

Everything you trade is based on trust, and trust is, and always will be, a bet on the future being better.

Gold/Silver is a bet for the world getting better, not worse.

You can't invest in the end of the world. You can merely prepare for it.

mipapage12• 14 years ago

Its still too early, IMO. Prices aren't that cheap yet and the cost of living, while cheap, hasn't plummeted. Yes, there are a lot of people out of work, but speaking with a few folks in the last 6 months they say it is still hard to fill IT jobs.

Wait until (if) Spain exits, then capitalize. But remember, the work ethic here is not the same as elsewhere. And people who don't fit that mold are leaving the country.

If it doesn't exit... Hard to see what will happen here.

tluyben27• 14 years ago

That's what I see; we tried to establish a developer team in Spain and we found out that good people went to Germany and a large portion of the remainder don't actually don't want to work. We are talking university level CS people. I was amazed by this. Even when I met one who was willing to work he wanted a contract for life and part time.

I know a lot of kids there who finished school, live with their parents on (some kind of; I'm not totally clear on this; I know they receive a few $100/month) benefits. I'm from the Netherlands and this concept is alien to me. None of the people from the schools I went to would consider living off benefits unless very ill or something like that; the ones who did not get a regular job opened companies. Probably it depends on the part of Spain but it was a strange experience.

mcantelon5• 14 years ago

>In fact in the case of France much of the local debt was inherited from the central Government, which “delegated” the debt to localities where national funds were spent, effectively reducing the national debt headline figure. French finance Minister during this process was Christine Lagarde, now head of the IMF.

Interesting: a uniformly distributed, uniformly crippling debt. The public will be forced to adopt whatever the business community's EU/IMF proxies ask for in exchange for debt maintenance.

incredimike• 14 years ago

Without trying to sound like a foil-hat wearing loonie, I feel like this is the direction things will go, and the IMF (and related orgs) will welcome it.

JamisonM• 14 years ago

Canadian austerity in the '90s was largely a systematic shifting of financial burdens down to provinces and then many of those provinces them under-funding areas where local government would be forced to pick up the slack. I suspect the Europeans were guilty of this in many places in trying to meet the EU budget restrictions. Unlike Canada they did not get lucky, in Canada we were recovering from a recession and the real estate values that property taxes were based on were steady or rising and provided some cushion for the local governments. The EU municipalities find themselves in the opposite circumstance as the real estate markets are a disaster. They are being crushed from both sides.

fauigerzigerk4• 14 years ago

Interestingly, the article doesn't say how much debt Catalonia has relative to its GDP (it's 17%) or its tax revenues. Without that information, we don't know anything other than the obvious, which is that a sudden quadrupling (or whatever) of interest rates is going to be a problem for any debtor. Just imagine 10-year treasuries going to 5% by the end of the year.

Presenting Catalonia as some kind of an exemplary case for a larger problem may be misguided for another reason. Spanish regions are famously independent minded. Normally, no one outside Spain listens to the the Catalonian government's tactical maneuvering to extract concessions from the central government. But these days, any mention of debt in Europe causes panic attacks.

The Levenshtein distance between Catalonia and California is just 4 whereas the distance from Catalonia to Greece is 9. That can't be a coincidence ;-)

brutuscat4• 14 years ago

I think that the writer wanted to show how the "best" part of Spain was struggling after having done almost everything "right". I couldn't see if the writer wanted to cause panic attacks or just make us think about what is the "right" thing to do....

fauigerzigerk4• 14 years ago

The author's claim is this:

Local debt is the big untold story of the Euro crisis and, if that was not apparent before, it became glaringly so when Catalonia’s President this week told the world his autonomous Catalan Government would struggle to meet its bills at the end of this month.

What I take issue with is that he didn't actually fact check whether or not Catalonia is an example of a dangerously indebted region. He makes it sound as if Catalonia is on the brink of default by the end of the month, which isn't the case at all. He just takes the words of a politician at face value, apparently unaware of the internal dynamics of Spanish politics.

What the Catalonian president did was to pressure the Spanish government to let the regions refinance in federal Spanish bonds because interest rates are lower than for debt issued by the regions.

omegant10• 14 years ago

Here in Spain the biggest problem has been the three years that the real debt has been kept hidden under the carpet. The previous socialist government expected that the general recovery would help to exit the crisis and then be able to clean all the mess with out to much light from the international markets. Meanwhile they said that they were making a "social" exit of the crisis. That means increasing the spenditure, a bad idea when what you have is a mad excess of public wasting. Very little has been spent in R&D or other meaningfull spendings, just new rich projects and "me too" business plans.

The problem is that nobody really knew ( maybe they didn't want to know) how big the hole really was: municipal debt (the bigest debtors to private companies in Spain, are city Halls), public banks (cajas) unrecoverable credits (huge lendigs to political friends for building proyects), crazy public spending ( huge airports,high speed railroad between small towns..). Mind you that all this has been caused by every political party, government agency, local government, private companies( mostly construction ones) and banks( friends of mine bank office directors were regularly yelled by their bosses to increase lending no mater who). Of course a gold rush of cheap credit infected the whole population. A perfect storm if ever have been one in the spanish economy.

Finally this government is taking the rudder of all this madness , and making real changes relatively fast: new transparency law for public agencies(there was none, all the accounting was almost secret!), plan for paying all the municipal debt to small companies (this finally has made public all hidden cities debt, and will avoid that lots of small companies go bankrupt), new banking and financial markets law (to increase the transparency and safety levels), public spending cuts (pretty heavy ones), another law to take control of regions that are not taking measures and making the needed cuts in spending.

I think that we are at the worst of it but only because all the truth (well maybe only the biggest part) is coming in to the light. I also think that we will go through this as real measures are being taken, in Greece they have the problem that there is no strong government taking this kind of measures.

Also a real deflation is taking place, in salaries and prices( as we can not devaluate due to the euro), this is quite traumatic for the people as you see how bussiness are cuting your pay slowly every year. But as prices were artificially inflated due to the euro ( germany used to be expensive in the nineties, now lots of things are cheaper there!), and the competitiveness of Spain sank, we only created wealth via credit. Maybe this deflation will increase our export rate slowly.

Somebody commented if it would be a good oportunity to start a bussiness or a shop here. Nothing that is related to sales is a good idea, as there is no cash around to buy anything. But it is a good time for hiring people with high qualification at a discount ( programers , biologist, architects, physicists, lawyers, ingeniers, doctors) for little more than 1000€/month, even with 1000€ you'll have peolple lining up for the Job.

Also it is a good time to buy spanish companies (we have some good ones too) with big discounts due to market undervaluation and their need for money (banks are not lending AT ALL!).

Edit: typos and general editing as I wrote it from the Iphone.

samuel2• 14 years ago

You can't hire doctors for 1000€(18-20keur/year gross). The lowest paid doctor working for the public health system gets 42keur/year. That's very low, even portuguese doctors are better paid, but that's nowhere near 1000eur/month.

You can hire entry level programmers or engineers por 18-20k, but experienced ones will cost you 25keur or more, and probably you can get better price/quailty ratio in Eastern Europe.

omegant10• 14 years ago

Until very recently that was the norm, my wife is doctor in a public hospital. Here in Mallorca they are closing 2 public hospitals and the private ones don´t have money to pay their employees. Doctors always can emigrate to Dubai, Australia or places where they can get high salaries but most spanish doctors won´t move from Madrid to Toledo just to get a job, much less go to a place where you have to learn a foreign language and be far from the family.

Maybe 1000€ for doctors is a bit too low is true, but this year we are going to see stuff like that for people who doesn´t want to move away from their city.

tluyben27• 14 years ago

As I said here already in another comment; that 'lining up' of programmers here isn't exactly happening.

omegant10• 14 years ago

I know that in Madrid salaries are around 2000€ month or more, here in Mallorca it can be something less I think more around 1500€ (it used to be much more of course but everything is going down pretty fast). Any way is a bargain compared to US salaries, and I think salaries will go further down during this year(although maybe not so much in programers as is a realatively hot market here too). It is also true that you receive what you pay for and good programers are earning much more than that, and always in short supply.

Any way I´ll tell you in a couple of weeks, as I am planing to hire 2 or 3 programers along this month.

vibragiel• 14 years ago

The last part of your comment reminds me of that stock trader who saw the crisis as an opportunity to make a lot of money and was very glad about it.

http://www.bbc.co.uk/news/business-15059135

omegant10• 14 years ago

I don´t think that catching falling knives is a good way to make business, but now that the market is so low, some companies are taking undeserved punishment, just due to the panic. Go and ask Warren Buffet how he made his money.

Please read again what I wrote as it has nothing to do with what that guy said . Somebody commented if there are opportunities here in Spain due to the crisis, and I still think there are, if you know what you are looking for.

gaius• 14 years ago

That guy was outed as a Walter Mitty. You can check for yourself: he's not and has never been registered with the FSA. He fooled the BBC because he said what they wanted to hear, this was a big blow to their fact-checking credibility.

mipapage12• 14 years ago

I don't see that Spain is at the worst of it. The majority of the people I talk to about this, both family, friends, and people on the street (seriously, I ask cashiers, waiters, friends of friends) don't seem to get it it yet.

Most of the debt issues are just coming to light, small town/village governments are still doing the same old thing, and the "people in power" are still getting away with it.

Nothing is going to make this go away, and this government, with their watered down transparency plans and regional examples (think Madrid and Comm. Venlenciana) isn't going to be capable to doing what it takes. There's just too much mud on their hands.

I will say when my wife and I spent some time on Ibiza and Mallorca that the attitude of the workers there seemed a little different, perhaps because these places are so heavily sold into servicing northern Europeans. On the mainland the amount of people I have seen collecting paro and working, or collecting power and rejecting work is horrible.

mipapage12• 14 years ago

"collecting paro and working, or collecting paro and rejecting work is horrible."

Paro = unemployment insurance in Spain.

omegant10• 14 years ago

Unfortunately all this is true, but something is finally changing (although slowly). My wife used to see as a doctor lots of people that where feigning illness just to get the medical dismiss and receive a pay without working. They even came to the hospital with their lawyers in order to intimidate the doctors or worst physical threats and yelling.

Now all this has almost disappeared, not completely but is much better. People is realizing that the Belle Epoque where everybody had right to receive money for nothing is gone.

brutuscat4• 14 years ago

You forgot to mention that "this government" is also aligned with the "craziness" If not how do you justify the 20billion rescue on Bankia? That money at least doubles the amount "recovered" in the spending cuts. Although is true that they are introducing changes fast.

omegant10• 14 years ago

Maybe I wasn´t very explicit but in the second paragraph I say that it has been a general illness. All the spanish politicians have behaved equally, despite their party or region. It has been a gold rush and nobody is free of guilt. The only thing that I am stating is that finally the central government is taking action (late, maybe too late), the former one just sited on their asses doing nothing because after all they were going to lose anyway and why lose more votes and carry that bad karma when the next government cant take it all?(no great statemen lately around here :( ). If they had won this elections for any reason, they surely would be doing something pretty similar (after all Merkel has been dictating the economic measures this last 6 months). We don´t have too much options left and even then is maybe too late. (I really hope not)

drKarl• 14 years ago

Bankia is the result of many "Cajas" creating a bank together. "Cajas" are non-profit financial institutions that have to use their benefits for social responsibility (http://en.wikipedia.org/wiki/Savings_bank_(Spain).

Admin council of "Cajas" are formed by people selected by political party in power in that region, thus "Cajas" are highly politized. Many "Cajas" had a lot of toxic assets, and were forced to unite and create Banks to be able to refinance themselves.

Bankia is the fusion of many "Cajas" controlled by the PP (Partido Popular - Popular Party, right-wing party) in an effort to create a "Bank of Popular Party", that is Bankia. The "Cajas" involved, being the most important Caja Madrid, had huge losses due to toxic assets. The fusion of all of them won't get anythyng but a even greater hole.

That hole of toxic assets is being nationalized and assumed by the state. Remember that Spain is now ruled by the PP. That allows effectively saving Bankia as a Bank of PP. But Bankia is NOT owned by the state, only 100% of BFA (the bad part of Bankia) is owned by the state, which in turn controls 45% of Bankia. That leaves 55% of Bankia, free of toxic assets and owned by private hands, but effectively controlled by the PP.

kokey• 14 years ago

What you are saying about things being under the carpet, I totally agree with you. While living near Andalucia it was evident there was a huge social and structural problems that was not financially sustainable, but yet things on the surface appeared to work out.

Perhaps a good side effect of how unemployment benefits work there is that people become willing to gear down their salary expectations. You have a long period of living off the dole where you reduce your spending, and by the time that runs out you are probably more willing to work for less. I thought I would never say this, but this might be what saves Spain and the Eurozone by allowing Spain to become more competitive without inflation.

fauigerzigerk4• 14 years ago

Do you think that house prices have found a bottom yet? I fear that the structural reforms you mention will not have enough of an effect on public finances quickly enough if house prices keep falling and more banks go bust.

Looking at spanish stocks, I wonder why Telefonica is falling so precipitously. That seems way overdone to me.

mipapage12• 14 years ago

I don't think so. Not on the med coast, anyways! Still way too many empty places.

Sometimes I wonder if a return to the Peseta and devaluation would bring back the foreign money in the RE market... It would at least move towards filling up the housing bubble with real money.

antr3• 14 years ago

I agree on "it is a good time for hiring people with high qualification at a discount". Here is a cultural caveat:

A very closed friend of mine started his company (internet startup) in Spain just over 12 months ago. He wanted to hire Spanish developers, with c. 5 years experience. And he did. Even if this was a startup, the working conditions were pretty good for Spain: €32,000 (well above many corporate jobs), private health insurance, equity, job responsibility and decision making. My friend was paying salaries out from his own savings, no seed money raised, and he was paying himself zero.

Since founding the company, he has fired two developers because of a "legacy" cultural clash. What my friend (late 20's guy) found out was that many developers (and probably this extends to many other industries) were looking for a 9-to-5 job, no frills jobs. They did not show any motivation/passion at all. They took no ownership of projects, did not step-in when issues came up and showed no motivation for "getting things done". He was frustrated because the company was a startup, not a large corporate, and his bank account wasn't cash rich, but Spanish developers showed no respect and did not go that extra mile to ship product in a responsible timeframe.

These two developers, in their mid-30's, are probably not representative of the entire dev community in Spain, but my friend burnt out, and hired developers in Poland. The Spaniards were let go, in time to pay them no equity.

From what he has told me, a part from some minor communication issues, Polish developers showed the right work attitude and passion, with a mentality very much like the Valley. Since the initial work crunch, from working 80 hour weeks, he is now doing a 9-6, and the company is cash flow positive. Just shows that hard work does pay off, and how a 9-5 mentality (specially when starting a company form scratch) is cancer to the company.

tluyben27• 14 years ago

Exactly what we found. And time after time again; I live parts of the year in Spain and I love it, but the mentality is really off. Unless they fix that, I'm not positive about the future of people here. It's good to see that that's not only me; someone else in this thread (read my other comments if you care to) said mid 30s might be ok, but they don't seem to be either in mine (and your friends' experience).

Jare4• 14 years ago

If your friend needed people ready to work 80hr weeks in Startup Crunch mode, in exchange for 32k + eventual equity, and hired people who wanted 9-to-5, he is a horrible recruiter or a terrible leader. Don't get me wrong: lots of people here are angry at the situation and will act pissy and self-entitled. But good engineers are still not cheap, and motivating them takes a lot more than "at least you have a job".

Anyway, happy it worked out for your friend. Yay for outsourcing!

georgemcbay• 14 years ago

"€32,000 (well above many corporate jobs)" ... "80 hour weeks"

If your friend expected his early employees to work 80 hour weeks, the pay he was offering was not "well above many corporate jobs".

lifeisstillgood• 14 years ago

This thread is the second reason why HN still outclasses everyone else.

I have just got a better perspective on the Euro crisis than all the newspapers and tv of recent weeks. I never knew the debt delegation issue had been happening.

I would like to know how we can see the total level of debt for each country. If we can find a reliable source let's put it on wikipedia :-)

dimitar• 14 years ago

Hey, if you read what Nobel laureate Paul Krugman was writing you will have known this for at least 2 years.

http://krugman.blogs.nytimes.com/2011/12/09/slow-learners/

From reading his blog you'll also know that: - Spain had surpluses and was lowering public debt before the crisis - The catastrophe that austerity caused and how the idea was very bad in the first place - How the crisis was made worse by the 'euro straightjacket' (ECB tight money policy). - How the euro caused trade deficits in the southern countries that were compensated with German and French capital.

The weird thing is - its not even unorthodox, unconventional economics. Its the basics that everyone studies, but no one remembers.

Why Crisis in Spain This Week Became More Important Than Greece

Related Stories