Edward Hugh (3): no grand plan for Spain
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Tuesday, August 24, 2010Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.
Interview language: English | Length: 32 min | Download the mp3 file (subscribers only)
Welcome to the third podcast interview with Edward Hugh about the Spanish economy. Edward is an independent economist based in Barcelona. He is also a prolific blogger and is frequently quoted in the English-speaking financial press as a reliable source on what’s going on in Spain as the recession continues to unfold.
You can listen to the other two podcasts here and here. The short version: market reaction so far this year has, as always, been irrational, underlying indicators are not in a good place and Spain has no plan to replace the construction industry as the engine of its economic recovery.
- Spain, Greece and the EU bailout package;
- The madness of the markets and rational analysis of underlying factors;
- Is there any basis for the current apparent economic and financial calm?
- Important changes in the role of the ECB and its relationship with sovereign states;
- The impact of cuts announced by Zapatero in June;
- Spanish banks reliance on ECB funding and moral hazard;
- The civil service wage cut announced in June is not really a wage cut;
- Car sales in July were down 30% on June, after the Spanish version of cash-for-clunkers was withdrawn and VAT rose 2%. Is that indicative of what the rest of the economy might look like if we took away government stimulus?
- The effect of the VAT rise on consumer behaviour and the real-estate market;
- Inflation, deflation or stagflation?
- There’s no plan to replace the weight of the construction industry in the make-up of Spanish GDP. Could tourism replace the construction industry in Spain’s GDP?
- Europe and the IMF are not being harsh enough on Spain;
- The Spanish government’s hope of reaching 2.7% GDP growth and 3% deficit targets by 2013 is totally unrealistic;
- The north-south economic divide in the eurozone;
- What happens to Spain when the ECB starts raising interest rates and monthly mortgage payments start rising again?
(…)
Welcome to the third podcast interview with Edward Hugh about the Spanish economy. Edward is an independent economist based in Barcelona. He is also a prolific blogger and is frequently quoted in the English-speaking financial press as a reliable source on what’s going on in Spain as the recession continues to unfold.
You can listen to the other two podcasts here and here. The short version: market reaction so far this year has, as always, been irrational, underlying indicators are not in a good place and Spain has no plan to replace the construction industry as the engine of its economic recovery.
- Spain, Greece and the EU bailout package;
- The madness of the markets and rational analysis of underlying factors;
- Is there any basis for the current apparent economic and financial calm?
- Important changes in the role of the ECB and its relationship with sovereign states;
- The impact of cuts announced by Zapatero in June;
- Spanish banks reliance on ECB funding and moral hazard;
- The civil service wage cut announced in June is not really a wage cut;
- Car sales in July were down 30% on June, after the Spanish version of cash-for-clunkers was withdrawn and VAT rose 2%. Is that indicative of what the rest of the economy might look like if we took away government stimulus?
- The effect of the VAT rise on consumer behaviour and the real-estate market;
- Inflation, deflation or stagflation?
- There’s no plan to replace the weight of the construction industry in the make-up of Spanish GDP. Could tourism replace the construction industry in Spain’s GDP?
- Europe and the IMF are not being harsh enough on Spain;
- The Spanish government’s hope of reaching 2.7% GDP growth and 3% deficit targets by 2013 is totally unrealistic;
- The north-south economic divide in the eurozone;
- What happens to Spain when the ECB starts raising interest rates and monthly mortgage payments start rising again?
Christopher A Clarke
26/08/2010
Very interesting interview. “Kicking the can further down the road” sums up pretty well what's going on in Spain at the moment. Also summer is a special time with those in work enjoying their holidays consuming more as they spend their extra July salaries. Tourism has picked up a bit with more Germans and British arriving as the pound recovers somewhat and the German economy moves into good growth. So with an increase in temporary contracts in the service sector helping unemployment to temporarily fall below 4 mil (official figure), we've got a good scenario for the government to pretend that things are actually improving when they aren't at all.
But I think we're in for a very hard winter. With car subsidies now stopped, many of the big companies will be reducing production or closing down their plants as was beginning to occur before the stimulus packages were introduced. House sales and prices will take a big dive after January when tax relief for mortgages on new sales is virtually erradicated ( worth about €30,000 on an average loan). Further tax hikes, which seem inevitable, will slow down any economic recovery and my feeling is that so far, there have been no real significant steps to reduce public spending. When national, regional and local governments finally cut off the life support machine, what's going to happen to economic growth and unemployment then? And if Euribor starts to edge up as Germany and France recovers…? Perhaps it's better not to think about it!
Chris.
jwconk
28/08/2010
Mathew – thanks for doing this interview. Edward is so well informed on the situation in Spain and you did a great job highlighting the building drama in Central vs Periphery Europe. I greatly look forward to your next podcast with Edward and the next chapter in this fascinating book.
Housing is so core to the health of any nation's economy and I would love to see you explore in greater depth the massive distortion between elevated house prices in spain and the sick economy. Your discussion about the Euribor and it's inevitable rise is interesting – but I would also really like to hear more data and discussion about the inelasticity of the spanish housing market vis a vis the spanish banks holding so much property (not to mention the spanish mentality that (1) housing will continue to rise forever and (2) everyone must own a home).
Is spain's situation not the equivalent to pre-crisis US Banks holding toxic mortages? It seems to me that the US Banking sector was forced to show their cards in 2009 and major institutions like Bear and Lehman were lost as a result of the industry-wide write down of toxic assets. But the spanish banks are instead propping up the entire housing industry by sucking up the excess supply and owning the properties? Where and how is this going to end?