Monday, March 02, 2009

The Orange and the Crisis

AOG, Madrid

The last time I went to London I noticed the fall in prices. No, not a major fall, but large enough to notice.

I am not sure if it is the cut in VAT (down from 17.5% to 15% I think), or if market forces are just forcing down the price of things. I think probably both.

Here in the beta version of the 1st world which is Spain, the price of nothing has come down.

A week ago I took a cab to get to work. The driver was telling me about his brother in law.

The man in question owns a restaurant with a staff of 14.

Do you know how many dinners he served last Friday?” he asked.

Four. How can you make a living like that?

I suppose he was looking for sympathy, and, of course, he got little.

Has your brother in law lowered his prices?” I asked.

He almost had a heart attack.

No, of course not! He can’t do that, the prices can’t come down. Where would the profit be?

If you were selling oranges”, I said, “and no one was buying them at one Euro a piece, would it not make sense to sell them at 50 cents? Wouldn’t you sell more at a lower price?”

But what about the profit? Where is that?

If you don’t sell any oranges, you won’t even have a stall!

No no no no. Prices can’t come down because salaries would have to come down too.”

I was too tired to discuss anything beyond this point and left my driver and his cab (btw, cab prices have gone up in Madrid and Barcelona to make up for the predicted loss in revenue!) and wondered to myself if more people in Spain thought like this.

It turns out that, by my estimates, most people do.

The feel on the streets is that, somehow, as if by magic, the economy will pull through without having to lower the price of anything.

This is not the first time this country defies world trends to its detriment.

A couple of weeks ago I went to a press conference at the Ministry of Economics. The speaker mentioned how he was surprised that Spain had about 1 million unsold homes for which realtors were having to pay.

It costs a lot of money to keep and take care of empty properties”.

Eventually, he predicted, the realtors will have to sell these properties at a lower price, whether they want to, or not.

Sooner would be better than later, they would loose less money”.

Since then, do you think this has happened?


Oh, did I mention that Spain has the highest unemployment rate in the developed world?

Most analysts predict it will reach 4 million by the end of 2009.

The Spanish
Government begs to differ. I am not an econmist, but I think this situation is untennable. Something has got to give.

And soon.

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