By Jaime Ortega Simo
Mayday, Mayhem … Spain!
Mayday is the expression pilot’s scream in the midst of an emergency crashing situation when the airplane runs totally out of control. In the European Union airport, Greece, Ireland, Portugal represent damaged airplanes desperately screaming financial ‘Mayday.’
But if those planes representing European countries scream ‘Mayday!’ Spain screams financial “Mayhem!”
Cristina Kichner’s decision to expropriate Repsol’s YPF, had not felt well back in La Moncloa, the political plaza were Spanish congressmen discuss the countries everyday reforms.
Spain a few years back, did not directly suffer from the mortgage crisis that resulted in a systemic risk, which caused the U.S. financial bailout in 2008 and Wall Street bankers to kneel in front of confused congressmen in Washington D.C.
It is interesting to note Spain’s economy at the time of the 2008 financial crisis was not affected by the impact originated in the U.S. as their Gross Domestic Product growth was steady, resulting on a 0.8 point average scale.
Spanish bank, Banco Santander (the largest bank in the Euro-zone) took advantage of the U.S. recession and bought the east coast Sovereign Bank, and other companies like Road Loans and Helping Loans. They also incorporated Santander Private Banking in the U.S.
Prior to Santander’s acquisitions, Banco Bilbao Vizcaya Argentaria had already purchased Laredo National Bank in 2005, and later in 2007 acquired Compass Bancshares which allowed them to dominate the U.S. Sun Belt region.
As for today, the BBVA sponsors the BBVA Compass Bowl and on September 13, 2010 became an official sponsor for the NBA.
Other major Spanish companies like Gas Natural Fenosa, Red Electrica and Telefonica S.A. (Three worldwide providers of electricity, phone lines and natural gas), were also flourishing at the time of the crisis.
Even though the corporate and baking side of Spain was blooming in the troublesome waters of the world recession, for the Spanish economy the problem did not emerge in the form of a bailout crisis, but deep from the depths of the housing market.
El Ladrillo (the brick) was the major contributor to Spain’s present dilemma. Build lots of new houses, condos and residences, but make sure people buy first… Oh no…!
For years, the Spanish economy yielded on tourism as their main source of income, but when the bailout hit the Spanish market, a slow but steady contusion started to hemorrhage the veins of the construction market, and as a result of the global slowdown by the recession in 2010, there was an 8.7 percent drop in tourism.
President Jose Luis Rodriguez Zapatero the socialist leader at the time, severely wounded Spain’s Fiscal policies. Spain went from being a ‘+AA market in 2004’ to becoming the BBB+ downgraded economy it is now, according to the latest Standards & Poor’s ratings.
Part of the problem was caused by Zapatero’s administration. The socialist party focused more attention on Spain becoming a world leader in social liberties and downplaying the economic crisis. Give rights to gays– but don’t stop the derivative contagions in the market to prevent moral hazard!
This resulted in a huge deficit and a historical unemployment rate which affected close to five Million Spanish workers; a problem not seen in Spain, since the early stages of the Spanish Civil War.
The college educated Spanish sector cannot find jobs, and it is said that 40 percent of students with a college degree cannot even find basic level entry jobs. Some experts call the new Spanish generation, “the lost generation.” A youth deprived of opportunities despite earning an college education.
But education not always means opportunity. Degrees don’t mean $, and as a result Spain’s educated elite are fleeing to countries like Germany, were the economy is stable and engineering jobs on demand. They are also moving to the U.S. to get more job opportunities or finish a higher degree education.
One problem economist did not foresee back in 1999, that slowly eroded the Spanish economy long before the present crisis emerged—- was Spain’s integration to the Euro-Zone. One coin for all… in other words, one problem for all!
But the hidden factor behind Europe’s monetary malfunction no economic expert forecasted back in 2002, (when the Euro first circulated in Spain as the new currency) was Germany and France’s role of becoming the arbitrary rulers and judges of the union.
In other words, Councilor Angela Merkel and Nicolas Sarkozy call the shots in the E.U., ‘the dues and don’ts’ for countries like Greece, Ireland, Italy or Portugal and Spain.
Spain’s financial troubles are not related with Greece’s or Ireland’s problems, but the European Union’s committee not always thinks that way, as if all countries had one problem and one solution. That’s not true.
Spain’s public debt is much lower than Greece’s public debt, and should not result into a bailout. Spain’s public GDP debt is about 40 percent while Greece’s is about 140 percent.
Spain is also more manageable to sustain in the Euro-zone as long as France and Germany allow the Spanish new administration to solve their own problems. Spain still ranks the 4th largest economy in Europe, but they are paying all their past mistakes at a high price.
The economy had underperformed so bad, anticipated elections were called by popular demand and congressmen last year, and as a result of these pre-elections, El Partido Popular leader Mariano Rajoy assumed office in Dec, 5 of 2011 and dethroned Socialist party leader Jose Luis Zapatero.
Rajoy before the elections, promised he would cut funding from all public-sectors except for education and health to prevent the uncontrollable deficit to scale in numbers, but the promise was short lived. Political promises sometimes have a shorter life spam, than ant walking through a marching band.
Spain is in the brink of monetary collapse and the Spanish treasury is desperately trying to sell bonds without the help of the European Central Bank. 2,500 Million Euros in treasury bonds are hoped to be sold to foreign markets for the next five years— part of Rajoy’s plan to keep the economy from shrinking, in accordance to his political strategy to transform the country’s public deficit and decrease chaotic expenditure.
President Evo Morales just yesterday expropriated Red Electrica, from Bolivia. The losses only add-up to piles of uncertainty inside the financial and unstable Spanish economy.
Spain should leave the European Union. They should had followed England’s steps, and kept their oldest currency in circulation, ‘La Peseta.’
What holds the Spanish financial future is unknown, but smarter decisions have to be made on parliament. However, In the end, the blame should not be exclusively directed to the president alone, but for those whom casts ballots and call them selves ‘smart’ voters.
If you vote for Forest Gump, you have to be just as smart … right?
The Daily Journalist