SPANISH PROPERTY (ARAGON)
After the smoking ban in Spain furore, I thought that it was worth touching on brighter matters. However, before doing so, I noticed some breaking news about the Spanish economy that I felt was worth passing on. Unfortunately, it is not too good – although it will be interesting how it compares with this time next year.
Currently, inflation in Spain is running at 2.9% (compared with 1.9% in Germany) with the blame for this being placed mainly on higher fuel prices (23% higher than the same time last year) and the higher cost of tobacco (due to tax increases). Meanwhile, electricity for Spanish households is due to be hiked up by a very significant 9.8%. Evidently, it has been held artificially low for some years.
The big topic, of course, is unemployment in Spain. This (acording to the EU) currently stands at 20.7% of the working population or just over 4 million people. Whilst the rate at which unemployment in Spain is occurring has been falling, there are few signs of any meaningful reduction.
Of course, the housing market in Spain remains woeful. No-one seems certain how many properties are for sale but the number must rank well beyond a million with a significant number ‘toxic’ by anyone’s standards. To make matters worse Spanish property sales fell an incredible 48% between the 2nd and 3rd quarter of 2010 – which amounted to the lowest level of Spanish property sales on record! So, I fear the ‘talk’ of a recovering housing market earlier in the year was (as I said at the time) sadly no more than asinine PR. This is tragic given the vital importance of the construction industry to the Spanish economy…
Needless to say, the combination of higher living costs and job insecurity means that many Spaniards are looking at the forthcoming year with some apprehension. Indeed, a recent poll by the Centre for Social Research found that 44% of those interviewed felt that 2011 heralded a year ‘full of uncertainty’ – which I thought was a rather endearing way of describing what probably amounts to raw panic.
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Spain needs to stick to its deficit reduction targets, but it also needs more help from those who are running the system by which it is trapped and which it is struggling hard to defend. Pile the pressure on and the country is only going to crack. What Spain needs is to get back to growth, and to put people back to work, then the deficit problems will sort themselves out almost on their own. And in this sense it is the authors of the latest EU forecast, and not those who run the Spanish administration who are the unrealistic ones. Spain is in a corner which it can’t get out of alone. She needs help, and that help is going to have to come from the top.
As Krugman says:
If Spain still had its own currency, like the United States — or like Britain, which shares some of the same characteristics — it could have let that currency fall, making its industry competitive again. But with Spain on the euro, that option isn’t available. Instead, Spain must achieve “internal devaluation”: it must cut wages and prices until its costs are back in line with its neighbors.
And internal devaluation is an ugly affair. For one thing, it’s slow: it normally take years of high unemployment to push wages down. Beyond that, falling wages mean falling incomes, while debt stays the same. So internal devaluation worsens the private sector’s debt problems.
Internal devaluation is coming, there is now no avoiding it. When I advanced the idea for Spain some three years ago it wasn’t some sort of contribution to a collective brainstorming session, it wasn’t just one option on offer together with a whole series of others. What I was saying was if we don’t go down this path then would would inevitably end up where we are now. But as Krugman points out, seeing it through means the private sector debt problem will only deteriorate, which is why we need help, to share the burden. The other alternative, of seeing the Euro fall apart, is in the interests of no one. Not even the Germans, who would soon see the current record growth in their exports shifted into reverse gear as the new DeutscheMark was quoted at values (as is happening to the Japanese yen right now) which robbed the country of all semblance of competitiveness.
Well, today we have a new government in Catalonia. So maybe its time to change. Maybe finally we could now start to address the problems of the Spanish economy head-on, and put the future of the country on a sound and sustainable footing. It’s certainly worth a try, and, at least, as the English saying goes: where there’s life, there’s hope.
http://spaineconomy.blogspot.com/
The above information is a quote from Edward Hugh’s Spain Economy Watch blog & not written myself ;
I thought is a good snippet to be read by others that are interested in this topic.