The new strategy of the tech giants in USA is to make a living of what is unique about your company and give the competitor’s key product away for free.
Google does this to Microsoft with Office, Amazon does this to Netflix with free movies for prime customers, Google does this to Facebook with Google+ which surprisingly has no ads, Google does this to Apple with Android, Google does this to Microsoft/Skype with Google Talk, Amazon does not give the Kindle Fire for free but it is going after Apple with iPad at a huge discount. Now one of the reason’s Apple continues to be the most valuable company in the world is that they don’t give anything away for free!
In the midst of the euro crisis I would like to share a contrarian view. As opposed to most I am actually optimistic on the euro, and while aware that the euro project may actually implode, I think the opposite will happen and the euro will come out strengthened as a result. Now what I am less optimistic about is how long it will take Southern European countries to reinvent themselves, and in this article I will focus particularly on Spain but many of my arguments apply to Italy, Portugal and Greece as well.
In the case of the Euro I believe there are two possibilities. The first is the abyss, a return to the old times with a fragmented Europe where each country has its own currency. The second, more optimistic scenario, is a new Europe that is more united and better organized, with clear rules. I believe the second scenario is more likely simply because these past days the yield on German 10-year bonds was higher than that of the UK for the first time since 2009. This was a wake-up call for the German government, which is finally realizing that the country is not immune to the crisis and that the market is no longer unconditionally willing to purchase their bonds. This is not happening because Germany is a bad debtor, but because German debt is issued in Euros, a currency with an uncertain future. And as soon as German politicians start paying more to finance their country’s debt and are forced to provide less social services, they will change their current course and help shore up the Euro. At the same time, and I see this as something positive, the Germans will insist that the new Europe become more German, with rigorous controls in place. They will also create a real European Central Bank, a lender of last resort that will provide liquidity as the Federal Reserve did in the USA, but within a system of rules that will control the level of public and private debt within the EU.
So while aware of the perils I am positive that we will not see the Euro collapse, and that Spain and Italy will again be paying around 3% for their debt in a matter of six months. This is why I believe that buying Spanish and Italian bonds at 7% may very well turn out to be a good investment. I also think it’s absurd that nowadays people would rather deposit money in banks and earn much less interest than what the government of Italy and Spain are paying to finance themselves. Especially considering that these governments are the ones that take on failing banks.
Once the financial problems of Europe are solved, Spain and Italy will have to deal with a much more complicated issue, namely their lack of competitiveness. In the case of Spain the challenge is the highest unemployment rate of the OECD now at 21% and on its way to 23%. And the main reason for this unemployment rate is how un-competitive most Spanish employees, politicians and businesspeople are, compared to those of other countries. Spain, while leading in a few industries related to construction and infrastructure, is mostly a laggard in every other sector. As the current rankings by the World Bank show, Spain and Italy are not very competitive in terms of the overall ease of doing business (Spain is 44th, Italy 87th). And it gets even worse when looking at the ease of starting a business, in which Spain occupies the 133rd spot on the list and Italy the 77th. As comparison, the UK is 7th and 19th in the two respective rankings.
I spend a third of the year in Spain, and the other two thirds in the rest of Europe, the USA Latin America and Asia. Building a global business allows me to realize that there are problems pertaining to Spain that are intrinsically Spanish. At the same time, there are a number of Spanish virtues that are intrinsically Spanish and will help the country get out of the crisis. For example, Spanish people are less likely to believe in utopias and know how to tighten their belt during tough times. They are also more realistic as voters and citizens. Zapatero was bad, Rajoy is mediocre, but at least Spain does not elect a crook like Berlusconi as president.
However, one of the biggest flaws of the Spanish culture is its difficulty to produce excellence, and excellence is the only thing that will lead to recovery of Southern Europe in the long term. I could give many examples of this, but the most obvious one are the Spanish universities that are incredibly bad on an international level, they don’t show up in any of the meaningful rankings. Spain has the 12th largest economy in the world, yet it has nothing to show for in the educational field except for some private universities like IE and IESE. In the last decades, we haven’t received any Nobel Prizes in scientific disciplines, and we haven’t made any important scientific discoveries compared to France, Italy and Germany. Neither does it have a high level of technology, nor is able to live off our own innovations. The lack of excellence is a cancer that afflicts the entire Hispanic culture. Imagine how the world would be if tomorrow it decided to live only with what has been invented in Spanish?
In Spain we have a population that is not well educated enough to compete in a globalized world. A huge portion of the population is only prepared for one of two industries: construction or tourism. One of the industries, construction, is already dead. The other industry, tourism, only creates seasonal and badly-paid employment. I believe that if someone were to examine unemployment in Spain, they would conclude that most of it is derived by the fact that an enormous part of the population was educated to do something related to construction, an industry that no longer exists and that will never be nearly as big as it used to be. And considering the importance of tourism, the low level of English spoken by the vast majority of Spaniards is a real shame – this is true when it comes to waiters and other staff, and even the Prime Minister-elect, Mariano Rajoy, whose inability to speak English inhibits him from fully understanding the world around him. In Spain it sometimes seems like people take pride in ignorance. It’s hard to explain this unless you live outside of Spain or know the North American, British, French, German, Scandinavian and Japanese cultures of excellence well. It’s as if wanting to be really good at something, wanting to stand out and to be better than the others turns you into a pariah in this country.
When looking closer at the origins of Spain’s problems, it becomes clear that only a small part of the local crisis is related to the international crisis. Let’s assume that about a third of unemployment was caused by the international crisis. The rest, which takes us to the sad figure of 21%, has to do with the lack of training of the average Spaniard, a proper training that could enable them to do something genuinely meaningful. There is also a lack of incentives for companies to make up for the government’s shortcomings in education and adequately train their employees, which would ultimately benefit the entire country. Another problem, and one that contributes to the extremely high youth unemployment in particular, is the forced severance pay system, which hinders young people from being admitted into the workforce. Young people also lack access to housing, as even with the crisis, prices for real estate and rents are still out of proportion and will probably remain at their high levels since so many people are trapped by their mortgages. Being young in Spain is sad. The few jobs this country has are held by older people who are not going to leave, even if this makes the overall situation even worse. That’s why the best are leaving the country.
The underlying problem in Spain, meaning the disconnect between what its labor force can do and what the global market needs, is a problem that will take at least a decade to solve. It’s also a problem that will be solved by companies, if anyone is to do it. But for companies to solve this problem, the government needs to get out of the way. Nowadays, many people in Spain are so-called “mileuristas” – people earning 1000 (mil, in Spanish) euros per month or less. But in reality, the term “mileurista” is a misrepresentation, since a person earning 1000€ per month in fact costs the company 2000€, twice as much as she actually receives. The other half is squeezed out by the government in form of social security contributions, income taxes, value-added taxes, etc. Of course these people also receive many services from the government in return, such as healthcare and education, but the government has already reached its limit as to what it can take away from employees in the form of taxes and how many jobs it can create. The budget deficit is huge, making it easier nowadays for companies to get loans than for the government, in which no one trusts any longer.
In this situation, it’s not that companies need help, but the government needs to stop forcing them to be job creators and agents of the welfare state at the same time. They shouldn’t have to pay enormous social charges for every job that they create, and they shouldn’t have to make high severance payments if things go wrong. What companies need is a government that doesn’t drown them in taxes and other covenants. A government that is laissez-faire in terms of business, at least when it comes to job creation. It’s terrible being an entrepreneur in Spain, I already wrote about the subject, you can be ruined for life as your liability is unlimited. The only thing that compares to this is having a mortgage in Spain, under the unbelievable pro-bank rules that exist here. A person cannot simply give up ownership of the home they used as collateral for the loan, as is possible in the USA, but remain slaves of the bank for their entire lives or until they somehow find a way to pay off their debt. Something has to be changed now to give back mobility to the Spanish so they can move to where the jobs are. In Spain, unemployment is regional – low in the north, and high in the south.
I know that in other countries companies are also required to be social agents, this is the case in the Scandinavian countries, but the difference is that there, companies have a more educated and ethical population at their disposition thanks to the successful measures of their governments. Also the entrepreneurs from those countries are much more educated and ethical than the Spanish. In Spain, the problem of poor education and lack of ethics is fairly widespread: businessmen, politicians and workers are all affected. That’s why this country needs to reinvent itself and change, which could finally happen because of this crisis. Spain lived through decades of artificial growth, partly because the same system used to measure GDP growth falls into the fallacy of considering debt as growth, but this is over and due to the crisis, people are rethinking the system and want to improve.
What Spain needs is a government that doesn’t penalize job creation, so that companies can hire more and take more risks. It’s not so much Spanish companies that are involved in a huge mess right now, but rather the government itself. And only way for the government to fix its problems is with the help of companies, who nowadays pay less for their debt than the Spanish state, a state that nowadays lives on charity from the European Central Bank. If it weren’t for this institution buying Spanish debt, Spain would have no credit since its citizens have lost trust in their government and will not invest their savings in it.
What I hope is that the political party now in power, the People’s Party (PP), will manage to unleash the forces that will pull the country from ruin. Creative forces, forces that help build a new country. The past party, the PSOE, could have done this, but now it represents the status quo; those who are part of the problem, not the solution. It represents big business, big banks, state officials, unions. The PSOE should represent those who are unemployed but want to work, but instead it represents those who have jobs and housing and want to maintain their privileges while blocking out the others. It represents those who do not want to lower housing prices or increase productivity and make us more competitive so that more people could have jobs and housing. It represents state officials who can’t be fired, no matter what they do, and incompetent workers who hide under the concept of “unfair dismissal” that always blames the employer. In Spain, a salesperson who does not close any contract in a month, but works in a team that closes 10 a month can’t be fired for being useless. This happened to me at Jazztel. Even in such a clear-cut case where an employee is unable to carry out his job, the employer gets blamed when he fires that person. This is simply unacceptable. There has to be a way of suspending people, just like there was in school. There has to be a way of promoting the good guys and moving the bad out of the way. There has to be a way of cultivating excellence, of competing on a global level and winning. In Spain there are incredibly good employees. I see this at Fon, which from this country has created the largest WiFi network in the world with a great team. This country has its clusters of excellence, as the case of Fon, Inditex and other companies shows, especially in the sector of alternative energies where Spain is among the leaders of the field. But so far, these are still small islands in a sea of mediocrity. And it’s about time to change this. Building a business in Spain is still a struggle against a society and a government that does not understand the entrepreneur – this is not how it should be.
Now my case
I have 5 children ranging from a few months to the age of 21 years. My oldest daughter, who studies at Columbia University and is graduating in few months, already has several job offers in the United States. But she’s thinking of starting her own business instead. But not for a moment has she considered starting that business in Spain. And why would she, when countries like the US or the UK are welcoming entrepreneurs with open arms. Everything is easier there, and the appreciation for the work of entrepreneurs is also much higher. And herein lies the challenge for Spain’s government. The most educated part of its workforce is drawn to other countries where their skills are highly sought after, and at this point in time there are not many incentives for them to stay in this country. The government needs to prevent a brain-drain by making it much more attractive to work in this country and innovate, both from the perspective of entrepreneurs as well as that of employees.
I came to Spain and started Jazztel, Ya.com and Fon here, but it seems like my days in Spain are also numbered. The governments in Ireland and the UK have been trying to attract me and convince me to move to their countries, and they are succeeding. They know that the new arms race is not won by those with the most atomic bombs, but by those who have the most “atomic entrepreneurs,” entrepreneurs with ideas that create jobs. That everything depends on a dynamic, creative and strong economy. But here, in this country that I love so much and where I raised my older children and now bring up my young, I get insulted for being successful, I get too many people calling me “rich bastard” to feel comfortable, and the government is not putting any effort into keeping me here, grow Fon and start new companies.
In Ireland and in the UK, the Prime Ministers gladly receive visits from and listen to entrepreneurs. Both David Cameron and the Irish authorities invited me over. Here, Zapatero completely ignored all entrepreneurs. But this was not so much his fault. Zapatero saw that the average Spaniard didn’t understand the role of entrepreneurs and businessmen. They don’t see them as what they are, job creators, but as rich thieves. As a result, Amancio Ortega, a national hero, now lives like a “fugitive” in his own country. He doesn’t show up anywhere because being the richest man in Spain isn’t an honor, but a shame, despite the fact that Inditex is the source of tens of thousands of jobs. If he were English, Amancio Ortega would be knighted, Sir Amancio Ortega, and he would receive the same kind of appreciation and recognition as other English or North American entrepreneurs. What Zapatero does by mistreating those who create wealth is to respond to a public that does not realize that unemployment and minimum wage jobs would decline if Spain had many entrepreneurs competing among each other for employees’ skills. As a society, if we keep biting the hand that feeds us, we will go hungry. While we remain a society where future Amancio Ortegas live in hiding or leave the country, we will continue being the champions of unemployment. I hope that the PP realizes this and will do its best to change it. The PSOE didn’t see it, which left us in our current situation. But as most entrepreneurs, I am an optimist and I believe that there is nothing that is so wrong in Spain that it can’t be changed with what’s right with the country. The Spanish people want and deserve something better. I will continue having Spain as a reference for building companies, and depending on how the situation evolves, I will be more or less around this part of the world that I love so much. I hope that Spain will finally realize its problems and, by standing united, will manage to reinvent itself.
Lumia 800 by Nokia, my impressions
Published by MartinVarsavsky.net in Europe with No Comments
I am testing a Nokia Lumia 800 that I got thanks to Hans Peter Brondmo a friend at Nokia. It is a beautiful phone. My favorite hardware right now, even better than an HTC, Samsung or iPhone in terms of look and feel. One hardware drawback though is the lack of a front facing camera which is not Nokia’s fault but Microsoft’s. The Nokia Lumia 800 feels pretty solid, whatever material is made of looks better than the Samsung plastic or the iPhone metal/plastic combination. WP is also beautiful but it does have many missing features that I need. If you are used to Google you’ll be annoyed as WP forces you to use Bing, it makes it very hard to use Google Maps and forces you to use Nokia Maps which have awful graphics although work pretty much like Google maps. There is no app for Tumblr, and the Youtube “app” is a joke (it’s simply a shortcut that takes you to the Youtube homepage). In general, the availability of apps and games is very limited compared to iPhone and Android.
What is great about WP is the Xbox Live integration which enables connectivity with Microsoft’s Xbox 360 console with Kinect. You can see an example of how this works in this video. For all users with a strong interest in gaming, this unique feature should be a strong argument to get a device with WP.
Sharing websites from the Internet Explorer is complicated when you want to share only on one social network (by default it will share simultaneously on Twitter, Facebook and an unknown network called Windows Live, unless you manually select only the network you want). If you live in a multilingual world as me, Swiftkey is the best keyboard for Android to do predictive multilingual typing. WP also has predictive multilingual typing but you have to switch from language to language with a key that is just in the wrong place. At least the iPhone has a globe but Android is best for that. Hitting the right keys on the Lumia when typing is difficult, and it’s disappointing that there is no way of activating haptic feedback (small vibrations) when you type.
Android is very well integrated with Google photos and Google+ and whatever pictures you take go to the “Google cloud”. iPhone has the same feature. WP does not have a photo cloud nor automatically sends pictures to a photo cloud that is good. There is some kind of Microsoft cloud but its workings are obscure to me. Also in iPhone and Android you just log in for Apple and Google but for the Lumia you have to log in to Microsoft and Nokia with two sets of passwords and more accounts to open. People used to have Microsoft passwords, now few do. I have yet to find an app or setting that allows me to easily turn on and off different wireless connections like bluetooth, WiFi or 3G to increase battery life. Now what is great about the Lumia is the short time the phone takes to boot and the overall speed at which apps work.
If Nokia and Microsoft manage to get the 500 or so most popular iOS and Android apps onto the WP platform and correct some of the shortcomings I mention above, their strategy might be successful after all. I argued earlier that Nokia only had a 20% chance of surviving, but after seeing what they accomplished in the past months I now think they have a higher probability of succeeding. It would be great to see Nokia regain some of its old strength. More competition always improves the ecosystem. My last comment is that when I hold the Lumia 800 I wish it ran Android!
In October 2007 I had a 90 minutes meeting with Steve Jobs. It was a very special moment in my career. At Fon we were already partners with Google and I had met most of the key actors in the technology world by then but not Steve Jobs. The meeting was not a success. Steve Jobs then told me that Apple was going to do Fon without Fon. I am glad they never did!
More news is coming out now about this initiative that never materialized at Apple.
As you can see I was very cautious about what I said about Steve Jobs then.
As demand for WiFi continues to grow, we are continuing to grow our network with the help of our community and partners, in fact, we’re having conversations with telcos all around the world.
Other than giving customers the benefit of being part of the world’s largest WiFi community, there are important benefits for telcos when they partner with Fon. The main one is offloading significant mobile traffic through WiFi. This is becoming increasingly important as the number of internet enabled devices is driving an important (and growing) portion of internet traffic. This is why at Fon we are proud of having the largest WiFi network in the world, with over 4.5 million hotspots. With the help of partners like Belgacom, we can grow even more, helping people stay connected regardless of their location.
What each Southern European country needs now is not to spend less. Spending less alone will only exacerbate the recessions and make the countries insolvent, default and leave the euro. This is true even if the cuts in spending are made in areas in which today there is corruption and waste: less spending leads to less consumption and so on. Austerity, if it’s used as the only medicine, could have the opposite effect desired and lead to an economic depression. What Southern European countries need to do is “selective austerity” in areas where there is clear waste complemented with increased spending in areas that have a strong multiplier effect for the economy. What these countries need more than austerity is economic reform. The following is a list of random ideas for Spain that will accelerate economic growth. Portugal, Italy and Greece should make their own lists many of which will be similar.
Measures to promote economic growth:
-allow companies not to pay social charges for increased payrolls during 2012, then normalize the situation of these workers gradually over 4 years. Make 2012 “el año del trabajo” the year of employment creation and move 1 million unemployed into the labor force. This is the proposal that I presented to both Rubalcaba and Mariano Rajoy via Luis de Guindos. It was well received and so far publicly endorsed by the PSOE.
-until unemployment falls below 12% have the government should guarantee forced severance pay (indemnización) so entrepreneurs and businesses risk hiring them. This measure should be applied only for increased payrolls or new employees additional to 2011 payroll.
-have credit available for new companies. The government has to make Spanish bank create a category of lending at high interest rates for new companies, it is acceptable that loans be offered at 18% for say half the funds necessary to start a new business if the entrepreneurs and investors are willing to risk the other half. If Spain said that from now on any business that raises say 1 million euros in equity gets another million at 18% default rate would still be reasonable as people don’t want to blow up their equity and at 18% winners could pay for losers. High interest rates for risky businesses makes sense and since the Spanish government has saved so many banks it can also force them to do this type of lending. Soon the banks may discover that it is a good line of business.
-make it much easier to open a pharmacy, now pharmacies in Spain make absurd profit margins and underserve the population. In fact, all required permits to open any type of business should be simplified as much as possible.
-make it easier to become a notary another profession with absurd profit margins, allow lawyers to do a lot of the work that notaries do. Believe it or not in Spain I have to leave my office and go and see a notary to go ahead with most transactions in business. The notary system is archaic.
-create a new company employment regime that allows new companies of up to 10 employees not to pay social charges nor pay forced severance pay in case of failure during the first 5 years of its life. Recognize that you cannot have the same labor laws for start ups than for established profitable companies.
-make it easier to get a driver’s license, currently absurdly hard compared to other countries and car sales are at an all time low. Making it hard for people to get their driver’s license won’t help to change this situation for the better. Also make it easier to get a boating license. Just as with the driver’s license, this is currently absurdly hard compared to other countries, and it likewise negatively affects boat sales which are at an all time low. The yachting industry is very important for Spain. Other countries like the UK or USA don’t have more accidents than Spain, even tough it’s much easier to obtain a license. In general, licenses and degrees in Spain, including teaching degrees or licensed interpreters, seem to be disconnected from the original purpose of the license. In order to become a pilot in Spain, I had to pass a total of 11 exams. In the US, it would have taken only 3 exams which are easier than those in Spain. There are many more pilots in the US than in Spain (relatively speaking), and in general they are better than their Spanish peers. The conclusion of my thoughts is: less theory, more practical experience.
-eliminate the 12% matriculación tax on yachts and planes that make both Spaniards and foreigners keep yachts and planes in other countries like Portugal, Italy and France destroying Spanish employment. In those countries, boat owners only pay VAT on their vessels. Instead, the Spanish government forces boat owners residing in Spain to pay VAT, and on top the 12% special tax. This has many negative consequences for Spanish companies in the boating industry, and also for tourism in general. A shipyard like Astilleros de Mallorca is getting much less contracts and has to cut jobs since many boat owners from Northern Europe end up sending their boats to France or Italy instead of Spain. The Spanish government’s intentions of increasing tax income have backfired completely, now the total income is lower than before. A higher property tax, on the other hand, would be a viable solution. While boats come and go, it’s not possible to move real estate. So instead of going against the current and weakening Spain’s attractiveness for boat owners vs. other countries, it would be much better to simply raise property taxes.
-allow companies and workers negotiate the right retirement age, not everyone ages the same way, companies may want to keep workers beyond retirement or negotiate early retirement for some.
-allow tenants and landlords on all NEW rental contracts to freely pact conditions of rent and make courts work fast on vacating apartments of those who don’t pay. Currently Spain has more vacant apartments in proportion to all apartments than any other country. People are still afraid of renting.
-allow anyone who has a work contract with a salary of over 50K euros a year to get immigration papers to come to Spain in 30 days. Right now it is very hard for companies to bring high paid employees from outside the EU. If a company wants to do so it’s because it can’t find the same talent in Spain. Bringing talented foreign workers will increase employment in Spain.
-as employment in the private sector grows reduce employment in the public sector. Reform the whole funcionario (public servant) system that is perverse in which state workers have benefits that are unheard of in the private sector. They basically get contracts for life, firing is almost impossible. Make it much easier to fire funcionarios who underperform. Allow citizens to dodge complains on funcionarios and after a certain number of complains have funcionarios lose their jobs. Promote good funcionarios, fire bad ones. Do a review periodically throughout the career of a public servant.
-drastically reduce military spending. In general I think it’s absurd that each European country retains an army. Europe should have one great European army and not many national armies. There would be a great economy of scale in one European army. But other than that I think that other than firing military personnel something that should be done with incentives but not actual reductions that Southern European countries should stop buying weapons for 5 years. Military spending is the spending with least social consequences for the rest of the nation. Military spending is in great part what brought Greece down.
-charge 10 euros for any visit to any medical facility in Spain. 10 euros is a symbolic amount but it will deter some people from going to seek medical care when they truly don’t need it. Allow all the unemployed to continue going for free. Of course it would be better not having to charge anything, and for some people even 10 euros are a lot. There should be a way to identify those and exclude them from having to pay. But we all know that the healthcare sector in Spain is broken. Doctors don’t get paid, the healthcare providers don’t get paid and go out of business. This is an emergency situation, so we have to make sure that the public health sector can generate some income to improve its situation and that doctors won’t have to worry about their salaries and can concentrate on helping people.
-raise property taxes in Spain accross the board on all properties by 20% but eliminate the controversial wealth tax that is so much harder to collect. Property taxes are fair as they are paid in relation to the value of the property and are easy to collect. The state of Florida collects so much tax via property taxes a lot from out of state residents that it is then able not to charge its own taxes as NY and California and many other states do. And since we are going through exceptional times, it would even be possible to levy an additional tax of 2000 euros per year for all secondary residences. In addition to Spaniards, many foreigners would end up paying this additional charge. To provide a simplified sample calculation, 1 million secondary residences would translate into an extra income of 2 billion euros. The wealth tax, instead, would only generate an estimated income of 500 million euros.
-raise taxes on all cars with engines bigger than 2000cc or a certain amount of HP by 20%.
-raise taxes on tobacco and all liquor except wine and bear by 20%.
-liberalize opening hours of all shops in Spain, allow shop owners to decide when they open and close.
-allow the construction of one homes of up to 1000m2 per every 10 hectares or 100,000 square meters in the countryside of Spain. Right now no homes can be build in the countryside but one home every 10 hectares is an ultralow density and it may still create a lot of new jobs both in construction and in home maintenance. Spain has traditionally forced clustering of new homes not being able to enter the “estate home” market which is ecologically sound and creates a lot of employment. Moreover many foreigners do not like to buy clustered homes. Allow countryside hotels of no more than 15 rooms every 20 hectares of land.
-create a category of summer employment in Spain for jobs no longer than 90 days a year and people under 27 years old that is completely unregulated that would allow students to earn extra income in the summer without employers having to pay social charges or students having to report their income. It is important that jobs would last a maximum of 90 days in order to prevent abuse of the system. Also jobs like this can only be had in June, July and August and cater to Spanish largest industry, tourism.
-copy the tax resident non dom system of UK and make it applicable to all of those who do not have a Spanish nationality. This system is perfect for Spain because many want to retire or live in Spain and now do but illegally. The law is never enforced but I can see why many law abiding foreigners would not want to move permanently to Spain for fear of being taxed. Spain already has the Beckham law but a non dom tax resident system such as the one of the UK may make it easier for more foreigners of means to move here.
-implement stricter controls on corporate and individual tax evasion. It is well known that in Spain many people with jobs also collect unemployment insurance, and that many companies hire employees off the books. Especially these two sources of evasion should be stopped.
-legalize and tax the sale of soft drugs, thereby taking this business away from organized crime. A part of the resulting income could be used to combat addition to hard drugs.
-Spain has been too generous with its banks, who on the other hand have not been generous with their own clients. It’s time to completely restructure the rules and laws governing mortgage lending. The new system should be like the one in the USA, where borrowers who are unable to meet their mortgage payments should simply be able to get rid of their debt by giving up ownership of their house. If the bank loses money with the sale, it’s the bank’s problem, not the borrower’s. Government should save banks, but not the banks’ shareholders. Spanish banks engaged in irresponsible lending and as a consequence, millions of people are now trapped in their own homes, resulting in a high rate of labor immobility. People can’t afford to live anywhere else but in their own properties, thus they can’t move to the regions where the jobs are. Unemployment in Spain is therefore distributed very unevenly, the unemployment rate in the north being about half as high as that of the south. But many people simply can’t afford to move out of their own home due to their mortgages. Losing a house alone is already a tough loss, but losing the house and everything else on top is simply intolerable.
-tax energy progressively. What Spain and other Southern European countries need to do is to publicly announce a plan to progressively tax energy with a clear 10 year strategy. In order for the economy to adjust and become more energy efficient, the taxes on all forms of energy coming from fossil fuels like electricity, gas, gasoline, diesel, etc. should be increased gradually over a decade. The first measure should be to take advantage of the decreased oil price and fix the prices of gasoline and diesel at a certain level by introducing a flexible tax rate. As a result, consumers would always pay the same price of gasoline regardless of the oil price and the country could earn more taxes when oil prices go down. But on top of that, all fossil fuels should be subject to an annual tax increase of 10% over the next decade, so even if oil prices go to $30 per barrel consumers and businesses alike will know in advance exactly what energy will cost them and the government can get a great deal of its revenues from energy taxes. In addition, energy consumption will be greatly reduced. Consequently, energy consumption per unit of GDP will decrease and the country will be greener. People will automatically buy more energy-efficient light bulbs, cars, etc. As an early investor in Eolia and other alternative energy companies, I know that confusing pricing scenarios kill those kinds of projects. So this proposed measure of long-term price stability would be a great help for the entire alternative energy sector. If people know in advance how much more they will have to pay for energy in the future, they will start much earlier to demand more energy-efficient solutions. The result will be reduced energy consumption, a market pull that will accelerate development of energy-efficient products, and at the same time governments implementing this measure would benefit from the increasing spread between the crude oil price and the price paid by the end customer.
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How I would halt Europe’s economic woes
Published by MartinVarsavsky.net in Economy with No Comments
If I were Germany and the Northern European countries that do well with the euro, and do not have spreads against Germany, I would tell all the countries that need rescuing, particularly Italy and Spain and in a smaller proportion Greece and Portugal, that Europe will guarantee their sovereign debt but in exchange they have to cut spending where it hurts less.
One area that can easily endure spending cuts is military. Why should these countries buy any weapons for the next 5 years? Greece for example has an absurdly high military budget because of unreasonable fears of a potential war with Turkey. Other than the military, these countries have to cut government spending and increase tax collection in general.
The alternative is that Northern European countries tell Southern European countries that they are on their own. In that case, those countries would default, need to restart their own central banks and go back to their own currencies. For Northern Europe this would mean enormous losses for anyone who owns Southern European bonds, and assets. Northern Europe would also lose export markets and the overall ability to consider Europe its domestic market.
I still think that Northern Europe has a lot to lose from this happening and that a deal will be reached.
Let’s say at this point I give 80% probability to a deal that saves Europe and 20% that Europe falls apart.