Spain is going through an economic change and it appears to be “business as usual” for the majority of Spaniards. With around 20% unemployment, which happens to be twice that of the euro zone as a whole, it will be a long road to recovery and this is Spain’s main obstacle in getting back on its feet.
We can blame many of Spain’s problems on the brick and mortar industry. Spain has relied on construction since the 60’s and has since became a pillar in the economy.
Bricks and mortar however, are solid building materials, but shouldn’t be used as the basis for a sustainable economy. Spain therefore needs to grow over the 3% mark in order to create jobs. And Spain did grow during most of the 80s and 90s, in what came to be known as the “Spanish miracle”. It was no miracle however, but a mirage, and the financial crisis has only made this mirage clear the hard way.
I remember in the late 80’s buying property was and getting a foothold on the proverbial ladder was relatively easy and affordable. After the 92 Olympics in Barcelona property started spiraling upwards and hasn’t looked back until now.
I have always found it amazing how the majority of Spaniards could afford property, which,in other countries would be way out of their budget. Apart from the fact that people had been taking out 30, 40 and even 50 year mortgages to pay for their property and being duped into buying a new car and putting that on the mortgage as well, there had to be something else. Spanish workers earn roughly 20% less than the French and 40% less than the Germans so it wasn’t a question of salary. Spaniards like to showboat and I have two examples of friends who bought BMW X3’s and Mercedes C class vehicles just by bumping up their mortgage!
Another reason that Spain is suffering economic turmoil is because of its “submerged economy” or “parallel economy”. The government knows all about it but does little or nothing to stamp it out. Perhaps it’s because many important figures and celebrities have also succumbed to this panacea.
Black Money or B
When talking to Spaniards you’ll often hear the term “Dinero Negro” or simply “B”. Black money or B is what doesn’t go through the accounting books. From a simple electrician or plumber to a hairdresser’s or dentist’s, they all have something in common. Most of the cafés and bars operate the same way unless they are part of a chain and are forced to give you some sort of “ticket”. I mention dentist’s because I know a good one in Barcelona who only takes cash – no credit cards please – kaa ching!
I even went to look at some property and the guy told me with all the nerve that he wanted part of the deposit money in “B”. What does this do? Say for instance you buy a property for 180,000 euro, you keep it a while then sell for 220,000 euro. The government is entitled to something like 20% of the benefits or profits (capital gains tax) and in this case we are talking 40,000 euro. What would happen if I “sold” the property at 195,000 and took a cheeky bung of 25,000 euro in “B”? To the Spanish government I’ve only made 15,000 euro profit and it won’t be much of a sting, would it? This goes on daily by the way.
High Priced Second Hand Market
This is a killer. Look at the second hand car market in Spain and then look at the same car in the UK for example. I saw a BMW the other day parked in the street with a “For Sale” sign with the year, mileage and price. To me the price was a bit over the top and then went online to check on one of the UK’s auto websites. Wow! I found the same car with the same mileage for 7K cheaper! This happens a lot and I may be buying my next car in the UK.
Another example is eBay Spain. For the best part it’s totally useless as everything’s too pricey. I saw an old iMac once, which was offered for around 250 euro. I contacted the seller and explained that these iMacs were so out of date that the UK usually flog them for 50 euro. The seller promptly turned down my offer and proceeded to say that the iMac in question was already acquired and that I didn’t know what I was talking about. Two weeks later it was still on the auction site.
My point is this in a nutshell: Spaniards buy something, then when it comes to selling it, they want top dollar. They are not prepared to budge an inch and rather eat their property, car or iMac “con patatas” as the Spanish would say.
Property where I live hasn’t dropped in price too much either. Most of the neighbours all paid over the odds including myself and I find it ridiculous that these contractors who have houses for sale all over the residential area I live in have hardly budged an inch. I don’t know if Spain’s bricks and mortar totem will ever get back on its feet again but one thing’s for sure, prices will have to be realistic and concord with what the average Spaniard earns.
Back to the Peseta?
It might be just what the doctor ordered. Going back to the peseta is not a bad idea at all but where does that leave the myriads of industries and commerce today? I remember when Spain was entering the euro and people were saying that the local stores, café and bar owners will round everything up to the nearest euro. “No we won’t” came the answers. Check this out: a humble café con leche cost around 90 pesetas at the time of the change over and overnight was 1 euro. Now forgive me if I’m wrong but a euro was equal to around 166.33 Spanish pesetas. Therefore, did we just experience a rise of 76 pesetas overnight? We surely did.
Germany on the other hand did alright as they changed over to the euro when the German Mark was pretty high – a DM at the time if I am correct was roughly equal to that of 166,33 pesetas. Coincidence or not, the Germans did their homework and they also didn’t allow unscrupulous bar owners et al to hike the prices up like they’ve been allowed to do in Spain.
The Irish are in trouble and they’ve just accepted the help from the European Commission. The Irish government faces an immediate backlash on its tough austerity measures, which have failed to calm the markets. First it was Greece then Ireland, could Spain be heading down the same road?