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We all know Spain needs to make cuts but at what cost?
On the one hand they make savings, and on the other they reduce their income, which is right for them? To me they seem to constantly shoot themselves in the feet. The Olive Press says many families in Spain now live off 400 Euros per month.
They’ve now increased motorway tolls by 7.5% with immediate effect, which increases further on 1st September with IVA/VAT rises. This on top of increased airport departure taxes, IVA/VAT.
Just when they need more tourism they seem to dissuade tourists, already their hotel bookings are only 80% of what they should be for the peak month of August. 🙄
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Spain needs to reduce the size of the public sector and at the same time stimulate the private sector (with the exception of the construction and banking industries) by pouring money into it, removing red tape and reducing taxes. Unfortunately as part of the euro they are only able to do the former.
Arguing about austerity/growth misses the point. It is not a case of choosing one or the other. Spain needs to rebalance its economy by selectively doing both.
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Not arguing about Austerity or Growth Chopera, but Debating 🙄
I think by increasing tourist taxes which includes motorway tolls/airport taxes is going to be negative for Spain’s economy, you don’t shoot the ‘golden goose’ IMO, it was already expected that many more hotel staff and airport staff will lose their jobs before this latest move, and a huge number of tourists will stay away. More people claiming benefits will also act in a negative way.
Now, if Spain reduced property transaction costs that could help their construction industry whilst Sterling strengthens against the Euro. 🙄
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Sorry Angie – not having a go at you. It’s just that the debate has been “framed” in a very black-and-white way by the media, and it is not constructive. It’s as if the choice is between cuts or spending when really Spain needs a mixture of the two.
Regarding the tourist taxes I thought the tourist industry got off quite lightly in the latest round of VAT inceases. As far as I remember, VAT didn’t go up at all for holidays, etc, but I may be wrong. The advantage with taxing tourists is that they are more likely to pay them, compared to hard up Spaniards. So maybe the tactic is to tax them once they’re in Spain.
For property I don’t think reduced transaction costs will make much of a difference until prices come down. Although I agree that in the long run those costs should come down (in fact they should never have been so high in the first place).
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That’s ok chopera 😉
I read recently that the 15 routes that Ryanair are cutting due to the higher airport taxes would result in a loss of 2300 jobs at Madrid and Barcelona airports, and, the loss of 2.3 million travellers to Spain. These figures might be exaggerated by O’Leary but I don’t think Spain can risk losing such high numbers when their hotels are already less full than normal, plus this new motorway toll increase might deter other tourists travelling by road.
My idea about reducing property transaction costs (not announced) now might be a good time to coincide with Sterling’s strengthening against the Euro to help albeit by how much, the property industry.
I agree the balance has to be right but some Eurozone countries and even the UK are considering less austerity cuts in favour of growth plans might be the way forward since the former hasn’t worked yet 🙄
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Spain needs to reduce the size of the public sector and at the same time stimulate the private sector (with the exception of the construction and banking industries) by pouring money into it, removing red tape and reducing taxes. Unfortunately as part of the euro they are only able to do the former.
Typically, austerity and investment do not go hand-in-hand. I think stimulating the economy for job growth should be the highest priority for Spain. Reducing the size of the public sector could be done slowly and deliberately to minimize the overall negative impact upon people and the economy, but that would not be punitive enough for Germany, so spending cuts and rate increases are being done without much thought.
Watch for reality to hit in December. Many retail-sector business make a high percentage of their overall annual profits on Christmas spending. The elimination of the extra paycheck (a salary reduction) for hundreds of thousands of government workers guarantees that they will not be spending any money for Christmas.
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Logically with all the turmoil around the world people will still feel that Spain is quite a nice tourist destination and I honestly don’t think a few euros more in taxes for those are going to hurt that much. In the tourist business I think Spain has done incredible well if you look at all the other problems they have. People all around the world will travel less when they are in economic hardship so it has actually been quite weird that the numbers have looked so good in Spain the last couple of years. For me personally I drink as many pints in Norway when I go out as I do in Spain and I think that’s how most people behave when they are on vacation. Ofcourse people will stop consuming at certain levels of costs even on vacation but they are not as picky. Spain should focus on raising taxes effecting tourists and lowering taxes for creating new jobs for people living there long term. It’s those kinds of taxes that may put people off if they want to invest in Spain or not.
All taxes are bad but some are worse than others.
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@angie wrote:
That’s ok chopera 😉
I read recently that the 15 routes that Ryanair are cutting due to the higher airport taxes would result in a loss of 2300 jobs at Madrid and Barcelona airports, and, the loss of 2.3 million travellers to Spain. These figures might be exaggerated by O’Leary but I don’t think Spain can risk losing such high numbers when their hotels are already less full than normal, plus this new motorway toll increase might deter other tourists travelling by road.
Yes I remember reading those stats and my first thought was how the f**k does Ryanair manage to employ 2300 people in Madrid/Barcelona in order to keep 15 routes open! I strongly suspect those routes operated one flight per day at most, so that works out at 153 people employed per flight, or roughly 1 person per passenger! (assuming a pretty full flight). In other words O’Leary is talking cr@p and blaming others as usual to hide the fact that people prefer not to fly his sh1tty liitle airline if they can help it.
(sorry for the rant but a few American collegues just got ripped off by flying Ryanair to “Barcelona” only to find that Ryanair’s definition of “Barcelona” is actually “Girona” over an hour to the north)
Edit to add: oh yes and 2.3 million travellers to Spain on 15 routes? Let’s see, that’s 420 passengers per flight 🙄 🙄 🙄 (assuming one flight per route per day)
@angie wrote:
My idea about reducing property transaction costs (not announced) now might be a good time to coincide with Sterling’s strengthening against the Euro to help albeit by how much, the property industry.
I agree the balance has to be right but some Eurozone countries and even the UK are considering less austerity cuts in favour of growth plans might be the way forward since the former hasn’t worked yet 🙄
I think the only eurozone country considering less austerity is France and that’s only because France thinks it so special that the laws of economics don’t apply to it. The UK hasn’t even got as far as austerity – they’ve promised it because they think it’ll keep the bond markets happy (oblivious to the fact that they don’t actually have a bond market – just the Bank of England) – but at least the UK has the option of further devaluing her currency in the hope of squeezing out some “growth”. For Spain it’s not even on the menu.
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@katy wrote:
Ardun, didn’t realise you were Norwegian 😀 We have friends in Stavanger (expensive place). They own property on the CDS and used to think Spain was very cheap in comparison. However when we left Spain even some of our Norwegian friends were starting to complain of rip-off prices in Spain.
I’m not from Norway but I visit it from time to time. I’m from Sweden and to us Norway is really expensive. We are like romanians when we visit their country. =)
One has to remember that if you are have a bad paying job, pensioneer or sick living in country like Norway you are basicly very poor. That is why you see so many pensioneers and people on sick leave or whatever you call it in other countries than their own.
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@angie wrote:
We all know Spain needs to make cuts but at what cost?
On the one hand they make savings, and on the other they reduce their income, which is right for them? To me they seem to constantly shoot themselves in the feet. The Olive Press says many families in Spain now live off 400 Euros per month.
They’ve now increased motorway tolls by 7.5% with immediate effect, which increases further on 1st September with IVA/VAT rises. This on top of increased airport departure taxes, IVA/VAT.
Just when they need more tourism they seem to dissuade tourists, already their hotel bookings are only 80% of what they should be for the peak month of August. 🙄
Although we all know that Spain has wasted money on some or perhaps even many grandiose schemes in the past, the country can’t just keep cutting and cutting expenditure otherwise it will just create a spiral downwards in its GDP and debts will become an even higher proportion of GDP than it is today. If the country had significant spare capacity to export its way into growth that would be different. But it hasn’t. It is in a straight jacket with the euro and unless the richer members of the eurozone come to its aid then simply cutting expenditure will lead ruin.
Richard
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The truth as any economist will tell you that too much austerity destroys any growth prospects for a country for a very long time.
The austerity Spain and other peripheral states are suffering has been forced upon it by Germany as a condition for financial assistance. The are caught between a classic rock to hard place.
German who are Europe’s paymaster care little for the suffering of other Europeans or their growth prospects despite their public facade. Their concern is their own global economy and the market conditions of their export dominated manufacturing industries.
In fact I would go so far to say the current situation actually suits Germany very nicely. They now have very little competition from peripheral EU states and the Euro has weakened sharply making their exports to China and the US cheaper and interest rates remain historically low.
Had Germany been outside the single currency now their interest rates would be around 5% and the DM currency value strong against the worlds majors making their exports very expensive.
Germany will continue to do very well in the future as other EU countries flounder, descending into economic depression until they finally leave the Eurozone and start to make it on their own.
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I had to smile when I read this line in Business Week following Spain’s tax rises which could hinder recovery:
‘Increasing taxes in Spain may encourage Tax Evasion’ heaven forbid 😛
I imagine it will create a free-for-all with new ‘B’ money swishing around while the Gov’t thinks h’mm ‘can’t understand why our tax take dropped instead of increasing?’ 😛
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The truth as any economist will tell you that too much austerity destroys any growth prospects for a country for a very long time.
What’s really frustrating is that Spain is ripe for growth: Educated workforce and good infrastructure. But if they have to keep cutting services and raising taxes, no businesses will locate in Spain.
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Austarity is not bad for growth the only difference is that the growth that comes from it is real growth and not some paper money growth which just inflates prices. It has to become really bad for change to come around and we are far from that level yet.
It will be impossible for Spain to grow in any real numbers with the way their labour laws, monetary policy, taxes, bureaucracy, public sector colosus are set up and lack of self belief. Austarity really helps all of these fields except self belief which will come in time when Spain is actually having a healthy economy.
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I Agree Gary, but spain is not only making cuts, they are liberalizing the systems as well
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Just been announced that Catalonia, the most indebted Spanish region, will boycott a meeting of regional finance chiefs this afternoon because it is protesting the Government’s decision to impose a strict deficit target of 1.5% of GDP.
Catalonia has also temporarily stopped grant payments to hospitals and care homes. 🙄
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Some economists usually on the political right are convinced austerity is the only cure and deem it necessary to “purge the rottenness out of the system.” They are like surgeons in the US Civil War who knew that having a leg amputated without anesthesia involved human agony, but that it might be the only way to save a life. (Andrew Mellon.)
They could agree with those ideas when applied to a single economy like the US where the Federal Reserve and the financial levers were in the hands of the political power of the day.
John Maynard Keynes and his followers argued that in an overheated economy, governments should raise taxes, lower spending and decrease the money supply. Facing recession, they should decrease taxes, increase spending and increase the money supply. Thus Keynesians do argue austerity is the wrong thing at the wrong time.
Again Keynes ideas were pre-Eurozone and were directed at single economies which had essential control over their own affairs.
I am not sure any longer where I stand in this debate. On the one hand austerity seems common sense and if you over spend your resources cutting back is essential. Yet the when it comes to countries the untold human misery and demoralisation that creates can affect generations.
Milton Friedman the respected Nobel economist believes much the same as Andrew Mellon in that in the long term Keynesian policies will not work and are counterproductive. However Friedman also recognises austerity measures do slow productivity and cause high unemployment.
What we now see in Europe are the direct effects of excessive government spending by national economies shackled to an ill designed financial system over which they, the national governments have no control. That is the root of the problem.
Imposed austerity under these circumstances and whilst being part of a single currency union cannot work. It will bring misery to more than one generation. It’s impossible for countries to plot a course back to prosperity because they have no control over their own future destiny. All they allowed to do is cut, cut and cut again.
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@logan wrote:
What we now see in Europe are the direct effects of excessive government spending by national economies shackled to an ill designed financial system over which they, the national governments have no control. That is the root of the problem.
The irony is that Spain did not belong to that category. A couple of years ago it was thought that the Spanish Government was a fiscally sound.
How times change when a recession hits
Richard
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@angie wrote:
Just been announced that Catalonia, the most indebted Spanish region, will boycott a meeting of regional finance chiefs this afternoon because it is protesting the Government’s decision to impose a strict deficit target of 1.5% of GDP.
Catalonia has also temporarily stopped grant payments to hospitals and care homes. 🙄
Catalonia also subsidises the rest of Spain to a large extent. She will be bailed out with her own money. This is how bizarre the whole set up is, and may be why Catalonia was quick to seek a bailout in the first place (so Catalan money went to bail out Catalonia rather than anywhere else). It’s similar with the eurozone. Soon we may find poorer eurozone countries bailing out Spain and Italy.
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@Chopera wrote:
Catalonia also subsidises the rest of Spain to a large extent. She will be bailed out with her own money. This is how bizarre the whole set up is, and may be why Catalonia was quick to seek a bailout in the first place (so Catalan money went to bail out Catalonia rather than anywhere else). It’s similar with the eurozone. Soon we may find poorer eurozone countries bailing out Spain and Italy.
It may sound bizarre but the concept of rich regions in any country/state subsidising poorer regions is I think quite a normal “set up”.
What I do find bizarre is that the regions in Spain operate autonomously almost like countries in their own right.
Richard
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@rt21 wrote:
What I do find bizarre is that the regions in Spain operate autonomously almost like countries in their own right.
Therein lies the problem. Although the Spanish central government spending before the crisis was reasonable the autonomous regions with mainly socialist governments spent money irresponsibly. They were able to borrow cheap Euros entirely independently and lent to them by national and foreign banks. Most of that cash originated from banks in France, Germany, Switzerland and Luxembourg.
An example is the redevelopment of Valencia City.
Now that debt has to be repaid, €32bn alone this year. Central government will have to step in and take the debt on to their deficit. If they have any sense at all they will extract concessions from these autonomous regions and restrict how they can govern in the future. These regions do in fact enjoy sovereign status within the national state.
That surely will have to change.
The Catalans will resist of course but nationalism will need to take second place to achieving regional solvency.
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The articles on this link show the knock-on effect the Spanish and Greek problems will have on the rest of the Eurozone, and later it’s effect on the UK. 1 Trillion more of QE 🙄 Greece is now on the brink with Zero reserves and needs the last portion of bailout funds by 20th August which may not happen.
Mentions a surge in Capital flight accelerating from Spain, and, that the Andalusian regional Governor walked out of the meeting before the vote as well as Catalonia not attending.
http://www.currencycountdown.com/2012/08/lir-e … rmany.html
How much longer can the can be kicked down the road 🙄
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@logan wrote:
The Catalans will resist of course but nationalism will need to take second place to achieving regional solvency.
You would think so especially how in most cases in Spain and europe it is a ‘recent’ romantic construct.
But it seems for most people nationalism trumps everything else.
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I have read that link Angie. It’s incredibly bearish but I agree with the basis of it’s sentiments. The situation in Europe is dire and the ‘big crash’ cannot be far away now.
‘Go long on metals’, more like head for the exits. 🙁 If institutions are investing in Bunds at negative yields the end is fairly near.
Will the ECB act decisively tomorrow in the face of German opposition? It’s too close to call but Dragi seems to have Merkle on his side so likely he will, especially after his unwise press statements simply to calm the markets. If he does not the loss of face could be fatal.
One things sure, if he does not announce a substantial bond buying program the markets will plummet and along with it the Euro. LTRO’s will no longer cut it.
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@rt21 wrote:
@Chopera wrote:
Catalonia also subsidises the rest of Spain to a large extent. She will be bailed out with her own money. This is how bizarre the whole set up is, and may be why Catalonia was quick to seek a bailout in the first place (so Catalan money went to bail out Catalonia rather than anywhere else). It’s similar with the eurozone. Soon we may find poorer eurozone countries bailing out Spain and Italy.
It may sound bizarre but the concept of rich regions in any country/state subsidising poorer regions is I think quite a normal “set up”.
What’s bizarre isn’t so much the fact that Catalonia subsidises poorer regions, it’s the fact that it has somehow managed to go bust while subsidising poorer regions, and now the money destined to the poorer regions will go back to Catalonia instead, and when they ask for an EU bailout because they haven’t got enough money to bailout Catalonia and the rest then everyone (poor regions included) will end up paying for the Catalan bailout.
@rt21 wrote:
What I do find bizarre is that the regions in Spain operate autonomously almost like countries in their own right.
Richard
And indeed many “countries” within the eurozone (such as Spain) thought they could operate like real countries with their own sovereign currency. How wrong they all were.
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I agree logan, I cannot see how this situation can drag on without decisive action and/or Greece starting the Grexit. This has been going on for 2 years or more and no-one comes up with a coherent plan, it keeps getting swept under the carpet or temporary sticking plasters applied.
I’m surprised the stock markets are as high as they are, there must be some brave dealers out there making short term punts, but sooner or later some of them are going to get really burnt methinks.
How big is this reported ‘capital flight’ from Spain too? Where is it headed for, Germany, U.S., UK, under the bed, gold?
If the regions aren’t paying their 100,000’s of workers there will be more anarchy soon, which comes back to my original question of austerity or growth, I don’t think so many of the populus can live on 400 euros a month as reported plus more tax rises to come in September, I don’t think Spanish tourism can take this either on top of Spain’s construction woes. 🙄
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Markets rely on short term trades. That can be a minute, an hour or a day. Stock markets do not reflect the real state of economies round the world.
I agree a massive correction is due. Market people know that but continue to bet against it. You require either a full frontal lobotomy or nerves of stainless steel to be a player in today’s markets. Schizophrenia is rife. I think market men send themselves to sleep every night singing that quote from Adolf Hitler “If you tell a big enough lie and tell it frequently enough, it will be believed.” 😆
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Very interesting – the number of 500 euro notes in circulation in Spain (“bin Ladens”) has risen for last couple of months. I suspect it’s a temporary thing – people buying the cheap properties that are now available, when they’re in a decent location. But it shows that certain elements can seemingly always get hold of cash.
http://www.cincodias.com/articulo/economia/numero-billetes-500-euros-circulacion-volvio-aumentar-junio/20120802cdscdseco_6/ -
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Austerity or growth is not a choice Spain has. It is broke and will have to do whatever it is told by its paymasters in Berlin.It’s that or leave the Euro.
What it could do is implement radical structural reforms that would start to pay off in the next 5 years, for example crushing Spain’s venal unions, but of course it won’t.
Austerity of growth is not even a real choice in the UK. The choice is between learning to live within your means now, or carry on spending borrowed money until you go over a cliff further down the road, when the costs are much higher.
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Like every thing in life if one is not speaking or taking a stance with strentgh than one has to dance to the tune of the others.
I am not aware of the basis & the conditiones of the leaving the €, e.g. if Spain leaves the € would Spain has to refund all the gtrants etc that it received ???
As Spain would have or should now have become a net contibutor to the EU. It should be in its interest to do so and say thank you to for the benefits derived.
What it could do is implement radical structural reforms that would start to pay off in the next 5 years, for example crushing Spain’s venal unions, but of course it won’t.
“for example crushing Spain’s venal unions, but of course it won’t ” This has to be fundamental & the rest will follow. Which ever way one looks at it one or one and half generation is going to be wasted.
Perhaps they can start a union of the lost generation and demand that the world owes them a living along with a very long slumber.
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http://www.youtube.com/watch?v=OQr5clFsZMU&feature=related
Peter Schiff which is much more of an eloquent debater basicly goes through all of which has gone wrong in the world. Basicly saying that Ireland, Greece and Spain should have done what Iceland did after they got in their mess.
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@shakeel wrote:
😈 Like every thing in life if one is not speaking or taking a stance with strentgh than one has to dance to the tune of the others.
I am not aware of the basis & the conditiones of the leaving the €, e.g. if Spain leaves the € would Spain has to refund all the gtrants etc that it received ???
As Spain would have or should now have become a net contibutor to the EU. It should be in its interest to do so and say thank you to for the benefits derived.
Leaving the Euro is not the same as leaving the EU.
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@Ardun wrote:
http://www.youtube.com/watch?v=OQr5clFsZMU&feature=related
Peter Schiff which is much more of an eloquent debater basicly goes through all of which has gone wrong in the world. Basicly saying that Ireland, Greece and Spain should have done what Iceland did after they got in their mess.
The United States is going through a fifty year long depression that started in 2008. The media and those in the US Government want you to believe that what’s happening in the United States is just a bulk standard recession but it is not, what we are witnessing is a depression, worse than the Great Depression of the 1930’s because this time around people are heavily in debt and there was too much lending for real estate speculation leaving many people under-water (negative equity). The 1930’s depression was primarily due to the booming stock market and the subsequent crash in share prices whereas this current depression was due to the bursting of the real estate bubble. Bursting real estate bubbles have a far more detrimental impact on the economy than the bursting of a stock market bubble.
Spain is in a twenty year long depression, thats right, depression not a recession. There is no way that anyone can say that what is happening in spain today is just a recession. Both the United States and Spain allowed booming house prices to get out of control and both are suffering from the subsequent hangover following too much bingeing on cheap and easily available money. Both countries are now paying a terrible price for greed and excess and now have to go through a long period of pain and austerity to clear out and roll back all the excesses and distortions of the boom.
Don’t expect things to get better anytime soon for as long as Ben Bernanke is Chairman of the Federal Reserve Board of the United States getting up to his money printing antics (quantitative easing) then things will only get worse as this will prove inflationary and is debasing the purchasing power of the US Dollar.
Too Big To Fail On Suicide Watch
The main problem–and where most of the other problems begin–according to Schiff, is the Fed’s manipulation of interest rates. By interfering with the free market value of money, and making it cheaper than the market would dictate, the Fed encourages financial bubbles that then necessarily pop. When a bubble pops, the market needs to correct itself; however, over the past 20 years, the Fed has not really allowed this correction to take place, as every time a bubble pops the Fed has lowered the interest rate even further, causing more money to enter the system and a new bubble to form. First it was dot-com stocks, then it was housing, and now it is government spending.
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Peter Schiff which is much more of an eloquent debater basicly goes through all of which has gone wrong in the world. Basicly saying that Ireland, Greece and Spain should have done what Iceland did after they got in their mess.
Peter Schiff is a nutcase whose father is currently in jail serving a 13 year sentence for not paying taxes. He may be an eloquent debater, but he, like Ron Paul, holds dear an economic dogma that exists for for the sake of the dogma and not the economy.
That the currency policies with the euro are inadequate to meet the needs of a global economic meltdown is troubling, but it is not the end of the world. Just as nobody expects the Spanish Inquisition, nobody expected the global meltdown, but they should have.
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@GarySFBCN wrote:
Peter Schiff which is much more of an eloquent debater basicly goes through all of which has gone wrong in the world. Basicly saying that Ireland, Greece and Spain should have done what Iceland did after they got in their mess.
Peter Schiff is a nutcase whose father is currently in jail serving a 13 year sentence for not paying taxes. He may be an eloquent debater, but he, like Ron Paul, holds dear an economic dogma that exists for for the sake of the dogma and not the economy.
That the currency policies with the euro are inadequate to meet the needs of a global economic meltdown is troubling, but it is not the end of the world. Just as nobody expects the Spanish Inquisition, nobody expected the global meltdown, but they should have.
Still can’t understand how you refute them all together when their predictions have been spot on so far. As far as the so called “Dogma” instead of whats good for the economy I beg to differ. They are trying to avoid the world to make the same misstake all over again until the whole financial system is destroyed.
Peters father may be a stubborn idiot but he still was very open with what he did. He took his punishment which is more than the banksters have done. He has been very open with his constitutional stance on not paying income tax for his whole life.
Peter Schiff on the other hand plays by the book as far as I know and is still very succesfull. To be he seems very honest in what he does. He is betting on that his own ideas are correct and stands by it. More than the banksters or politicians do privately. He never recieved any bailouts as far as I know. If he was a part of that system he wouldn’t want it changed.
Peter has created more jobs than both you and I without governments handouts and I will at least hold my tongue until I can compete with his sucess.
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