Will The Circle Be Unbroken? - Unemployment in the Balearics

The psychological barrier has been breached, but the regional government would like to suggest that it has not been. The national statistics office would beg to differ. According to it, unemployment in the Balearics has not only crossed the 100,000 Rubicon, it has embarked on the invasion and is scaling the ramparts. Ok, this is an over-statement; it's not as if a point of no return has been arrived at, but it sure as hell must feel like it to those in the dole queues. The statistics office maintains that the number out of work stands at 112,000, one in ten - approximately - of the islands' population. Or to put it another way, at just under 20%, one in five of the registered working population, and that figure doesn't take account of the self-employed who are also feeling the pinch.

The government reckons that unemployment has peaked. It may have, for the time being, though an improvement in figures is unlikely to show up for some while, until seasonal employment kicks in. Even that, however, disguises the true picture, and that is the lack of employment opportunities which summer work only helps to obscure. Recession has exacerbated the situation, clearly it has, but it has also exposed the fault lines of the local economy - ones that should have been obvious to anyone, even politicians, seduced by the boom times but apparently incapable of counteracting seasonality.

The national government, meanwhile, is flailing around, desperate to find any measure that might reduce its massive budget deficit and to assure the markets that the Spanish economy is not the same basket case as Greece's; oh how the temporarily mighty have fallen. One ploy is to raise the pension age to 67. Fine, assuming there's any work for the 65 year-olds to continue with. Another is to increase indirect taxation. For an island - Mallorca - and a nation for which tax avoidance is a past-time, this is insane. It might, questionably, mollify the markets, but it will do nothing for employment creation.

Mr. Bean is cutting an ever more awkward figure. When elected for his second term in 2008, Sr. Zapatero had promised full employment. There wasn't a hope in hell's chance of that, especially not as the crisis began to consume everything in its path. And even were there "full employment", what would it look like? A few months work as a waiter and then back to the off-season dole queues, paid for by the burdensome levels of social security that are a brake on much employment creation. Were there to be an election now, chances are that the PSOE would be obliterated, bringing into office - by default - the singularly uninspiring figure of the PP's climate-change-denying Mariano Rajoy. You might remember him; he's the one with a relative who holds a position in a university who doesn't reckon much to the climate-change argument, and so Mariano used that as the basis for his own argument. That's about as good as it gets.

But also meanwhile, Sr. Zapatero can at least walk the European stage during Spain's EU presidency term. The central government's science and innovation minister has announced, as part of the programme for the presidency, that research and development and innovation should be at the heart of European recovery. Good for her. Ah yes, innovation, technology, research and development. Now, wasn't there something about all that two or three years back? Not from Madrid, but from the regional government. Whatever happened, do you suppose? Could it be that funding just had to be diverted to bolstering the rust-bowl industries - construction and hotels during time of crisis? Industries that are at the heart of Mallorca's seasonality. And so it goes around, and around, and around, the circle remaining unbroken.

QUIZ
Yesterday: A-ha, http://www.youtube.com/watch?v=oAhY2tV5wlc. Today's title: take your pick as to the circle.

Any comments to andrew@thealcudiaguide.com please.


Index for January 2010

Airport management by local government - 25 January 2010
Association of British Companies Menorca - 28 January 2010
Capdepera alternative tourism - 6 January 2010
Ciudadanos Europeos - 17 January 2010
Constructors unpaid by town halls - 26 January 2010
England versus Mallorca in winter - 4 January 2010
English standards in Mallorca - 23 January 2010
Environmental care, lack of - 15 January 2010
Fiestas - 14 January 2010, 15 January 2010, 16 January 2010, 19 January 2010, 22 January 2010
Francesc Antich - 13 January 2010, 25 January 2010
GOB - 30 January 2010
Hiper car rental in administration - 29 January 2010
IVA increase and tourism - 21 January 2010
Jardín restaurant, Alcúdia - 5 January 2010
Miquel Capllonch - 10 January 2010
Miquel Ferrer's tourism boldness - 22 January 2010
Miquel Llompart, new mayor of Alcúdia - 9 January 2010, 18 January 2010
Muro golf course - 29 January 2010, 30 January 2010
Pi de Ternelles accident - 19 January 2010
Pollensa street cleaning - 29 January 2010
Real Mallorca - 5 January 2010, 15 January 2010
Sant Antoni - 14 January 2010, 15 January 2010, 16 January 2010, 19 January 2010
Sant Sebastià in Pollensa - 22 January 2010
Santa Margalida town hall - 8 January 2010
Smoking law, new - 5 January 2010, 20 January 2010, 21 January 2010, 22 January 2010
Thomas Cook advertising - 12 January 2010
Three Kings - 7 January 2010
Tourism a priority - 25 January 2010
Town hall information provision - 16 January 2010, 18 January 2010
Town hall spends - 11 January 2010, 26 January 2010
Unemployment in the Balearics - 31 January 2010
Unió Mallorquina new leader - 5 January 2010, 27 January 2010
Webcams and surveillance - 24 January 2010
World Cup song - 19 January 2010
Zapatero and the price of coffee - 21 January 2010

Fiddle About

Economic woe follows the British tourist and lands with him at Spain's airports. There may be more sun in Spain, but the clouds of economic hard times are as in evidence as they are in the UK; indeed, more so.

There was a fine article in "The Bulletin" yesterday; fine, that is, if you like your economics reporting coloured by imagery of doom and gloom. "The Spanish economy is in for a ferocious fall." "It's going to suffer more than Europe and take longer to recover." There is nothing necessarily that new in the article, but it does act to emphasise both the sudden decline of one of Europe's golden economies and the structural impediments to turning that economy around on anything more than an ever-deeper lake of debt.

According to the IMF, Spain is the developed country that will be "hardest hit" by the credit crunch. And it's not difficult to understand why. The reliance on construction, as a driver of the economic boom, has turned to a millstone, with construction companies unable to get the credit they had long used and the housing market all but drying up. There are, of course, those who fiddle while the country may not exactly be burning but is at smouldering point, and insist that all will be fine, including President Zapatero, but his predictions for growth are at variance with those of the IMF, which forecasts stagnation. And the problem is more than the fiddle-playing of wishful thinking, it is the fiddle-playing that drowns out the noises calling out for structural improvements that would give the country a truer sense of economic well-being, rather than what it has known - which is one based on low-skill sectors, such as construction, and all that Brussels benevolence. An extra whammy awaits in the pipeline for Sr. Zapatero: further interest rises imposed by the European Central Bank.

To place the current economic malaise in a Mallorcan context, it is difficult not to be even more pessimistic. To return to a previous theme on this blog: the Mallorcan economy is sustained by two main sectors - tourism and construction. The latter is suffering as elsewhere, but the fiddle-players can point to the value of the luxury housing market to cover up deficiencies. The tourist sector will probably enjoy a year as good as 2007, at least in terms of overall numbers, and so the fiddle-players will say all is well. But both sectors are essentially low skill. There is, or has been, a complacency that these sectors can continue to fuel growth, while quelling any impetus to seek ways of shifting to a more diverse and competitive economy based on higher skills and also higher salaries. Recently, there was a call for the local government to set about a new round of construction in order to assist the flagging economy. This is economics of the madhouse. There may well be a need for social and affordable housing and also for further civil construction projects, but where does the money come from? More borrowing. Mallorca is but a part, but Spain overall has the second-largest current account deficit in the world. To seek a remedy in yet more construction would be to compound the economic problem that already exists while simultaneously papering over the cracks of an unbalanced economy. Among other sectors of the local economy, agriculture for example, there is also uncompetitiveness. The island's almond-growers have seen their market attacked by California, hardly a low-cost producer. The key to this has been the use of technology. In the same way that Californian wine producers exploited technology to attack the French wine market, so have their almond-growers. Technology and skills.

One has a sense of unrealism about the local economy, and about much of the country's economy. European development funds have been both an advantage and a disadvantage. They have created the grounds for the economic boom but they have also seem to have acted as a disincentive to establish a more meaningful economic basis - one of skills, competitiveness and productivity. One wonders just how far the island has really progressed. And I come back to that observation (17 April: "Wonderland") about Puerto Pollensa and about kids' futures in a place where they enjoy a laidback, beach upbringing and believe that to be their futures. There has always been the beach, and for the last couple of decades a nice open cheque from Europe has made the beach even more agreeable.

The local government does at least seem to "get it" in that they have a plan, albeit vague, for innovation and development. But then, on the other hand, there's the language issue. Is competitiveness really compatible with a bias towards the local language?

It is hard, at times, to avoid an image of wanting the cake of the playa, the fiestas and the traditions and to eat it too, with the bread and jam of easy credit, whoever supplies it. When I talk about progress, I mean the extent to which society here is fronting up to the nature of the global economy and its role in it. This weekend, many Mallorcans will decamp to Menorca for Sant Joan, and thereafter the summer is one round of fiestas. It has been easy to maintain all this tradition and all this party so long as the credit line is long. But maybe that party is coming to an end.


QUIZ
Chain - "Man On The Moon" to "Moon River" to "Breakfast at Tiffanys", which was the name of the song by Deep Blue Something. And what links breakfast to Paul Young? Yesterday's title - Jack Nicholson. Today's title - where's this from? Had it only recently.

(PLEASE REPLY TO andrew@thealcudiaguide.com AND NOT VIA THE COMMENTS THINGY HERE.)

The Party’s Over?

The gloom that has descended upon the Spanish economy could be the shroud of potential defeat for Sr. Zapatero at next month’s election. The PSOE has enjoyed the sunshine and sangria of an economic summer for much of its administration; now it faces a winter of cloud and flat cava. It’s rotten timing if you happen to be a socialist politician. Record rises in monthly unemployment, the largest fall in production for some six years, the largest fall in service-sector activity since the end of the last century, inflation at its highest for 12 years and consumer confidence shuffling along the floors of shopping malls like an impecunious bag-woman. It doesn’t get much worse, unless you add in independent forecasts for growth, a percentage point less than that dreamt up by the Government. The credit squeeze has compounded the problems of debt in key sectors such as construction; mortgages have risen along with the costs of utilities and petrol; employment in the tourism sector cannot compensate for the loss of building jobs. And yet none of it should come as a great surprise.

The PSOE may still have a lead in the polls, but the economic indicators are a godsend to the PP, even if the Government can point, with some justification, to the effects of European Central Bank policy and US sub-prime imperialism. The electorate though, seeing deterioration in household budgets, may not be inclined to take such a sympathetic view.

Slowdown in the Spanish economy and the threat of recession hang malevolently over Mallorca’s 2008 tourist season. The “record numbers” of tourists of the past two years were skewed by a significant rise in mainland Spaniards. Perhaps the only good news is for the likes of Alcúdia and Pollensa in that most of these visitors congregate around Palma. The bad news is that Spain is far from alone in its economic woes.


QUIZ
Yesterday – The Doobie Brothers. Today’s title – take away the question mark, could be a number of things but I’m looking for an album by a great ‘80s band.

(PLEASE REPLY TO andrew@thealcudiaguide.com AND NOT VIA THE COMMENTS THINGY HERE.)

Thanks, Mr. President

Spain will hold a general election on 9 March. I can already hear the presses being cranked up with the “Vota” posters.

There are two parties that matter in Spain – the PSOE (Partido Socialista Obrero Español) of the current ruling Zapatero administration and the PP (Partido Popular) headed by Mariano Rajoy. Left and right, well sort of. There is a third party, the smaller, communist-led United Left. In addition, there are innumerable other minor parties and groupings, among the more significant being regional parties in Catalonia and the Basque country.

The election promises to be close. At present, the PSOE holds a three percentage point lead in the polls, though Sr. Zapatero enjoys higher personal satisfaction ratings than his main opponent. It could be that the election comes down to this personal popularity.

Jose Luis Rodriguez Zapatero was launched into presidential office* by surprise, his included. On winning the 2004 election, not only did he look like Mr. Bean, his body language and demeanour were those of an awkward and shy person with a sheepish grin that suggested he was thinking “what the heck do I do now?”. Prior to the win, he had tried – unconvincingly – to do a Mr. Angry act in parliamentary exchanges. There was and is something endearing about him, like a bookish and meek schoolmaster attempting – generally unsuccessfully – to appear tough. Like Tony Blair, he once had the sobriquet “Bambi”. But politicians don’t rise to head political parties without there being some substance, unless that politician happens to be Iain Duncan Smith.
(* The position is President, though in the UK it is common to refer to the Spanish leader as Prime Minister.)

Zapatero is a sympathetic character. Rather like John Major, for any failings, there is a feeling that he is a decent enough bloke, and he has not been exposed with his pants down (or up) with a female member of government. Mariano Rajoy, on the other hand, attracts little in the way of sympathy, albeit that, in the aftermath of the defeat in 2004 when as Jose Maria Aznar’s anointed successor he stood to be the next president, he cut a sad and forlorn figure. And that’s just it with Sr. Rajoy. He looks sad, or is it miserable? Perhaps it’s something to do with the beard. Zapatero’s face can crack into a boyish and somewhat mischievous smile, but Rajoy just looks Mr. Grumpy.

Rajoy has done himself few favours with his absurd categorical rejection of climate change. Certitude in a leader may be an attribute, but not if it is plain wrong. The environment is unlikely to be one of the bigger issues in the election, even if the Government, via its coastal reclaim and demolition plan, has indicated the importance of environmental concerns. But it remains to be seen whether this is just political posturing in currying favour with the environmental lobby.

The election is likely to be fought on two major issues – the economy and terrorism. Spain’s economy has thrived under Zapatero (as it had done under Aznar), but the election’s timing is unfortunate for him. Uncertainty that has clouded the otherwise sunny economic sky is largely not of the Government’s doing nor necessarily within the Government’s control. The European Central Bank’s raising of interest rates was the first cloud, and inflation has stubbornly resisted this. The housing market is in a general downturn, and there is significant indebtedness within certain sectors of the economy – construction not least – and at the consumer level. The US-led credit squeeze was a double whammy on top of the ECB’s intervention.

Terrorism, it is claimed with justification, lost the PP the last election. Or, as importantly, the then Government’s reaction to terrorism lost the election. The Madrid bombings occurred three days before the 2004 election, and Aznar chose to finger the Basque terrorists ETA as the perpetrators. He was of course wrong.

Zapatero had appeared to be making headway with a solution to the Basque issue until ETA broke its truce last summer (which had been effectively ended anyway by the bombing of Madrid airport). The truce had, all along perhaps, been a camouflage for ETA to regroup, and ETA could yet influence the result of this year’s election. It has been argued that Zapatero’s withdrawal of troops from Iraq suggested that he was less than tough on terrorism, and it may (stress may) have triggered a green light to ETA to eventually resume its activities. No one can know for sure. It is a matter of record though that Zapatero opposed Spanish military action in Iraq and that he questioned the legality of the invasion. However, the troop withdrawal was as much a political move for domestic consumption as anything else, a rejection of Aznar’s elevation of Spain into the international arena in support of Bush and Blair, for which he (Aznar) was mercilessly mocked by the Spanish equivalent of “Spitting Image” as “Tony’s little friend” in the style that David Steel once was.

Whether one accepts or not a sort of terrorism-lite approach by Zapatero in any link between the Iraq troop withdrawal decision and subsequent ETA activity, there was a widely held feeling that the withdrawal was at least partly due to the threat of a further outrage by Al-Qaida. As a participant in the fall of Saddam, Spain placed itself in the sights of Bin Laden and his network of cronies (and succumbed to them in the form of the Madrid bombings).

Another issue that may play a part in the election is the Government’s relationship with the Catholic Church. There has been disquiet in conservative religious circles at certain policies such as those regarding same-sex marriages and abortion. But abortion remains subject to strict criteria in Spain, and recent police activity against clinics alleged to have flouted these criteria does not suggest a general softening of approach. The hold of the Catholic Church over the Spanish people is not nearly as strong as one might imagine. Less than 20% of the population attends church on a regular basis. Economic development of the past two decades has made Spain an altogether more secular society. The Church may still have a say, but its voice is heard by fewer and fewer.

Where the Balearics and Mallorca are concerned, the maintenance of a Socialist government in Madrid should be beneficial in that both the national and regional administrations will continue to be governed by leaders of the same party. Zapatero has indicated that more from the central coffers could be coming the Balearics’ way if he wins. Vota PSOE in the Balearics, vota more dosh. Maybe.

Personality counts for so much in current-day politics. Zapatero may not be a Felipe González, a flamboyant Socialist leader and arguably Spain’s pre-eminent post-Franco politician, but he is regarded with some affection. The economy may be the main battleground, but the fight between a likeable politician and a dour one may yet prove to be critical. Likeable versus dour. Now where have I heard that before?


QUIZ
Yesterday – Gene Vincent. Today’s title – no way indicative of my support or not let me point out, and no prizes for knowing Marilyn Monroe, so something easier as a follow-up to yesterday. Who sang “Sweet Gene Vincent”?

(PLEASE REPLY TO andrew@thealcudiaguide.com AND NOT VIA THE COMMENTS THINGY HERE.)

I’m Forever Bursting Bubbles

Has the property bubble in Spain finally burst?

The stock market took a dive a while back as investors sold property stocks in anticipation of an end to the boom. And now it seems as though the harsher realities of the market are about to hit home. I spent some time this morning speaking with some local estate agents. There is some “difficulty” was a comment on more than one occasion. For difficulty, read lack of sales.

Fact is that there is a glut of speculative development, a general view that property is overpriced, some concerns over legalities and also interest-rate rises.

Much of Spain’s recent economic boom has been based on the construction sector. The downturn in the market threatens, it is said, two out of five construction companies. As the boom has lasted, more and more players have come into a market - across the sector - eyeing strong returns. But no boom lasts forever.

Despite this, it is also being said that a drop in prices may not feed through for at least a year if not longer. Perhaps so, but there is one factor that may hasten this. It is not uncommon for people to buy a new house with an existing property (and mortgage) acting as a form of collateral, so to speak. While the intention may be to sell the first property, there has not always been pressure to do so, especially if the market is buoyant and interest rates are reasonable. Take these elements out of the equation, or rather replace them with instability and increased mortgages, and the pressure to sell - at a lower price - becomes a likelihood. It is also the case that consumer debt in Spain is over-leveraged (in other words, people are too stretched, even by comparison with the UK). It may sound remarkable to UK readers who will be aware of the apparently disproportionate house-price to salary ratio, but the ratio of house prices to wages is above that of the UK.

For the potential buyer, therefore, this could all be good news, though the potential volatility - at least in the short term - may mean buyers holding off. Whether this market shift also affects Mallorca as much as the mainland is another question, though - as some estate agents are suggesting - “difficulties” are already in the system.

On the other hand ... Back in 2002 I distinctly recall it being said that prices would come down within a couple of years. It was argued that prices then were inflated, largely as a result of the introduction of the euro. Well, that is no longer an issue, and it could just be that the property market, as then (when prices kept going up), turns out to be more robust than is being suggested. But the euro remains an issue in one very important respect, and this is - arguably - the nub of the whole property story. Spain entered the single currency with an exceptionally low interest rate, which the European Central Bank seems likely to increase. Interest rates have been below inflation rates, thus creating the circumstances for boom.

The Bank of Spain is saying that there will be no crash, placing faith - in part - in the level of immigration to buoy demand. The Bank’s main concern lies with the financing arrangements of the leading construction companies, which also means the lending arrangements of the banks.


Quiz. I’m not letting you off. It’s a great question, yesterday’s, so another day at least ...

PLEASE REPLY TO andrew@thealcudiaguide.com AND NOT VIA THE COMMENTS THINGY HERE.)

N.B. Acknowledgment due to www.ft.com for some information in compiling today’s piece.