Each week, Per Svensson from Ciudadanos Europeos
sends out a news-letter on the state of Spain's economy, its politics and its environment. He doesn't mince his words.
From this week's report:
Lack of confidence in courts and judges: Six out of each ten citizens consider that the legal system is antiquated, seven out of ten that court proceedings are slow and sentences not executed with efficiency and half of all Spaniards do not consider the courts to be impartial. This is the results of a study made by the foundation “Wolters Kluwer”. In accordance with the study, 48% of the Spanish consider that the justice functions “bad or very bad”, while only 10% feels it functions well. 30% considers that it functions worse than two or three years ago.
In another piece Per writes about Spanish Debt: I've included it below.The Debts of Spain
By Per Svensson
There are many debts in Spain, maybe as a result of the streak in the Spanish national character to consume today and only tomorrow worry about paying the bill for the Fiesta. It was easy for the banks and the real estate developers during the boom years to lure many Spanish families to buy a property with a mortgage loan of around 100% at a floating interest rate.
Many of the property projects from the boom years were also financed to the hilt, at unrealistic valuations of raw land with a sketch for a development plan, based on “market investigations” promising that millions of families in Northern Europe would buy a dwelling in Spain at any costs.
A large proportion of the companies that jumped into the property world during the hottest speculation period, had no previous experience in the field, some no business experience at all. With cheap money from the unscrupulous banks, they created instant conglomerates (a company for each new project, a building company, a letting company, a financing company, etc.), and rocketed up among the greatest developers in the country…and some even the world.Who pays the bill?
Now the Fiesta is ended and many are sitting with big headaches, trying to find a way out of the “Schlamassel”. Many of the saving banks have had to join forces, some banks and saving banks are in the danger zone due to the enormous amounts of shaky debts to the property sector (estimated at 402.000 million Euro).
The banks are now inventing all kind of charges on their clients, closing local offices and selling off the premises. They have borrowed enormous sums from the European Central Bank (at the moment 130.000 million Euro, or one third of all loans given by the ECB to banks in the Euro zone).Town halls and regional governments
The municipalities took also an active part in the property Fiesta, due to the bonanza from taxes and charges on approval of new urbanization plans and issuing of building licenses. Especially before the elections, all kind of new projects and services were started. In most coastal municipalities the town halls and the municipal companies are the biggest employers. Each new mayor filled the premises with his followers, paying out real salaries.
Today the income from the property industry has dried up, and a great number of town halls will technically be in a situation of insolvency when the accounts for 2010 are presented at the end of the year.
The regional governments have been some of the greatest spenders of public money, often duplicating services already existing on the national level or in the town halls, promoting prestige projects (regional radio and TV stations) with high costs and low public acceptance.The sovereign debt
The national government, after they understood (very late) that the country were slithering into a very serious crisis (property and finance), have acted as a fire brigade in a forest fire, pumping out great quantities of money in one place, then rushing to the next, doing the same there.
At the beginning of this year the budget deficit stood at 11,8%, instead of the maximum 3% permitted by the European Union. The EU and the European Central Bank has given Spain great assistance, but also demanded that the deficit be brought down to 6% in 2011, and 3% in 2013. The Zapatero government had to bite the sour apple, forget their previous assurances that the crisis should not be paid by the workers, and make the greatest social reductions:
- slashing salaries in the public sector 5% from the middle of this year, freezing them during 2011,
- suspending the yearly revaluations of pensions for 2011,
- eliminating the subvention on births of 2.500 Euros,
- making the sick pay a greater part of their medicines,
- reducing by 600 million Euros the development aid,
- reducing by 6.045 million Euros government investments,
- instruct the regional governments and town halls to save 1.200 million Euros,
- reducing the partial retirement and
- suppress the retroactivity in payments for dependency.Increasing and collecting the taxes
Due to the high incomes during the boom years, the government reduced taxes instead of building up reserves. When the bubble burst at the end of 2007, consumption in Spanish families started to fall and with that the fiscal income of the state. With rising tax rates and an expected increase in the now long suppressed private consumption and investment, the government hopes the trend will change.
Income Tax rates have been hiked. But the income of many Spanish has stagnated or diminished, so the effect of the increases may be reduced.
The government is placing more confidence in the VAT (IVA) where the higher rates took effect from July. A higher consumption in the period up to Christmas may immediately start to fill the coffers of the Hacienda.
With nil real growth in the economy, it is unlikely that the Company Tax (Impuesto sobre Sociedades
) will make a great contribution to the hoped for budget balance.
It is officially confirmed that 20% of the Spanish economy is “black”, not paying other taxes than the ones levied on the consumer. As in other Latin countries tax evasion is also in Spain looked upon as a sin of no importance. There are no reasons to believe that this will change in the immediate future.A difficult balance
The government must perform a difficult balance act in the coming months and years. On the one hand it must foment consumerism and investment (not so easy in a country with more than 20% of the total workforce in unemployed, where salaries are reduced, pensions slimmed and taxes increasing). On the other hand they must increase and enforce taxation, and reduce public expenditure, to reach budget balance (+3%) in 2013. A formidable task!
The Spanish treasury still has to borrow another 50.000 million Euros this year on the international money markets, without losing its shirt in increased interest payments. The reduction by Moody’s of the long term debt ratings of Spain from AAA to Aa1 will not be helpful.
The balance act may be interrupted by a new credit crisis (feared by many economists), due to a drastic increase in oil prices (predicted by some experts), by natural disasters (like the dust cloud from the eruption of the Icelandic volcano), by increase in financial problems in other EU countries (Greece, Ireland, Portugal), or by mistakes in the handling of the crisis (remember we have municipal elections in May next year – can the government party PSOE take the strain?).
The remaining months of 2010 (The Sad Year) and the beginning of 2011 will be crucial.