Is the EU taking over Spain?
There is a very interesting and often controversial post in the Spanish Forum which discusses the Spanish recession, the prospects for the country and more interestingly the European Union as a whole. This is a subject that will become more and more commonplace as EU member states move closer and closer on both political and monetary fronts. So what exactly are the prospects for the Spanish economy?
Coverage of the Spanish economy in the press
One of the main points raised at an early stage is the fact that countries such as the UK have a press system which pays little or no attention to other European countries and often tends to amalgamate all EU member states under one economy. However, despite the fact that many people still see Spain through rose tinted glasses there is no doubt that the Spanish economy is in real trouble and even though the likes of Germany and France appear to be pulling clear of their own recessions, the future of Spain is very much shrouded in controversy. So what is the UK press missing?
Spanish property market
It will come as no surprise to learn that the Spanish economy is very much based on and around the property market, tourism and other associated activities. One particular issue which could come back to bite the Spanish authorities is the fact that at the beginning of 2009 an influential report on the Spanish property market claimed there were 3 million unsold properties in the country. However, a more recent report, by the same influential estate agent R R de Acuna & Asociados, now suggests that there are only 1.67 million properties available for sale. So how has the number reduced so quickly?
Properties for sale in Spain
While there are currently 1.67 million properties available on the Spanish property market, this figure should also include the 327,000 properties under construction but not yet available for sale and a massive 1.1 million which have received planning permission but are not yet under construction. It is also interesting to learn that under Spanish law a property which has received planning permission needs to be completed within two years otherwise there will be problems for the construction companies involved.
Funding new properties in Spain
Of the 1.1 million properties which have received planning permission but have yet to see any sign of the construction phase beginning, a total of €52.9 billion have been forwarded by Spanish banks to fund these ventures. If these ventures are not completed within the statutory two-year period then there are potentially massive problems for Spanish banks with losses which could total €52.9 billion!
Construction companies in Spain
While there are many doomsday scenario predictions regarding the Spanish construction sector there is no doubt that because of a significant reduction in demand for property within central Spain, as well as the coastal regions, up to 75% of Spanish construction companies could feel yet more financial stress over the next five years. The knock-on effect for this would be a significant increase in Spanish unemployment, which many believe could rise to over 25% by the end of 2010, and yet more pressure on the Spanish authorities and Spanish national debt. The more construction companies which feel the financial pressure of the recession, the more pressure Spanish banks will feel and the more bad debts will emerge.
Spanish unemployment
It is well known that the Spanish authorities are already concerned about the increase in unemployment, which as we mentioned above could top 25% by the end of 2010, and are keen to introduce a number of fiscal investment programmes although funding is a major issue. The Spanish authorities themselves have massive short-term debts to renew and refinance with the European Union, something which many people believe could put the Spanish authorities in moral debt to the EU which could lead to the emergence of a “Federal Europe” much sooner than many people had feared.
As in the UK, the Spanish authorities have been pushed into a corner by the very fact that if they remove liquidity and investment from the Spanish economy there will be a relapse which could trigger a chain of events that could ultimately lead to disaster for Spain itself.
The influence of the European Union
Never has it been more apparent that the influence of the European Union as a whole over all European member states is becoming stronger and stronger. The European Central Bank has stepped in on a number of occasions to help governments such as Spain who are suffering and will continue to suffer for the foreseeable future. There is a feeling amongst many people that the French and German governments, who have seen their own economies move out of recession quicker than any other EU members, want a place each at the top of the table and greater and greater influence over the European Union itself.
The Spanish government
As we mentioned above, many of the events happening in Spain go relatively uncovered in other parts of Europe, especially in UK where the local press seem to concentrate on the UK markets and consider other European countries “as one”. There is a feeling within the country that in exchange for effectively bailing out the Spanish authorities, the European Union will demand more and more influence over Spain and changes at the top of the Spanish government. Many believe this scenario is already beginning to play out with subtle changes in Spanish representatives at the EU and pressure on the president of Spain.
Conclusion
Within the post in question is a very interesting link to an article which details a number of potential nightmare scenarios for the Spanish authorities and the Spanish economy. It also brings into play the thought that the European Union more than any other party in the world has more to gain from the ongoing recession with financial bailouts for certain EU members leaving them in a very weak position to fight future EU moves to bring Europe together.
The Spanish economy depends almost entirely on tourism, property and related business sectors. If as expected property and tourism remain depressed for the foreseeable future we will almost certainly see unemployment rise above 25% in Spain and national debt continue to spiral. Without financial assistance from the European Union this could lead to a run on the Spanish economy and severe problems for the future.
While the Spanish situation is rarely covered in the UK press it is something which many people need to be aware of, especially when you consider the popularity of Spain amongst a host of UK expats.
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Interesting article that pulls it all together. I am on the pessimistic side of the fence. News out of Spain seems to have got worse recently just as it improves elsewhere in the world.