Posted by: Dirk | September 23, 2009

News from Spain

I have been in Spain last week, where the economic crisis is probably worst in the EU (except for Ireland). Back in 2003, 50% of the average wage was spent on home loans. This has fuelled an immense bubble in the real estate sector. Now the bubbles has burst, demand has decreased and the government went deep into the red. Last month, it decided to raise taxes. This will probably hurt demand even more, and could lead to even more unemployment and in the end less tax collection than before. This should be the lesson of 1937, and it is strange that Spanish economists are not aware of that. Probably the Spanish Civil War (1936-39) has disconnected Spanish economic history from that of the rest of the world during this period.

Anyway, I have seen many signs of a distressed economy in Valencia. Since I have studied and lived in Valencia in 1999 and returned to the city a dozen times I consider myself of sufficient experience to judge how the city has transformed. Tourists better watch their change closely, since you are very likely to get ripped of. Also, there are people – I heard they are from eastern Europe – who sleep in the public parks (which close at 21:30h). Then there is people going through the garbage containers, the big ones in the street, not the small ones put up by the municipal government. I haven’t seen that anywhere in Spain before.

Apart from the that, there are loads of signs “se vende”, and real estate agents complaining that there is no demand. A friend of mine suggested that they should consider to lower the price and there would be demand, to which some real estate agent replied that then the price would be below the value of the flat. The Spanish have a long way to learn about how the real estate market and markets in general work. Only since 1975 they have evolved from the infamous Franco dictatorship, and their economic catch-up was fast. People have preferred to look ahead instead of looking back. However, the ghosts of Spain might come back to haunt them.

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