Spanish economy update: recession continues, government does nothing

en español | Thursday, September 3, 2009

There has been so much bad news about the Spanish economy over the summer – and there are so many questions still to answer – that it’s difficult to know where to start but I shall do my best.


The biggest question I have in my mind right now is: why does the Spanish government apparently not have any type of coherent plan to fix any part of the Spanish economy?

Here’s a quick summary of some of the more important disturbing news about the Spanish economy right now:

  1. At least 18.5% of the active population in Spain is now unemployed: there is confusion in Spanish media articles about which figures are the real ones: Spanish government figures or Eurostat ones:
    • the 18.5% unemployment figure comes from Eurostat and would imply (given that 18.1% = 4.1 million unemployed) that there are currently around 4.3 million unemployed people in Spain;
    • the Spanish government and the Spanish press, however, are currently quoting 3.6 million unemployed people, which would imply an unemployment rate of about 15.9% – clearly much more politically acceptable than Eurostat’s number;
    • apparently, the Spanish government is using the number of people signed up to the Spanish unemployment service and not the seasonally-adjusted harmonised EU number;
    • no-one really knows how many there are, just that the number keeps increasing and it’s way more than any other country in Europe.
  2. There are more than 1 million Spanish families in which no-one has a job. Additionally, hundreds of thousands of unemployed people have already used up their entire unemployment benefit allowance and are not currently receiving any state money at all.
    • Zapatero has come up with a (botched) plan to pay some of them an additional 420€ per month but that won’t start until November and there are lots of small details to be worked out yet;
  3. Spanish banks, in collusion with the Spanish authorities, might (or might not) be hiding hundreds of billions of euros of losses somewhere on their balance sheets, related to the collapse of the construction sector;
    • again, it seems no-one really knows but Spain might be sitting on a further financial crisis to the tune of 470 billion euros in dodgy construction loans;
  5. There has been a 500% increase in Spain’s public deficit in just twelve months: it has increased from 9.9 billion euros to 49.7 billion euros and shows no signs of slowing down yet;
  6. Spanish companies of all sizes are losing money and closing:
    • at the top, a record number of listed companies on the Madrid IBEX 35 stock exchange have recorded losses in the first six months of 2009.
    • at the bottom, 200,000 micro-companies are expected to close during 2009.
    • in 2008, 400,000 companies closed – 59,000 of them in the construction sector;
    • there are at least 150,000 fewer self-employed businessmen than last year.
  7. A member of the Bank of Spain’s Executive Committee has said there is ‘little doubt‘ that Spain’s employment market is ‘very rigid, inefficient and socially unjust‘.
    • this is very significant because Spain’s businessmen want Spanish employment regulations changed as part of a grand ‘social pact’ with the government and trade unions to kick-start the Spanish economy.
    • negotiations between the three parties have been a complete farce up until now and there is currently no agreement at all between them.

For Zapatero, is this just a giant play for votes and power in the 2012 general election, as well as an attempt to avoid a massive general strike or does it somehow run even deeper?

It is clear that he has decided to try and appease the trade unions and side with the unemployed – but he seems content to try and tax Spain’s more well-off earners and keep destroying Spain’s economy a while longer.

Doesn’t he realise that unemployment is solved by jobs, that jobs come from companies, companies come from entrepreneurs and investors and that – unfortunately for him – investors, entrepreneurs and businessmen tend to vote conservative?

Maybe he does and hence his choice but, if he doesn’t start listening to people who know about business – and to common sense – soon, in my mind all the signs point towards enormous and prolonged social, political and economic problems in Spain.

Extra bonus: I have discovered the excellent blog and Facebook page of Barcelona based economist Edward Hugh over the summer. Thoroughly recommendable if you want to read more.