Mario Draghi, the president of the European Central Bank, is not someone you would necessarily expect to crop up in a tourism article, but what he said earlier this week merits that he does. Draghi suggested earlier this week that recovery in the Eurozone was losing impetus, pointing to a stalling of growth during the second quarter and to indicators through the summer which have been weaker than expected. This economic performance cannot of course solely be attributed to activity in the tourism sector, but tourism does play a key role in measuring this performance.
Questions are often asked about the tourism spend statistics which get trotted out with monotonous regularity and which, for many, appear to bear little relationship with evidence on the streets and terraces of Mallorca's resorts. These statistics are far from perfect, but it needs to be remembered that their principal function is one determined by the Bank of Spain and, by association, the Central Bank and European institutions. They feed into economic performance measures, and so when, as was the case in July this year, Spain shows a slight fall in tourism spend (1.3%), there is cause for a few eyebrows to be raised and for foreheads to be furrowed.
This fall in expenditure seems odd because the number of tourists has been at record levels, as they have been in Mallorca. So, how does one explain the decrease? The simple answer is that tourists are spending less, but this isn't only because tourists are being more careful with their money while on holiday. They are also staying for shorter periods. Overnight stays for July and August combined rose by only 0.2% (a figure for Spain as a whole). When tourist arrivals increase by almost 9% (as they did in August) but overnight stays barely increase at all, you get what is in fact the situation. There is simultaneously a mini-boom in the number of tourists and a contraction in tourist expenditure. And it is this contraction that concerns Draghi and should also concern the national government in Spain and the regional government in the Balearics.
The announcement by Spanish finance minister Cristóbal Montoro of some relaxations in the pipeline on tax has been very welcome, and in the context of tourism, these may well filter through to the domestic market, which has already shown good signs of recovery this summer and which has been helping to fill the void left by a significant fall in Mallorca's Russian market. But Spain can't affect the expenditure of tourists from other countries. Draghi is calling for "unconventional measures" to counteract a lack of credit, and it would certainly appear to be the case that unless there is more credit (and more employment) in the Eurozone (and the UK) the contraction in tourist expenditure will continue, thus producing an unwelcome cycle which might ruin some of the good work the Rajoy administration has been doing. In addition, there is the Russian question. This market, hampered by obvious events, by sanctions and by the exchange rate, is enduring a genuine crisis, reflected by the numerous bankruptcies of Russian tour operators, many of which were not on a firm financial footing anyway. The bankruptcies will only help to further deter Russian tourism to the island and to Spain, and with everything else occurring in Russia and Ukraine, next summer is looking distinctly uncertain.
So, there is a double whammy of what had been a rapidly growing market being in crisis and of expenditure contraction in stable, long-established markets. Record numbers of tourists might sound all well and good, but records or not, there are some serious questions to be asked about next summer.
Showing posts with label Credit. Show all posts
Showing posts with label Credit. Show all posts
Friday, September 26, 2014
Tuesday, November 22, 2011
Going Benalup: Unemployment and easy credit
There is a town in the province of Cádiz in Andalusia that has the worst unemployment rate in Europe. It is called Benalup (or Benalup-Casas Viejas, to give it its full name). In an article by Giles Tremlett in "The Observer" on Sunday, the collapse of what, for a brief time, had become a boom town is chronicled, and the story of Benalup tells you mostly all you need to know about why Spain is in such a mess and is going to have one hell of a struggle getting out of it.
Benalup is by no means unique, even if it can lay claim to that unwanted unemployment crown. Spain is full of Benalups, and Mallorca shares its problems. To summarise Tremlett's main points, the Benalup belly-up effect was founded on excessive credit and on a glut of construction jobs that paid well and took teenagers out of education.
It won't sit well with the La Caixa bank, known also for its Obra Social good works programmes, that it gets fingered as having triggered a lending war among the banks that flooded into the town in search of mortgage customers, many of them young and having turned their backs on school in the knowledge that they could earn handsome wages in the construction industry.
Construction was the first and most obvious victim of economic crisis, and it took its labour force down with it. In Benalup, those who had left school at sixteen and who had embarked on a side career of avaricious material grab are just part of the almost 50% of Spain's under-25s that are unemployed. This material grab has left Benalup, as Tremlett remarks, "plastered with 'for sale' signs", those of La Caixa's estate-agency arm, which has been forced to repossess.
Much of the construction was centred on the coastal area. The Benalup story, therefore, is a not unfamiliar one of the two heads of construction and tourism that is the economy of much of Spain, Mallorca included. But Benalup, some kilometres inland, doesn't have the luxury of the fallback position of tourism. Without the construction on the coast, it doesn't really have anything.
The dependence on construction and tourism in different parts of Spain is just one factor that has undermined Spain’s economy. Subject to the vagaries of economic cycles, both industries also contribute to a devaluing of the general skills base and of the education system. Easy money can be had, or could, and the state would provide some assistance in the winter for those less inclined to slog around a building site.
The education system is not that great anyway, and in Mallorca it is particularly poor. But through a combination of the system’s inadequacies, a lack of incentive to stay in education and the promise of riches from humping bricks about (now gone), general competitiveness is also undermined.
One solution to the unemployment in Benalup is a state-funded training course, assuming you can get on it. Not that it necessarily opens up subsequent employment opportunities, as the course is for graphic design. In Mallorca, there are any number of young graphic designers. They are two a penny. Many are good, but where’s the work? Economies do not generate wealth or growth through graphic design. It is a pitiable non-solution.
The Zapatero administration presided over the end-game of the great Spanish boom. It deserves to be criticised, but it is not alone. Successive governments have perpetuated an aspirational dream for a country that was in the economic dark ages only half a century ago. One mistake, aided by the banks, was to break with a traditional cash-based society and replace it with one based on credit, and very easy and loose credit at that. The country’s richness, as evident from a lofty position in the IMF GDP league table, obscures a reality of overdependence on certain industries and a lack of competitiveness.
There is fortunately some realism coming from the newly elected government, an acceptance that Spain isn’t that rich and that the mechanisms for granting the population the trappings of aspirational wealth were largely built on sand. Within a framework of this new realism, how, though, can Rajoy set about realising his election promises, such as that to reduce unemployment?
I’ll have a look at that in a further article. But for now, and notwithstanding the fact that the Spanish electorate does appear to “get it” where the country’s parlous position is concerned, I’ll leave you with a piece of history. In 1933, Benalup was the centre of an anarchist uprising and a police massacre.
Thank God it's not 1933.
The original "Observer" article:
http://www.guardian.co.uk/world/2011/nov/20/spain-benalup-unemployment-euro-crisis
Any comments to andrew@thealcudiaguide.com please.
Benalup is by no means unique, even if it can lay claim to that unwanted unemployment crown. Spain is full of Benalups, and Mallorca shares its problems. To summarise Tremlett's main points, the Benalup belly-up effect was founded on excessive credit and on a glut of construction jobs that paid well and took teenagers out of education.
It won't sit well with the La Caixa bank, known also for its Obra Social good works programmes, that it gets fingered as having triggered a lending war among the banks that flooded into the town in search of mortgage customers, many of them young and having turned their backs on school in the knowledge that they could earn handsome wages in the construction industry.
Construction was the first and most obvious victim of economic crisis, and it took its labour force down with it. In Benalup, those who had left school at sixteen and who had embarked on a side career of avaricious material grab are just part of the almost 50% of Spain's under-25s that are unemployed. This material grab has left Benalup, as Tremlett remarks, "plastered with 'for sale' signs", those of La Caixa's estate-agency arm, which has been forced to repossess.
Much of the construction was centred on the coastal area. The Benalup story, therefore, is a not unfamiliar one of the two heads of construction and tourism that is the economy of much of Spain, Mallorca included. But Benalup, some kilometres inland, doesn't have the luxury of the fallback position of tourism. Without the construction on the coast, it doesn't really have anything.
The dependence on construction and tourism in different parts of Spain is just one factor that has undermined Spain’s economy. Subject to the vagaries of economic cycles, both industries also contribute to a devaluing of the general skills base and of the education system. Easy money can be had, or could, and the state would provide some assistance in the winter for those less inclined to slog around a building site.
The education system is not that great anyway, and in Mallorca it is particularly poor. But through a combination of the system’s inadequacies, a lack of incentive to stay in education and the promise of riches from humping bricks about (now gone), general competitiveness is also undermined.
One solution to the unemployment in Benalup is a state-funded training course, assuming you can get on it. Not that it necessarily opens up subsequent employment opportunities, as the course is for graphic design. In Mallorca, there are any number of young graphic designers. They are two a penny. Many are good, but where’s the work? Economies do not generate wealth or growth through graphic design. It is a pitiable non-solution.
The Zapatero administration presided over the end-game of the great Spanish boom. It deserves to be criticised, but it is not alone. Successive governments have perpetuated an aspirational dream for a country that was in the economic dark ages only half a century ago. One mistake, aided by the banks, was to break with a traditional cash-based society and replace it with one based on credit, and very easy and loose credit at that. The country’s richness, as evident from a lofty position in the IMF GDP league table, obscures a reality of overdependence on certain industries and a lack of competitiveness.
There is fortunately some realism coming from the newly elected government, an acceptance that Spain isn’t that rich and that the mechanisms for granting the population the trappings of aspirational wealth were largely built on sand. Within a framework of this new realism, how, though, can Rajoy set about realising his election promises, such as that to reduce unemployment?
I’ll have a look at that in a further article. But for now, and notwithstanding the fact that the Spanish electorate does appear to “get it” where the country’s parlous position is concerned, I’ll leave you with a piece of history. In 1933, Benalup was the centre of an anarchist uprising and a police massacre.
Thank God it's not 1933.
The original "Observer" article:
http://www.guardian.co.uk/world/2011/nov/20/spain-benalup-unemployment-euro-crisis
Any comments to andrew@thealcudiaguide.com please.
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