Why Crisis in Spain This Week Became More Important Than Greece

Here in Spain the biggest problem has been the three years that the real debt has been kept hidden under the carpet. The previous socialist government expected that the general recovery would help to exit the crisis and then be able to clean all the mess with out to much light from the international markets. Meanwhile they said that they were making a "social" exit of the crisis. That means increasing the spenditure, a bad idea when what you have is a mad excess of public wasting. Very little has been spent in R&#38;D or other meaningfull spendings, just new rich projects and "me too" business plans.<p>The problem is that nobody really knew ( maybe they didn't want to know) how big the hole really was: municipal debt (the bigest debtors to private companies in Spain, are city Halls), public banks (cajas) unrecoverable credits (huge lendigs to political friends for building proyects), crazy public spending ( huge airports,high speed railroad between small towns..). Mind you that all this has been caused by every political party, government agency, local government, private companies( mostly construction ones) and banks( friends of mine bank office directors were regularly yelled by their bosses to increase lending no mater who). Of course a gold rush of cheap credit infected the whole population. A perfect storm if ever have been one in the spanish economy.<p>Finally this government is taking the rudder of all this madness , and making real changes relatively fast: new transparency law for public agencies(there was none, all the accounting was almost secret!), plan for paying all the municipal debt to small companies (this finally has made public all hidden cities debt, and will avoid that lots of small companies go bankrupt), new banking and financial markets law (to increase the transparency and safety levels), public spending cuts (pretty heavy ones), another law to take control of regions that are not taking measures and making the needed cuts in spending.<p>I think that we are at the worst of it but only because all the truth (well maybe only the biggest part) is coming in to the light. I also think that we will go through this as real measures are being taken, in Greece they have the problem that there is no strong government taking this kind of measures.<p>Also a real deflation is taking place, in salaries and prices( as we can not devaluate due to the euro), this is quite traumatic for the people as you see how bussiness are cuting your pay slowly every year. But as prices were artificially inflated due to the euro ( germany used to be expensive in the nineties, now lots of things are cheaper there!), and the competitiveness of Spain sank, we only created wealth via credit. Maybe this deflation will increase our export rate slowly.<p>Somebody commented if it would be a good oportunity to start a bussiness or a shop here. Nothing that is related to sales is a good idea, as there is no cash around to buy anything. But it is a good time for hiring people with high qualification at a discount ( programers , biologist, architects, physicists, lawyers, ingeniers, doctors) for little more than 1000€/month, even with 1000€ you'll have peolple lining up for the Job.<p>Also it is a good time to buy spanish companies (we have some good ones too) with big discounts due to market undervaluation and their need for money (banks are not lending AT ALL!).<p>Edit: typos and general editing as I wrote it from the Iphone.

Interestingly, the article doesn't say how much debt Catalonia has relative to its GDP (it's 17%) or its tax revenues. Without that information, we don't know anything other than the obvious, which is that a sudden quadrupling (or whatever) of interest rates is going to be a problem for any debtor. Just imagine 10-year treasuries going to 5% by the end of the year.<p>Presenting Catalonia as some kind of an exemplary case for a larger problem may be misguided for another reason. Spanish regions are famously independent minded. Normally, no one outside Spain listens to the the Catalonian government's tactical maneuvering to extract concessions from the central government. But these days, any mention of debt in Europe causes panic attacks.<p>The Levenshtein distance between Catalonia and California is just 4 whereas the distance from Catalonia to Greece is 9. That can't be a coincidence ;-)

Hey, if you read what Nobel laureate Paul Krugman was writing you will have known this for at least 2 years.<p><a href="http://krugman.blogs.nytimes.com/2011/12/09/slow-learners/" rel="nofollow">http://krugman.blogs.nytimes.com/2011/12/09/slow-learners/</a><p>From reading his blog you'll also know that: - Spain had surpluses and was lowering public debt before the crisis - The catastrophe that austerity caused and how the idea was very bad in the first place - How the crisis was made worse by the 'euro straightjacket' (ECB tight money policy). - How the euro caused trade deficits in the southern countries that were compensated with German and French capital.<p>The weird thing is - its not even unorthodox, unconventional economics. Its the basics that everyone studies, but no one remembers.

Canadian austerity in the '90s was largely a systematic shifting of financial burdens down to provinces and then many of those provinces them under-funding areas where local government would be forced to pick up the slack. I suspect the Europeans were guilty of this in many places in trying to meet the EU budget restrictions. Unlike Canada they did not get lucky, in Canada we were recovering from a recession and the real estate values that property taxes were based on were steady or rising and provided some cushion for the local governments. The EU municipalities find themselves in the opposite circumstance as the real estate markets are a disaster. They are being crushed from both sides.

So what are the opportunities there? Opening shop in spain to take advantage of an educated and competitive workforce?? Or it follows the greek way avoiding it altogether???

&#62;In fact in the case of France much of the local debt was inherited from the central Government, which “delegated” the debt to localities where national funds were spent, effectively reducing the national debt headline figure. French finance Minister during this process was Christine Lagarde, now head of the IMF.<p>Interesting: a uniformly distributed, uniformly crippling debt. The public will be forced to adopt whatever the business community's EU/IMF proxies ask for in exchange for debt maintenance.

This thread is the second reason why HN still outclasses everyone else.<p>I have just got a better perspective on the Euro crisis than all the newspapers and tv of recent weeks. I never knew the debt delegation issue had been happening.<p>I would like to know how we can see the total level of debt for each country. If we can find a reliable source let's put it on wikipedia :-)