Save Europe Day

[grumbler]

I'll bet it does, Scarecrow.

That's not a strawman argument.  It's a direct attack on what Yi considers to be the core of the problem in Spain, an element that--if removed--would solve Spain's issues.

I find the assertion dubious, as it certainly did not prevent a major contraction in the U.S. job market despite an overall lurch into recovery.  Even though I agree with him substantially that mandated job security is not necessarily a very good thing, I don't think it's Spain's problem (especially given, assuming that Larch is right, and I'll defer to him on issues about employment law in Spain, that such protections don't even exist).

I think you need to look up what a strawman argument is.  Even if you strip out all the rhetorical bullshit (and you can't, since rhetorical bullshit is the core of your assertion) you still have something that Yi never said.  That's pretty much the definition of a strawman argument, Mr Scarecrow.

Any "direct attack" that doesn't include quotes is not direct, and is highly likely to smell of Ide.

[The Brain]

Southern Europeans are too stupid to be lazy.

[grumbler]

It'd help if Yi qualified what he thinks is "job security nonsense". The job market in Spain since the 90s, when the job market was liberalized under the 1st PP government, is essentially two-tiered. There's, very broadly speaking, a privileged tier of people with very high job security, consisting mostly of middle aged people in fixed contrats and public workers, and there's another tier of younger workers in temporary contracts with very little job security. Getting rid of somebody from the first group is extremely expensive, getting rid of somebody from the second group is extremely easy.

This is the way one responds logically to an assertion like Yi's, Ide.  Note the lack of bullshit and froth.

TL, to what do you attribute Spain's economic problems?  My understanding was that it was the overspending on infrastructure to support a housing bubble, but that's a pretty superficial understanding if even true.

[Sheilbh]

I'd be interested in hearing too. My impression is that it's like Ireland. Lots of growth was coming from banks and property speculation with the necessary construction projects. The economies based on banking, property and construction got hardest hit, inevitably.

But I don't know how much that's it.

[The Larch]

It'd help if Yi qualified what he thinks is "job security nonsense". The job market in Spain since the 90s, when the job market was liberalized under the 1st PP government, is essentially two-tiered. There's, very broadly speaking, a privileged tier of people with very high job security, consisting mostly of middle aged people in fixed contrats and public workers, and there's another tier of younger workers in temporary contracts with very little job security. Getting rid of somebody from the first group is extremely expensive, getting rid of somebody from the second group is extremely easy.

This is the way one responds logically to an assertion like Yi's, Ide.  Note the lack of bullshit and froth.

TL, to what do you attribute Spain's economic problems?  My understanding was that it was the overspending on infrastructure to support a housing bubble, but that's a pretty superficial understanding if even true.

There are many issues intertwined. Infrastructure overspending per se is not a problem, although there's a certain mythification of big emblematic projects at the regional level which divert funding from more useful stuff. The main example of this is our high speed rail system. IIRC Spain is nowadays the country with the most extensive high speed rail system in Europe, and I would bet big that they go half empty most of the time. Back in the 80s, when Spain joined the EU there was a real need of improving our infrastructures, but public authorities became drunk with that and nowadays we're building high speed rail and highways to even the most remote corner of the country, and provincial airports appeared throughout the land.

Regarding the housing bubble, which is IMO the main culprit, it created a poisonous efect on society and the economy. Renting culture is almost non-existant in Spain, everybody wants to own the house they live in. Many times mortgage payments would be lower than the monthly rent, so lots of people thought that they were better off buying instead of renting. Also, people would buy apartments not to live on them or to rent them, but as an investment, in the belief that it'd never go down. People would buy appartments before the building was built, and before somebody started living in them it could have gone already through several owners that never set a foot there. Appartments became thus a commodity to be speculated with, in an exponential way, as people would mortgage one appartment to buy another, rinse and repeat. This kind of speculation was widespread, and created an artificial demand for residential building. It was felt mostly in bigger cities, where new neighbourhoods and suburbs would pop up here and there only to be left as ghost towns afterwards and touristic areas, where housing developments for summer houses sprouted along the Mediterranean coast like mushrooms in autumn.

This construction boom had a perverse effect at the local level, as the cities and villages got most of their financing through taxes in new developments, so they encouraged it instead of cooling it down. Local and regional savings banks (the famous "cajas") financed most of those developments and are now laden with plenty of repoed housing developments, finished and unfinished, and land where there's 0 interest to build anything. The regional savings banks, most of the time in cahoots with the regional governments, were also quite cavalier about their business and lent millions and millions of euros to their cronies in the regional governments in order to bankroll vanity white elephant projects.

It also had a perverse effect in local youths, as in these areas lots of people would drop off from high school without even completing secondary education and get a job in construction instead of completing their education. We're talking about 16-17 yo youths that could get well payed jobs right off the bat, and were able to afford big cars before they were 20, making their colleagues that stayed in school look foolish.

Cheap credit, which fueled the housing boom, also fueled consumption, and soon everybody and their dog was buying everything through credit. You "financed" everything. Your new car? Comfortable monthly instalments. Your new appartment? Mortgages were easy to get. Holidays abroad? No worries, every travel agency would offer you a scheme for payment.

Everybody knew that at some point it'd all come tumbling down and there was a big need to diversify from construction, but few steps were taken to move away from that, either for lack of will, means or long term thinking. When the credit became scarcer we were left with lots of people with no other professional qualifications than working in construction, with banks which would no longer give mortgages or financing schemes so easily, leaving plenty of legitimate clients dry and plenty of unsellable appartments that nobody knew how to get rid of.


I've rambled a bit but I think that you get the idea.

[Zanza]

In other discussions, Iormlund added that the whole effect described above was fired up by the fact that the interest rate on credit was below inflation (thanks to ECB policy, see optimal currency area theory) so it was rational to borrow as much as possible and don't save at all.

[The Larch]

In other discussions, Iormlund added that the whole effect described above was fired up by the fact that the interest rate on credit was below inflation (thanks to ECB policy, see optimal currency area theory) so it was rational to borrow as much as possible and don't save at all.

That's also what I heard, that interest rates with the euro were so much lower than with the peseta that banks relaxed lending regulations a lot and the population became drank with cheap credit. I'm no expert in the issue but that access to credit became so much easier is a fact. IIRC we're still in a better position credit-wise than before accessing the euro, but the Spanish society became so used to cheap credit that it has become a deep crisis.

I have friends who work in banking and they told me that they saw plenty of cases of people who got their paychecks on the 1st of every month and by the 5th most of it would be gone, when all their monthly installments of the different stuff they bought through credit (mortgage, car, tv, whatever) came through. One missed paycheck would put them in the red. Another friend of mine works in the financial branch of a car company which offered its own financing to their clients, and in the last couple of years they get more calls from people wanting to get rid of their cars because they can't afford them anymore than calls from people wanting to buy new cars. They're anecdotes, but they frame the discourse I've been giving about the widespread extension of cheap credit during the boom years of the Spanish economy.

[Iormlund]

Larchie has explained why the local governments, regional saving institutions and families are indebted. The rest was borrowed by businesses to increase workforce, buy new machinery and so on, as per usual in any growing economy with such low rates. It went well until the credit crunch shut all financing down all of a sudden, and businesses started falling like dominoes.

As an aside, another reason why the central government, with relatively low debt, is in such a bad position is that the markets expect it to guarantee regional debt (and they are quite right).


As for why the central government didn't do more to at least contain the bubble, I suspect they weren't expecting things to go bust until much later (let the next guy deal with it) and nowhere near as bad. Also, a problem only circumscribed to Spain would have been far more manageable just by increasing exports.
The subprimes debacle however took them by surprise and made the hit worldwide. So now we have to compete for exports with dozens of other coutries in the same dire straits in a climate of widespread austerity and lack of growth.

[Tamas]

I suspect they weren't expecting things to go bust until much later (let the next guy deal with it) and nowhere near as bad.

I think you just summarized everything from the subprime shitstorm to the present.