For Spain to avoid default in its national debt two unrelated events must happen: one is that EU guarantees Spanish national debt lowering country risk, and the second one, which is even harder,is that Spain regains competitiveness.

Regaining competitiveness is the biggest challenge for Spain. To achieve this the country must focus on liberalizing its growing companies. I propose that all start ups be given 3 years in which their employees do not pay social charges nor receive forced severance pay in order for government to recognize the risks that VCs and entrepreneurs take in investing in new companies. This would be applied in start ups of up to 10 people and only while they are not profitable so it would have a negligible effect in the social security system overall initially and hopefully a very positive effect when start ups begin contributing. For those unfamiliar with the system Spanish social charges plus all other taxes, these can take up to 45% of what a person who costs €3000 per month to a company takes home. But so far PP, the conservatives now in power, has done little for new and growing companies focusing instead on measures that make firing, not hiring, cheaper.

I am normally quite an optimistic entrepreneur but right now I am sorry to say, I am not. We can still avoid the perfect storm, but it looks harder every day. Still as we know markets do turn around, and if Spanish unemployment numbers turned around, so would financial markets.

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Joan Carles on June 29, 2012  · 

In may opinion (engineer, 44, spanish born) there is an excessive trust in the tourism sector. This not only takes resources that could employed in other industries but also exports an image of ‘beach, paella and sangria’ that doesn’t help at all atracting investors (*). Also, most of our better educated professional (most of them studied in public universities, that is, with people’s tax money) are going abroad looking for better salaries (just moving to France and there is already an important difference) or for better companies or projects. This is, I think, a strong vicious circle that keeps this country being the ‘beach and bar of europe”.

(*) Once I was in Tokyo, my wife’s city, it happened to talk a little bit with a japanese… He asked me where I was from, and I said Spain. He said: Oh, Spain, soccer!! And I replied: yeah, but I don’t like soccer, sorry. Then he said: mmm, Spain, bullfight!! – And I said: yes, but me and many people think bullfights should be banned. And he didn’t said any more. That was all he knew about Spain.

EnglishDragon on June 29, 2012  · 

I agree with much of what Martin (and indeed Joan Carles) wrote. I think though we have to lose this use of the word “competitiveness” as it clouds the issue too much. I’m sure that Martin’s workers at Fon are as competitive as anyone elsewhere, and they probably earn less than equivalent people in London or Silicon Valley. Just this week Cobham announced it was moving work from England to Getafe, as it would be more efficient there. I think there are various aspects to this “competitiveness” and of course Martin means the bureaucratic hurdles, rather than the skills or wage levels of the workers. In fact there is an incredible amount of underused talent in the Spanish population, and as Martin says, if the PP could actually show some focus, and indeed some ‘cojones’ in getting the workforce back in gainful employment it would solve a lot of the economic problems. They also need to be more pro-active in encouraging companies to relocate to Spain, to take advantage of an educated hard-working workforce – and yes, I know Martin has mentioned this before, also. Companies like Nissan, Honda and Airbus invest in factories in Spain because they know the skilled workforce is there – this needs to be promoted better, as many from outside only know Spain from a holiday experience or watching football (as Joan Carles points out).

memyself on June 30, 2012  · 

I think lots of people can misunderstand the term “competitiveness”, considering the image of Spain as a bunch of lazy people that some countries have. The issue described in your post, Martin, is just about “fiscal competitiveness”, is a matter of politics, so it’s just an arbitrary decision made by a government which is blind in terms of enterprise and entrepreneurship. I thought this should be warned, because describing a lack of “competitiveness” in Spain can lead some people to think that Spaniards are lazy, as I said before, and that’s not true:

The GDP generated by hour worked in Spain is similar to that of Switzerland or Japan. That means that every hour of work in Spain produces as much wealth as other countries commonly considered as “competitive”. The problem is essentially about our mediocre politicians and legislation. Which is ridiculous, because a law is only a paper.

Joan Carles on June 30, 2012  · 

I’m shocked about knowing the GDP/h of Spain is even slightly over that of Japan. Being married to a japanese and having been to Japan quite a number of times, I really believe now there must be something wrong with this. One example everybody can check: here people buy illegal copies of movies in the street (“top manta”) for 5 euro (I guess, I never did it, as my wife is a cinema professional and she’ll never accept this) while in Tokyo a cinema ticket is 1800 yen (some 18 euro), so that number (GDP/h) can reflect things, but I sincerely doubt it reflects people’s wealth. I’ll check again this august how Ginza streets are as animated as always with luxury and brand shoppings and how people go to izakaya (pubs) in the afternoons and drink beers at 600 yen (6 eur) each as glasses of water.

One think should be noted: “It is calculated from unpublished (as of September 2010) 2005 EKS PPP estimates from Penn World Tables (PWT 7)”. This is about the golden period of the ever-rising real estate in Spain. I really wonder where would Spain score with 2011 data.

But this post is about national debt, and this is the money the central bank makes “out of thin air” and lends to banks that lend it again to companies to make business, get profit, pay salaries and return back to banks and then to central bank. For a couple of decades, people was crazy buying real estate not looking at the real value of it but just looking at how price was rocketing, banks were very happy making business lending that money for these over-priced flats feeling they were safe as they were “too big to fail” an also local and central administrations having an increasing income for these transactions. Everybody was feeling like getting rich but without creating any good or services to the society, that’s the mistake. There cannot be any real wealth if there is no real work (production of goods/ services).

This is now over, there is no more rise and no more dream. Banks are not being payed the mortgages and properties’ price have dropped. That’s the whole to fill now. Other countries victims of the real estate bubble, like the USA, have other strong economic sectors, and can balance their economies as they are doing. But Spain, after the “ladrillo” boom, the biggest sector is the tourism. And this is part of our problem, this sector is already saturated. We cannot put more hotels near the beach, more restaurants, this will not make more money, just will create more competition, lower prices and salaries but altogether the same or even less wealth.

The solution is to focus our wealth generation in other industries. USA, Germany and Japan have strong industrial sectors and are coping well (better than us) this world crisis (I have another definition, but let’s use this common term). Industrial plants work all the year round, not only in the summertime and its location is not limited to the seaside, in this way we could employ this fantastic workforce of nearly 6 million of unemployed and stop the bleed of educated professionals going abroad with their skills and colaterally making this a country of waiters and shop assistants.

carlos on June 30, 2012  · 

#4 The GDP per worked hour is shocking, but I think that’s because of stereotypes regarding Spain, which is indeed the issue #3 is referring to with his comment. You can see the list and check that other countries that suffered from a financial bubble, like Iceland, Ireland or even the USA, have positions that wouldn’t seem out of place. So, why is Spain’s bubble responsible for such a high position but not the bubbles in other countries as well?

Joan Carles on June 30, 2012  · 

carlos, that’s the point!!!!! For two decades the construction was the “motor” of our economy, swallowing all the money from the banks. In other countries, they had other important sectors and banks made businesses with mortgages and other activities, that’s why they are not so bad as us.
One measure of how important was the construction for our economy is the unemployement rise from 8% in 2007 to 24% nowadays, from here:

Now what? this labour force should be employed in something else, not only to have income but also to sustain the state’s economy and pay for the financial hole – but is that people working? No – Why? There are no alternatives, there is nothing else!! no industry, no self-employement, no entrepreneurship, no skils, nothing. That’s our black hole: we played all to one number, the lucky number of making easy money with bricks you could buy, use, and sell older and used and still make money.

Adan on July 4, 2012  · 

The US is the wealthiest country in the world, and when you get fired you get –> $0.00. You look for another job and collect a small amount of unemployment. This whole severance pay scheme (45 days or 33 days or 20 days for every year you work) is what is killing the job market. Let’s say business does come back a bit, biz owners will still be hesitant to add jobs because they might fear that they’ll have to pay out if biz turns down and they have to fire. The PP needs to grow some balls and make the radical changes to get the country back on its feet, even if it costs them 3 months of strikes by those bastard sindicatos that don’t understand how economies work.

Time is running out. The politicians are buying time by refinancing debt with more debt. I don’t think the Jim Rogers “financial armageddon” will happen, but I do believe the eurozone will fall apart, eventually. Martin, I bet you’ve already sent lots of your cash to Germany and the US in anticipation of the inevitable. You were in Spain during the golden years and made a fortune. It’s time to move on…

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