ARE THE SANDS OF TIME RUNNING OUT FOR THE TOWN HALLS OF SPAIN AS THEY BATTLE THEIR DEBTS?
Finally, the first overt signs of what I have been writing about for some time are becoming apparent and they beg the question of: how bankrupt is Spain?
Certainly, you cannot have missed yesterday’s BBC headline screaming ‘Pain in Spain – southern town left penniless by the boom and bust’. This featured the small inland town of Moratalla in the Autonomous Region of Murcia (south eastern Spain) which has such horrendous debts that it is unable to pay its debts, with some town hall employees having not been paid their salaries for five months. Even the local police now undertake foot patrols to save petrol and the town hall has not paid the local petrol station for a year, amongst many other suppliers!
Moratalla is clearly in deep financial trouble!
However, the question is – how many other town halls in Spain are in similar difficulty or are on the point of sinking below their debt? This is a vital question because it has a bearing upon the whole Spanish economy, any recovery, the crisis in Spain and the real size of the debt in Spain. Indeed, it begs the question of how bankrupt is Spain?
Frankly, I think that Moratalla is the ‘tip of an iceberg’ just waiting to hole the good ship ‘Eurozone’.
Of course, I hope that I am badly wrong.
The trouble is that the most of the focus of international economists seems to have been on the macro economy of Spain and what the national government under Prime Minister Zapatero has been doing. Over the past year the national government has reassured the international community as austerity measures from Madrid have been imposed – thus giving the impression that the Spanish economy and Spain’s rampant spending and debt has been brought under control.
However, the Spanish national government has limited control over the Autonomous Regions of Spain (aptly named) and even less over individual town halls a fact that international economists may not realise. Or perhaps they have been’ turning a blind eye’ to this lack of control, together with the astonishing levels of debt run up over the past few years by individual town halls in Spain and the governments of the Autonomous regions?
The awful thing is that so little was been done to reduce debt in Spain and to act quickly given the seriousness of the economic crisis in Spain. As the BBC state ‘the level of regional debt more than doubled from 2007-2010’. This is incredible but is consistent with the long term mismanagement of the Spanish economy under the current socialist government whose initial (very slow!) reaction to the economic crisis was the lunacy of Plan E. This, you may recall, was the lunatic spending of vast amounts of state money on ill thought-out un-regenerative projects.
Certainly, there is no secret in Spain that the Autonomous Regions in Spain are in financial ‘difficulty’ and I cannot be the only writer to have issued a warning some time ago (see: ‘Are the Autonomous Regions of Spain Bankrupt?’).
Without doubt, matters are worse than they seem – although now the lid to Pandora’s Box seems to have slid open, with the situation in Moratella a frightening example of what may be widespread. If it is (as I suspect is the case) then this will be extremely worrying, especially as there are some 8,116 town halls in Spain. So, Heaven help us if a significant proportion of the town halls in Spain have sizeable (let alone uncontrollable!) debts.
In any event, as El Pais (national Spanish newspaper) makes clear in this article about budget cuts in Spain, some seriously severe reductions are now being made to try to reduce ‘skyrocketing deficits’. These cuts, of course, will produce more unemployment in Spain and further hardship to a country that is already reeling and where unemployment in Spain already exceeds 20%.
But what other answer is there?
Needless to say, it is hard not to feel a sense of rage at the mismanagement of the economy in Spain. Surely, after an incredibly long and sustained boom, the state, the Regions and the town halls should have a surplus of money – not vast debts…
So – how bankrupt is Spain? Well, obviously, I do not know. Perhaps all is well and everything is ‘smelling of roses’?
However, I fear that Spain (and the Spanish economy) is in far more trouble than is acknowledged and I think that the truth about the real scale of state debt in Spain has yet to be revealed…
Nick Snelling – Culture Spain
FURTHER RELEVANT ARTICLES: SPANISH ECONOMY
The Spanish economy – Are the Autonomous Regions of Spain Bankrupt?
Dear Nick Snelling,
Thanks for you well written and informative articles about Spain. I wonder if you would care to share a confidence with me about the current state of the market?
As briefly as possible, I am English, 64 years old and have been living in the US since 2000. I am looking at Spain as a possible retirement destination as I doubt I will be able to afford the UK. Various Latin American countries are sold here as “retirement heaven”, i.e. cheap properties, low taxes etc. but frankly I’ve had enough of living in the middle of nowhere. I am a European at heart and a linguist, although Spanish is not one of my languages. I am not wealthy and my savings for retirement are minimal.
I have visited Spain and know several people who have invested in property there. What I am hoping for is a downturn in the market so that Spanish property will once again become affordable to people on a limited retirement income. I have heard the horror stories about properties being reposessed under some “new” law, etc. My primary concerns are legality, cost of living and taxes.
Obviously, the whole European economy is in turmoil at present but I would be interested to know how you think Spanish property prices are going to play out over the next 3-5 years.
Thanks in anticipation for your reply.
David
I am more than happy to and will do so shortly.
David
In answer to your questions, my feeling is as follows:
1. Spanish property market. My instinct is that the price of property in Spain will drop further next year, perhaps by around 5% – 10% and then stabalise. Prices have already dropped from their peak in 2007 by around 35% – 40% although official figures (deeply unreliable) show the price drop to be greatly less.
At the moment, some Spanish property is extremely well priced for buyers and there is plenty of choice within which to purchase a bargain property that is well below current ‘fair’ market value thus insulating you against any futher drops.
2. Spanish property is notorious for legality issues and potential liabilities (as with infrastructure projects). However, the wise and knowledgeable buyer can buy a property that is fully legal and that will not have any onward liabilities. The key is ‘know-how’ and you should never come here to buy without having an understanding of Spanish land law and the way the system works.
If I may be self-serving, I have written a book (How to Buy Spanish Property and Move to Spain – Safely’) which is a ‘road map’ for anyone thinking of buying property or moving to Spain. It is available on Amazon etc. with more details and reviews at http://www.movesafelytospain.com
3. Clearly the Spanish economy is in long term trouble. However, Spain is not alone in this (amongst many European nations) and will survive, albeit with a tough period to come. There will be state cuts and no doubt a decrease in services.
4. The cost of living in Spain is still much less than say the UK – a Spanish friend of mine who has just moved to the UK is reeling at the cost of living in the UK! Eating out is cheap, the cost of ‘running’ a property is very competitive and the requirements to spend money for a fine quality of life much less.
5. The overall quality of life on offer in Spain (if you are careful where you chose to live) is superb. The Spanish are cultured, the country has a long history, there are great cities, fine villages and a pure culture of Spain that is delightful. It is safe, healthy and can provide a very fine way of life – especially if you are willing to integrate to some extent with the Spanish (rather than living on an expatriate only estate). Certainly, living within a town is to be highly recommended – they are nothing like US or North European towns and provide a vibrant and active community that can be wonderful and give you a terrific social life.
So, good and bad! The economy will continue to be poor for some considerable time. However, buy very carefully and have a little money spare and you will be hard-pushed to find somewhere better to live…
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