Friday, March 04, 2011

Friendship Economics

AOG, Madrid

It is not news that the Spanish economy is not doing extremely well. It is affecting the whole country and yesterday the unemployment rate went back up again.

Of course, to the uninformed observer, Spain's unemployment comes with a caveat: One, most of the people unemployed are immigrants who used to work in the construction sector (until recently one of Spain's economic pillars and main engine of economic growth). 

And two, most of them survive in what is known as the 'Black Economy'. That is, people are working and not paying taxes on their earnings. Many claim unemployment benefit and work. 

Nobody talks much about it and the Government acts as though they know nothing of it. And just as well they do, otherwise they would have a revolution in their hands.

However, there is a knock-on effect going on. Although people are working, even in the 'Black Economy', their spending power has diminished. 

And whereas a few months ago every analyst in the country was saying that imports (to Germany, France and the UK) would pull the economy out of the slump, the tune has changed of late. 

Now, it is, as we always knew, that what will get the economy moving is consumer spending.

However, given the performance of US banks in the last couple of years, Spain's banks are not too keen on lending. 

And in Spain, like the US and almost everywhere else, the biggest purchase people make is property. 

Certainly the big property promoters are pushing for the banks to start lending again, and Spain's President has met with several banking CEOs to ensure that lending continues. 

But thus far, nothing. So, in the meantime, the Government has decided to extend people's pensions, to push for reduced salaries and less worker compensation when fired. 

This in a country famous for paying employees about 80% of what their European colleagues make. And needless to say, people in Spain work longer hours than the European average.

Many have criticized the PSOE, Spain's governing party, because they are a Socialist party taking very right-wing measures. 

In roughly one year's time, Spain will have a general election (if not sooner, elections are the privilege of the Prime Minister). 

To most analysts, it is a foregone conclusion that the opposition will win the election.  And most think they will do so without having to lift a finger.

However, not all is lost.

A couple of days ago Mr. Zapatero said that in 2012, the whole country would feel the benefit of an upsurge in the economy. 

Just in time for the elections? Too little too late? Only time will tell.

In the mean time, a friend of mine called me yesterday with a question.

"Do you know how they hunt kangaroos in Australia?"


"They kill them at night. The lights from the 4x4s blind them, and they remain perfectly still. Then they get shot."


"That is how I feel these days. Like a kangaroo caught in the lights. I am completely frozen".

He owns a computer repair business, and he hasn't been doing well since last November.

"If I don't have money coming in, I freeze. I just freeze."

Unfortunately, he is not alone. Most of the country is, at present, frozen.

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