I am in Madrid for 8 days. Fon HQ are here, and so is my holding company. I also have great friends, a nice home, and my children who are visiting for Thanksgiving.

I love Spain regardless of the sorry condition the country is in. There is something special, historic, unique about this country. Life here is still good.  The crisis has not increased crime or made life in any way uncomfortable for those who still have their jobs.  But I just wish people here were more focused on getting out of the crisis and less focused on tribalisms and mutual accusations. Most commentary I read says that Spain is in the mess it is in because of something that somebody else did. Few Spaniards consider themselves the reason why Spain is in the mess it is in, but millions who over borrowed and now can’t pay are that very reason. Nobody who I read or speak to says, “well I overextended myself in real estate, I made a huge mistake, I lived beyond my means. I had a choice to buy or not to buy property, to get a mortgage or not get one. And I was ambitious, and greedy, and had a poor understanding of the economy. Now I have to pay and I don’t know how.”

Because in the end the Spanish crisis is the result of millions of individuals and thousands of companies going into debt in order to get homes, second homes, rental properties that now nobody wants. The rest of the economy is working well, but it has to finance the 25% of the economy that is stalled because construction came to a standstill. So credit died for everyone else. For us at Fon, if we weren’t able to raise funds in the USA or the UK we would not be able to grow. But other than an R&D credit we got from the Basque government few have appetite here to finance technology (the Basque region is by far the best managed part of Spain now). If a project does not have a few tons of concrete in it, it just does not get financed. And most times not even those do. All the credit available still goes into the black hole of construction and bad banks.

And on top of this there is now the dismembering of Spain. The parts of Spain that are threatening to become independent. Mainly Catalonia. But the Catalans have an economy that is extremely poorly managed. As badly managed as that of Madrid. The economies of Madrid and Barcelona suffer from exactly the same problems yet the Catalans think they will do better alone. While I respect their desire to try it out, I don’t think they would succeed in a generation. Catalans also have too much reliance on infrastructure as a main source of, first employment and now, unemployment. They also have enormous quantities of uneducated young people who need to be retrained for jobs other than construction. I can only imagine an independent Catalonia adding costs, hiring more people in government, building an army and other non sensical moves that make the financial hole Catalonia is in even deeper. But instead of joining forces to fight similar problems, Madrid and Catalonia are accusing each other of a number of absurdities. It’s as if a couple who had a child with cancer argued rather than focusing on the child. Pretty sad and discouraging.

In the meantime there is the USA in our lives. We moved there at the beginning of September and it’s been absolutely amazing. Teaching at Columbia, expanding my angel investing activities, making Fon grow globally. The atmosphere is vibrant, there is opportunity everywhere I look. It is paradoxical to listen to Americans talk about how poorly the economy is doing. If only they knew how it is in other parts of the world. How a country, a pretty developed economy as Spain, an economy the size of Texas, in which life expectancy is still higher than that of the USA, can put all its eggs in one basket, and go into a death spiral with unemployment shooting from 8% to 25%. The US economy is vibrant, extremely diversified, creative. Yes for decades now the USA has been living beyond its means and that explains a sort of fake growth that occurs when countries say their GDP is going up but so is their total debt. I have always argued that GDP growth should be discounted by credit expansion. In this sense the USA is going through a process similar to that of Spain except that so far it still has credit. The USA has to slowly borrow less, spend less, collect more, close that trillion dollar budget deficit, close the trade deficit. It has to do what Clinton did, balanced the budget, and Bush with his unnecessary wars and credit expansion, destroyed. That is Obama’s job for his second term. But if you ask me, I think he will pull it off especially with the help of this new trend in which the USA, thanks to shale gas and oil, will become energy independent and therefore much more competitive than China and the EU in terms of manufacturing. I see a return of robotics based manufacturing to the USA as a result of cheap energy. I am optimistic that the USA will make it beyond the fiscal cliff.

For Spain the jury is still out. What is missing here is entrepreneurship activity. Yesterday I read that Spain is offering nationality to all the Sephardic Jews it expelled in 1492 when Jews were 10% of the population of the country. This measure is more than symbolic. Something tells me that because if there is one thing us Jews are is entrepreneurial that this country would not have 25% unemployment and 50% youth unemployment if 10% of its population was still Jewish. But now it may be too late. Bombs and all, Israel, the “start up” nation, is a better magnet for Jews around the world than a Spain without credit to get companies started. Until most people in Spain realize that a welfare state is not an inherent human right but something that nations earn as a result of the wealth created by effective entrepreneurial activity, I am not optimistic that Spain will emerge out of the crisis.

Follow Martin Varsavsky on Twitter: twitter.com/martinvars

No Comments

Carolina on November 23, 2012  · 

Hello Martin, I am American and I lived in Spain for 25 years, until last June. I am always interested in what you have to say. I just wanted to make one point: please don’t keep blaming Bush for the economy. You are too intelligent to make this mistake.

“Obama’s average spending is far higher than under Bush or Clinton on both adjusted dollar levels and as a percentage of the economy.”
http://reason.com/blog/2012/05/23/the-obama-spending-binge

“In just one term President Obama will have increased the national debt as much as all prior Presidents, from George Washington to George Bush, combined.”
http://www.forbes.com/sites/peterferrara/2012/06/14/president-obama-the-biggest-government-spender-in-world-history/2/

To really understand President Obama, please see “2016” or read “Obama’s America” by Dinesh D’Souza. D’Souza is a very serious and rigorous thinker, no crackpot. Ignore the shrieks of your liberal friends saying it is ulta-right-wing. There is nothing right-wing about it. It is an analysis, based on fact after fact, which they cannot refute. The reason they insult it is because they have no arguments against it.

I have hopes you might read this because you think for yourself.

Best of luck (not that you need luck) and welcome to the United States.

Martin Varsavsky on November 24, 2012  · 

Bush destroyed America. His administration left the country in the biggest financial disaster since the Depression. Obama had to prevent financial collapse which he did and now has to close the budget gap which he is likely going to do.

Dani on November 24, 2012  · 

Martin, I am half s

Carolina on November 24, 2012  · 

Thanks for your reply. That is indeed the party line.

Lenox on November 24, 2012  · 

Spain has a bad reputation in other European countries for its bad buildings. People have seen the TV shows and read the news reports. Hundreds of thousands of homes are illegal, meaning they are unsaleable, have no water or electric, and are often inhabited by indignant northern European retirees. Many more homes, ‘brand new, never used’, were built five or more years ago and have been poorly maintained; many more (usually bank owned and discounted) are offered in the wrong area (outskirts of cities, for example). The mortgage system in Spain is terrible – where the bank forecloses on a house, evicting the tenant, it still claims the full debt from the tenant (plus staggering legal fees). Many homeless people owes hundreds of thousands of Euros. How will they ever get going again?
Spain is a terrible place to work but a great place to retire to, yet the Spanish authorities, by merely demolishing one house in January 2008 (Helen and Len Prior, in Vera, Almeria – the Priors, a retired couple, have lived in the ruins ever since, as seen by millions of British TV watchers), lost a gigantic amount of potential income for its impoverished southern rim as Europe’s ‘Florida’.

Adrian Maestrin on November 24, 2012  · 

On the topic of recent discoveries of shale gas and non-conventional oils in the U.S.A., I partly agree with this Spanish blogger (text just in Spanish, sorry), especially in the fact that these discoveries are being deliberately overrated in order to push confidence in the American Economy: http://haciaelcolapso.blogspot.com.es/2012/11/2-entrada-del-dia-que-esta-pasando-96.html#.ULFIyK3fuf0

Adrian Maestrin on November 25, 2012  · 

Not all of Jews were expelled from Spain… some remained hidden in Northen Spain, as my ancestors (Asturies). Anyway, most of them either mixed with natives (as in my case) or kind or lost their identity… so in the end…

I’ve always wondered whether it wouldn’t have been better to flee from Spain…
And by the way, I’m a Civil Servant myself, so you’d definitively consider me not even “partly Jewish”… 🙂 .Anyway, I hold more stock-options than I should, so there’s still some room for (Jewish) hope, I guess… 😉

keefieboy on November 25, 2012  · 

Interesting you put all the blame on the borrowers and none on the real villains, the lenders. As I understand it, lending institutions in the Western world never factored in the possibility that property prices would fall. Add to that the insanity of the ‘investment’ arms of the major banks: we saw some of what happened. However, the big banks are still going, while ‘normal’ people are stuffed. Governments are stuffed. Investment and retail banks need to be separated, and no Government will be allowed to bail out these casinos.

Linda on November 25, 2012  · 

You make some great points in this article. As a US citizen married to a Catalan and living in Spain I cannot believe people are not outraged at the massive barriers to entry to starting a small business here. In the US almost every friend and family member I have has some sort of a very small to growing large business that started as just an idea, as something to — to make art, jewelry, consummables and then each grew (or did not grow) accordingly. In Spain the 250 Euro / month ‘Autonomo’ fee makes this a virtual impossibility unless of course everything is (and so much of it is) done on the black market. In the US, the barriers to entry to start a small business practically do not exist. Small business is always saving the a** of economies and I think this issue deserves almost more conversation and resolution than any other.

Adan on November 26, 2012  · 

You can only blame the borrowers so much. Why not criticize the faulty lending standards? If you ask me, that’s what put Spain in the mess it’s in. Truth is, joining the euro-zone made credit so cheap, the banks refused, or didn’t know how, to properly manage their lending because they were making too much MONEY. Recent arrivals from South America with no income history or credit in Spain were able to purchase apartments for 300k+ by just working as laborers. Ridiculous if you ask me..

I don’t see how a Jew will be able trace lineage to 15th century Spain. Perhaps it’s just a gesture to attract capital?

xl on November 27, 2012  · 

1st- Caroline the expending of Bush was done in military industry, so don’t expect returns on this. All the expenses in his wars are the worst investment that he can made; not because you will not see any return on it, but also because of this “investments” it creates more defense expenses.

2nd- Spanish Goverment provides nationalty to sephardies for an unknown reason. It’s a big stupidity… In the past Cathalans have done something similar, and it finish with a judge discovering that the eastern mob’s used the facilities to introduce people that doesn’t have any jewish gen. In many cases where members of the mob, womens to be used as prostitutes, and people who paid them…
There is much better ways to compesate them. That create an anarchic system easy to cheat.
Just Another example of poorly management of this goverment… (Like that who invests 160k will have the residence… Iberoamericans, Philipines… Only need 2 years of residence to obtain the nationality… After this they sold the apartment, recover the money, and they will have the rigth for free public Health, non contributive pension -= minium wage + pluses-, Economic help -450€ monthly- So this plan can create more Public expenses…

Pep on November 27, 2012  · 

USA energy independent? I cannot stop laughing. I agree in many other points of the post though. Thanks for sharing your thoughts and for taking time on writing this blog. Salut!

PRS on November 28, 2012  · 

Regarding the comment about some Jews left in the north of Spain… There are also some Jewish cakes in Orense: http://blogs.elpais.com/el-comidista/2012/11/dulces-judios-sefardies-tahona-herminia-.html

watch the throne on November 30, 2012  · 

Hi, just wanted to mention, I loved this article.
It was helpful. Keep on posting!

joana on December 3, 2012  · 

The problem with spaniards is that when there is a problem, they start blaming each other making an additional problem. That’s why I married a japanese and left spain recently.

moisesszarf on December 11, 2012  · 

Very Interesting insight about Jewry in Spain, and how the country might be in better shape economically if Spain had not expelled all it’s Jews during the Inquisition. A courageous comment too. Commend you for it.
Moises Founder of Startropica.com

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