Leader, 19 Feb 2010.
Spain. The only economy in Western Europe still in recession. Unemployment has risen to more than 4 million (about 20%), and there are fears that Spain could end up with a financial crisis worse than Greece's. But now Spain now has someone to blame – the press. Yes, the Spanish intelligence services are investigating the role of British and American media in causing financial confusion and turmoil. This follows claims from Prime Minister José Luis Rodríguez Zapatero's socialist government that speculators and newspaper editorial writers had launched a concerted attack but without any apparent examples to show anyone.
The comments upon which this article was based really annoyed me!
The question I am asked more than any other is ‘What is happening to Spain?’ This issue affects hundreds of thousands of British people. Those with houses there. Those who like to holiday there. Those who saw Spain as a good investment location. And, of course, the many of our clients who do business with Spain.
I have been dealing with Spain for 25 years. During that time I have dealt with thousands of transactions of various types, from setting up businesses to buying holiday homes. Here is my take!
When I first started to work in Spain, many parts of the country were still almost third world in their levels of development and, certainly, second world in their levels of wealth. It was only 10 years after the death of Franco, during whose 40 years in power Spain had fallen further and further behind the rest of Western Europe.
Then, in the eighties, they began to benefit from a massive property boom fuelled by the millions who had enjoyed holidays in Spain and who could now afford a piece of their dream. Behind them came the thousands of businesses needed to sustain such an ex pat community. This generated huge wealth, often in the areas which had previously been poor and which were still administratively under developed.
The boom continued for many years – probably until about 2006, though some would say 2007. The Spanish government, belatedly, recognised the development potential associated with this residential tourism. It had dreams of becoming the California of Europe, where the millions of baby boomers from the cold and wet north of Europe would choose to retire and where those lucky enough to be able to choose where to work would set of their high tech/high profit enterprises.
This was a good plan. But Spain had become expensive and people had become increasingly frustrated with – and unwilling to accept – the administrative inefficiencies and the whiff of endemic corruption which affected their daily lives. This coincided with the opening of new (and, often, much riskier and more corrupt) markets which drew away many speculative ‘investors’ in the hugely over priced Spanish property market, which promptly collapsed.
Property had become a huge part of the Spanish economy in which other areas had also grown, backed by high amounts of debt. Although the rest of the country and trhe economy had developed almost beyond recognition, Spain was in big trouble.
Then came the global recession and it was, almost, adios & goodbye!
Fundamentally, however, the Spanish plan of the 1990’s was a good plan. Spain has the most reliable ‘good’ climate in Europe, especially during the winter months. It is easy to get to, with hundreds of flights every day. People still want to live there. They have money and will pour it into the Spanish economy – which, of course, also needs to keep on developing in other areas. So what has gone wrong?
Basically, each and every time there has been a crisis affecting the expat communities, the government – at whatever level – has made the wrong decisions. Most damaging has been the fiasco of people losing homes bought with the benefit of (what boil down to) forged building licences. Corrupt town hall officials lined their pockets. The consumer lost out. But instead of the government ‘stepping up to the plate’ and accepting liability for this disgraceful situation, it did little or nothing of use. Ten years’ later, people are still losing their houses.
Today’s story epitomises everything that is wrong about Spain. Until these things are resolved, in my view, the Spanish property market and the growth of the expat community are going nowhere.
Of course, prices have fallen so far – over 50% in some cases – that some are tempted back by the prospect of bargains. This includes many of our clients. But until these fundamental issues are resolved – credibility, administration and cost of living – I think there is little prospect of the retirees returning in large numbers or the tens of thousands of empty houses on the costas finding buyers.