
Why Crisis in Spain This Week Became More Important Than Greece - Flemlord
http://www.forbes.com/sites/haydnshaughnessy/2012/05/26/why-crisis-in-spain-this-week-should-have-us-more-worried-than-greece/
======
omegant
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&D or other
meaningfull spendings, just new rich projects and "me too" business plans.

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.

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.

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.

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.

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.

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!).

Edit: typos and general editing as I wrote it from the Iphone.

~~~
antr
I agree on "it is a good time for hiring people with high qualification at a
discount". Here is a cultural caveat:

A very closed friend of mine started his company (internet startup) in Spain
just over 12 months ago. He wanted to hire Spanish developers, with c. 5 years
experience. And he did. Even if this was a startup, the working conditions
were pretty good for Spain: €32,000 (well above many corporate jobs), private
health insurance, equity, job responsibility and decision making. My friend
was paying salaries out from his own savings, no seed money raised, and he was
paying himself zero.

Since founding the company, he has fired two developers because of a "legacy"
cultural clash. What my friend (late 20's guy) found out was that many
developers (and probably this extends to many other industries) were looking
for a 9-to-5 job, no frills jobs. They did not show any motivation/passion at
all. They took no ownership of projects, did not step-in when issues came up
and showed no motivation for "getting things done". He was frustrated because
the company was a startup, not a large corporate, and his bank account wasn't
cash rich, but Spanish developers showed no respect and did not go that extra
mile to ship product in a responsible timeframe.

These two developers, in their mid-30's, are probably not representative of
the entire dev community in Spain, but my friend burnt out, and hired
developers in Poland. The Spaniards were let go, in time to pay them no
equity.

From what he has told me, a part from some minor communication issues, Polish
developers showed the right work attitude and passion, with a mentality very
much like the Valley. Since the initial work crunch, from working 80 hour
weeks, he is now doing a 9-6, and the company is cash flow positive. Just
shows that hard work does pay off, and how a 9-5 mentality (specially when
starting a company form scratch) is cancer to the company.

~~~
Jare
If your friend needed people ready to work 80hr weeks in Startup Crunch mode,
in exchange for 32k + eventual equity, and hired people who wanted 9-to-5, he
is a horrible recruiter or a terrible leader. Don't get me wrong: lots of
people here are angry at the situation and will act pissy and self-entitled.
But good engineers are still not cheap, and motivating them takes a lot more
than "at least you have a job".

Anyway, happy it worked out for your friend. Yay for outsourcing!

~~~
antr
just to clarify: FT hire in another country != outsourcing

It's more like: devs tell him, "yes, super excited to work in a startup,
salary is terrific, challenge accepted."

truth: "oh, it's 5pm, lets go home. we haven't had the time to push production
code to fix that bug, but we can do it tomorrow."

it is easy to say that someone is a bad leader/bad recruiter, but the fact of
the matter is that it is a common cultural issue (as per other comments in
this thread). Hence, why did it work in Poland and not Spain? Many good
engineers at large corporates in Spain don't make that money, and yet for less
one can get an equal service in Poland.

Clearly "at least you have a job" was not an approach to motivate hires, they
were let go.

~~~
Jare
If he hired people who became 9-5ers, either he failed to correctly identify
their expectations and attitude and their true self revealed once they were
in, or he failed to keep them motivated and they scaled back to more relaxed
work schedules. It's quite possible they were the best he could find: even in
the current climate, I don't know any highly skilled developers willing to
give up their personal life for E32k unless they really really believe in and
share your project.

Poland has almost 1/3 the GDP of Spain; of course his money was more effective
there. Did he bring them to Spain? Last time I interviewed a Polish developer,
salary expectations including relocation to Spain were roughly 2/3 from a pool
of candidates decidedly more expert than their Spanish counterparts.

That's one of the big challenges Spain faces in the next few years: reducing
the cost of living without destroying the standards of life, so it can become
competitive again while keeping a reasonable amount of experts and highly
skilled workers (who are now fleeing the country in droves).

~~~
antr
He didn't bring de Polish devs over, they work from Poland. on the "2/3"
comments, i think you are pretty much spot on.

Don't get me wrong on the hiring issue, I think they are both parts at fault.
The irony in this whole situation is that you hear from Spaniards (primarily
those called "indignados") complaining about €1k/month salaries, shitty jobs,
etc. and my friends stumbles into a situation where his employees have above
avg working conditions (€2,700/month, with private health insurance and
equity"!") and there is no reciprocity in specific working situations (he was
definitely not asking 80hr/week in perpetuity, he was just asking to ship on
time to meet deadlines, if that means working leaner, or working more hours
that is up to each individual, just get it done).

------
fauigerzigerk
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.

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.

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 ;-)

~~~
brutuscat
I think that the writer wanted to show how the "best" part of Spain was
struggling after having done almost everything "right". I couldn't see if the
writer wanted to cause panic attacks or just make us think about what is the
"right" thing to do....

~~~
fauigerzigerk
The author's claim is this:

 _Local debt is the big untold story of the Euro crisis and, if that was not
apparent before, it became glaringly so when Catalonia’s President this week
told the world his autonomous Catalan Government would struggle to meet its
bills at the end of this month._

What I take issue with is that he didn't actually fact check whether or not
Catalonia is an example of a dangerously indebted region. He makes it sound as
if Catalonia is on the brink of default by the end of the month, which isn't
the case at all. He just takes the words of a politician at face value,
apparently unaware of the internal dynamics of Spanish politics.

What the Catalonian president did was to pressure the Spanish government to
let the regions refinance in federal Spanish bonds because interest rates are
lower than for debt issued by the regions.

------
dimitar
Hey, if you read what Nobel laureate Paul Krugman was writing you will have
known this for at least 2 years.

<http://krugman.blogs.nytimes.com/2011/12/09/slow-learners/>

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.

The weird thing is - its not even unorthodox, unconventional economics. Its
the basics that everyone studies, but no one remembers.

------
JamisonM
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.

------
guylhem
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???

~~~
johnnyg
Best opportunity is to invest in physical silver and gold, as the euro (and by
extension the dollar) will not be able to hold their value as the printing
presses run ever faster...

~~~
confluence
Yeah, you're a fool for thinking such a thing.

Seriously, all the commodities guys are. If you look at gold/silver demand
guess what the major determinant is - OH YEAH - JEWELLERY! You know the stuff
people buy when veblen goods are popular (i.e. a strong world economy).

Your baubles are worth nothing if the 2 largest economies go down.

Everyone dumped emerging markets, the euro and stocks to buy dollars and
treasuries (flight to quality during high vol.).

Not because anything drastically changed, but because of the beauty contest
dynamic in markets. You predict what others may predict to happen in the short
term and act accordingly.

Go buy yourself a gun, food, and some survival training if that is your
position. You can't eat gold. You can't live in silver. And you most certainly
can't sell it when everything goes down.

Here's a hedge fund analyst's take on it: <http://www.quora.com/Why-is-the-
price-of-gold-rising>.

Notice the graph and its constituents. Gold/Silver guys mock us fiat currency
types (i.e. everyone) when they themselves are trading the same trust based
tulips as the rest of us.

Everything you trade is based on trust, and trust is, and always will be, a
bet on the future being better.

Gold/Silver is a bet for the world getting better, not worse.

You can't invest in the end of the world. You can merely prepare for it.

~~~
johnnyg
Glad there are still some counter parties left to take my trades. Enjoy your
tbills! :-)

~~~
confluence
Well seeing as my tbills represent the future output of the world's largest
economies, and one of the greatest consumers of veblen goods (which includes
most of the demand for your commodities), you and I aren't so different. We
bet the same.

But you have no idea what you're doing.

I merely wish to point out that you can't bet for the end of the world. You
can merely prepare for it.

~~~
toomuchtodo
I can short the end of the world; as long as there is enough time between when
I profit and when I cash that profit out into something that will provide me
with long term value (house, etc).

For this argument, I define value as providing ME something, not value that
can be traded.

------
mcantelon
>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.

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.

~~~
incredimike
Without trying to sound like a foil-hat wearing loonie, I feel like this is
the direction things will go, and the IMF (and related orgs) will welcome it.

------
lifeisstillgood
This thread is the second reason why HN still outclasses everyone else.

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.

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 :-)

