EconoMonitor

Don't Shoot the Messenger

The Rain in Spain Falls Mainly on the Journalists, It Seems

Things in Spain are never exactly what they seem to be. This is a painful lesson that even Angela Merkel must have learnt in recent days, especially since she put her credibility so much on the line in backing the country’s deficit reduction efforts. “Spain has really done its homework and I think it is on the right track,” is the message she has been trying to sell to the world.

Naturally then she will not have been amused to learn last Friday that rather than the 6% promised under the Spanish stability programme, the country’s deficit in 2011 is going to be something like 8%. Some sort of overshoot was long being anticipated, but such an overshoot? Naturally it isn’t (quite) Greek proportions, but it is still hardly evidence for a credible and praiseworthy effort. This is the thing about Spain, it obviously isn’t Greece, but still all isn’t quite what it should be. Add to this deficit result the fact that the Bank of Spain is reported to be frantically pressuring banks into revising the valuation of their property assets following the publication by ratings agency Fitch of a report which claims they are currently on average 43% overvalued. Naturally any major downward revaluation of the repossessed assets will give an entirely new reading for the balance sheets of many of the institutions involved (the Caja de Ahorros del Mediterraneo went from having a 50 million euro profit at the end of 2010 to 1.7 billion euros in losses in June 2011 following the application of just such a mark-to-market procedure – and the savings bank was finally sold to Banc Sabadell for the princely sum of one euro). Put two and two together here, and it is clear that the country’s bond spread may once more be in for a bumpy ride when investors finally recover from their yuletide hangovers.

Excuses are, of course, already being prepared for this lamentable state of affairs, and in particular the argument is being run that in fact the responsibility here does not lie with Spain’s central government (which was entirely composed of choirboys and girls), but with a lamentable set of constitutional arrangements which give far too much spending power and control to the country’s regional governments. To some extent this is true, but as I say, it is important not to take everything here at face value, since as ever, all is not what it is made out to be.

This advice could, as it happens, have proved useful to New York Times reporter Suzanne Daly who advertently or inadvertently seems to have been taken for a complete ride with the article she wrote for the newspaper last Friday. The focus of the article was purportedly on regional extravagance in Spain, but in the event she seems to have allowed herself to be used to float a political agenda which primarily seeks to take the attention away from the country’s central government, and the responsibility it has for the current lamentable state of affairs. Naturally examples of regional extravagance certainly abound (hell, the entire country was living beyond its means), but I started to smell a rat when I saw the example she chose to highlight in her article – the prison at Puig de Les Bases, Figueres (which just happens to be located only a few kilometers from where I live).

What worried me is that the prison you can see in the photo above is NOT an example of something that isn’t needed, like a phantom airport, or a golf course where no one will ever play golf. The problem with Puig de Les Bases is not that there aren’t prisoners waiting to be moved there from the two outdated prisons which are scheduled to close (there are, 300 of them, to which can be added an additional 450 once the new one is open). No, the problem here is that there isn’t enough money to run the place after it opens. This situation is not untypical, since many town halls and regional governments, not to mention the central government itself with its new high speed train network that the country can ill afford, find that they invested money on projects using the extraordinary income they were receiving during the years of “excess” but that now they don’t have the current revenue to keep the facilities created operating.

In fact Suzanne Daly does notice this, but she seems to get so carried away with the force of her own rhetoric that she doesn’t catch the significance of the point.

“Evidence of the regional profligacy dots the countryside. On the top of a hill here in the birthplace of Salvador Dalí, in northeastern Spain sits a giant, empty penitentiary. But even without a single prisoner in residence, the prison is costing Spain’s heavily indebted regional government of Catalonia $1.3 million a month, largely in interest payments. If prisoners were actually moved in, it would cost an additional $2.6 million a month. So it sits empty, an object of ridicule around here, often referred to as the “spa.” “

So the question is, is this an example of regional profligacy, or an example of cuts which are biting, and a country which is coming to terms with its new reality?

The issue, however, goes deeper. The offending prison is in Catalonia, and Catalonia is a region which has long been seriously underfunded by the central government – indeed as was suggested by the regional minister of economics, Andreu Mas Colell, it looks suspiciously like the central government were not paying funds owing to some key regional governments to make the regional deficit look worse, and the central deficit look better.

Mas Colell, who is a former Harvard professor and distinguished micro-economist in his own right, recently told the central government that it should be ashamed of itself for withholding money which legally belonged to someone else (in this case 759 million euros for investments which have already been completed) and basically acting in complete bad faith.

“Els hauria de caure la cara de vergonya”, “és una mala jugada poc honorable i que no oblidarem”, “estan fugint i fent servir excuses de mal pagador”, “són molt poc exemplars”, “no poden desentendre’s amb arguments pobres”, “els avergonyirem”. Són algunes de els expressions que ha utilitzat el conseller d’Economia per referir-se a l’impagament dels 759 milions per part de l’Estat…… Amb tot, el conseller veu una clara intencionalitat en el no pagament d’aquests diners. “L’Estat vol que se’ns carreguin a nosaltres els quatre punts de dèficit que suposen aquests 759 milions i no a ells. I no paga perquè no vol pagar i no vol augmentar el seu dèficit”,

“They should be ashamed of themselves… it’s an injustice without honour, and we won’t forget… they are running away from their responsibilities using the typical excuses of someone who doesn’t pay their debts… this is hardly setting a good example… they can’t ignore the situation using pathetic arguments… we will make them feel ashamed”. These are some of the arguments used by the Catalan economy minsiter with reference to the non payment by the Spanish government of the 759 million euros … The minister did not mince his words when it came to the reason behind the non payment. “The central government want to put on our account the 0.4% percent of deficit which these 759 million euros will involve for us, and they don’t want to add them to their deficit. They aren’t paying simply because they don’t want to pay, and they don’t want to increase their deficit.”

Naturally, the Catalan government is taking the central government to court over the issue, but given the efficacy with which justice is executed in Spain, I don’t think I’d be waiting for the result before finding solutions to the problem all this represents.

The central point here is picked up on by a group called Collectiu Emma, (an association of activists which spends it time correcting factual inaccuracies which appear about Catalonia in the international press, inaccuracies which in no small part have their origin in a constant public relations campaign conducted from Madrid). As they say:

“One key point that is overlooked in your otherwise informative article on Spain’s economic difficulties (As Spain Acts to Cut Deficit, Regional Debts Add to Woe, December 30, 2011) is that Spain is not a federal State. Under the country’s fiscal arrangement taxes are collected by the central government, which will keep part of the proceeds for itself and distribute the rest among the regions to pay for the services that have been devolved. There is no correspondence between what the regions get to spend and the wealth they have generated.”

“For the last year Catalonia, one of the most productive and most heavily taxed communities, has been undergoing painful cuts in services. And yet, the share of tax money that it contributes to the State and never comes back is estimated today at a staggering 8-9 per cent of its annual GDP. If Catalonia could use even part of those funds to finance essential services for its own population, it would have no deficit and no debt, and could even afford one or two extravagant schemes like those that other regions -and the central government itself- can enjoy as long as they are paid for with somebody else’s money. Catalans would not mind a serious revision of the regional setup, but only if it envisages fiscal responsibility on the recipients’ part, better control over their own money by those who have earned it and more transparent procedures by the central government”.

Now one of the points Collectiu Emma didn’t make, but could have, is that Catalonia is one of the few regional governments (and maybe the only one) which has responsibility for administering the prison service. Catalonia also received so little money from the central government in 2011 that it effectively ran out of cash in December (not because it is “extravagant” but because it is seriously underfunded) to such an extent that it was not able to pay all public servants’ salaries for December before the end of the year. So in fact one of the reasons the prison is lying idle is that the central government is not forwarding money it has a legal responsibility to transfer, and the reason it is doing this is to massage its own deficit, and encourage people like Susanne Daly to write the article she wrote.

It gets worse, since some of the “misinformation” about the situation in Catalonia has, in my opinion, a deliberate political intent – to recentralise Spain. This is certainly the objective of tax minister Cristobal Montoro, since many in the Partido Popular are already very fed up with the fact we insist on using our own language, and doing things our own way (like banning bull fighting).

“And while Spain’s overall fiscal status is nowhere near as dire as Italy’s, it has another problem all its own, as the new budget minister, Cristóbal Montoro, made clear Friday: serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade”.

It is also striking how the article also draws attention to spending issues in the community of Andalusia (which is the only community the socialist PSOE really controls now, and which the PP hope to win in elections in the spring) while there is no real mention of communities like Valencia, or Galicia, which are controlled by the PP and where there are plenty of examples which could be mentioned, like the phantom airport in Castellon, built under the eager eyes of former Valencian President Francisco Camps, who had to resign and is now facing corruption charges in a trial which is currently attracting a lot of media attention.

Now I am sure, as the Collectiu Emma people point out, there are many examples here in Catalonia of projects which were not needed (the Alguaire airport in Lleida would be one), but the key difference here is that Catalans overspent using their own money, while many regional governments (some of them ruled by the PP) did so using Catalan money. So it is curious, to say the least, that the author decided to kick the article off with a big picture (see above) of a prison in Catalonia to serve as the stylised example to epitomise the problem.

But there is another issue being raised here, since it is not clear whether all the attention which is being focused on the Figueres prison is not – in some warped way – a by-product of protests by prison staff unions against the all the recent spending cutbacks. Searching around for background information, I discovered a most interesting article in El Pais (sympthetic to the Spanish socialist party PSOE) entitled “locos por ir a la carcel” (desperately seeking to go to prison). The gist of this article concerns the plight of a number of unemployed people who have passed the exams needed to have places in the prison service, but who can’t be offered work since the prison is not open.

What the El Pais article offers us is the view of a heartless Catalan government making swingeing cutbacks on important social projects. Far from putting the blame on the outgoing socialist lead catalan government who built the prison in the first place, the article blames the new justice department head, Pilar Fernández Bozal, who hasn’t opened because she hasn’t been able to obtain the funding needed. The impression I get is that in this game it is hard to win.

At the end of the day the lesson I would advise Suzanne Daly (or Angela Merkel if it comes to it)  to learn from this whole affair is that nothing in Spain is exactly as it appears to be, and that few of the arguments politicians and so called “experts” advance are entirely innocent. Most “information” circulating in Spain is highly politicised. Really “independent” analysts are virtually unknown.

Government and opposition in Spain operate like a revolving door. Crickey, I even saw outgoing Minister in the Zapatero government Alfredo Rubalcaba on TV yesterday, openly criticising Mariano Rajoy’s government for all the cutbacks that have just been announced and for having no policy up to the task of dragging Spain out of its crisis, without even blushing or mentioning that the cuts in question were so big because his government overspent – or tolerated overspending – or that the policies the new government are following were basically identical with those which guided his own government.

 

Far from suggesting that the prison project was an extravagant excess, El Pais implies it is badly needed (since space in the Catalan prison system is extremely scarce), and my feeling is that with crime on the rise after 4 years of continuous crisis, El Pais is probably more right about this than the New York Times author is. Lesson to be learnt: simplistic answers to complex situations are rarely satisfactory. And if you want to come to Figueres and look for a spending white elephant, well, you need go no further than the high speed railway line linking the town with Barcelona. The track has been up and ready for around a couple of years now (see the bridge to nowhere in the photo above), but there is no sign of any train, since there is not sufficient money available to finish the job. But then this particular piece of short term redundancy was planned and executed by the central government on a live-now-pay-later basis, but that wouldn’t fit the story we are being sold, now would it?

11 Responses to “The Rain in Spain Falls Mainly on the Journalists, It Seems”

richardshannonJanuary 2nd, 2012 at 8:17 am

"…nothing in Spain is exactly as it appears to be, and that few of the arguments politicians and so called “experts” advance are entirely innocent. Most “information” circulating in Spain is highly politicised. Really “independent” analysts are virtually unknown."

Surely "innocent" is too kind, but agreed, the Spanish Media are a farce, especially when it comes to highly politicized (hence regional) issues.

One good thing I see in this story for the PP, it seems they will have plenty of prison space to lock up the Indignados when things start to boil this summer. For that, the money will be found I am sure, since the press is reporting 1 Million Euros has already been spent on tear gas. Feliz 2012 everyone!

SOUTHSPANIARDJanuary 3rd, 2012 at 9:15 pm

Sorry to rain on your parade, but this article is full of the typical "misconceptions" (to avoid a stronger word) that keep going on and on in the media, specially German-speaking:

1) As Paul Krugman says, the idea that Spain's problems are due to Government's overspending, Greek-style, is like a zombie: you can't take it down unless you shoot it in the head. If anyone just cares to go to Mr. Krugman's blog and have a look to his umpteen-repeated graphics on the Spanish (and Irish) debt as a percentage of the GDP, you'll find (oh, surprise!) that debt was indeed DECREASING way, way before the Lehman crash, and even today is one of the lowest in the Euro-Zone. The problem in Spain comes mainly from massive PRIVATE indebtment, which has much less to do with Government's budgets and much more with too low rates kept by the ECB for too long to appease German needs.

There was indeed plenty of overspending by Spanish governments, and they fell in the capital sin of letting most of the tax income and job-creation depend on the house-bubble. Manufacturing was left to die of starvation, everything being purchased in China (even toothpaste). So when the bubble burst, the comsequences have been extremely dire, as there is no longer any tax-income worth the name, and nowhere to recolocate jobless people dropping from the housing sector. So, now, the Government HAS deficit problems due to the huge jobless numbers, and the former overspending doesn't help as requires funds for maintenance that no longer are available. But please, repeat with me: Spain's budget trouble is a FOLLOWUP of the 2008 crash, not a CAUSE of the crash.

2) Giving credit to the Catalan's Government (and Artur Mas') claims of being underfinanced by Spain in a blog where they will be read by people not in the knowledge of the internal politics in Spain doesn't seem to be exactly fair (to be polite). Foreigners may not know that this claim is just another one of the steps in CiU's (and Mas' in particular) pipedreams of secesioning from the Spanish state and creating their own "republic-of-the-pure-of-language".

It's way easier in this times (and much more profitable politically) to use the Spanish government as a scapegoat of the budgetary problems of Catalunia, instead of honestly diagnosing the main underlying problem: the industrial might of Catalunia, once the powerhorse of the region, has decayed in the last one (maybe two) decades, due to a slow but sure decline of the initiative and will to compete of the Catalan employers; the fast and lethal loss of competitivity against Chinese exports (specially in textile) was just the coup-de-grace to an already ailing industrial sector. And with the decrease of tax income from the industrial sector, the overspending of the several Catalan governents (both CiU's and the Tripartito's) just compounded the problem (instead of an empty prison, let's talk about the Catalunia's embassies spread throughout the world, and paid with taxpayer's money, just as a tour-de-force against the central government).

And what we see in Catalunia after a year from CiU's win in the last polls is not a clear and sensible economic model applied to stop the job bloodletting, but just a hodgepodge of budget cut measures (always hitting to public services, like closing hospitals for whole days as a "saving" measure), combined with hard-to-justify, easy-to-understand-if-you-are-wealthy tax cuts (like wiping out the inheritance tax, just when you need to increase taxation), and outright steals farced as "mistakes" (as discounting the public employees the tax income for a Christmas pay… which not only was still unpaid, but which was also at that moment delayed with no firm payment date).

So yes, Spain has problems, big problems, but the problems shown in this article are not the right ones to understand where these problems come from, and how can they be solved.

GirounalistJanuary 4th, 2012 at 1:28 pm

Completely agree with Mr. Hugh's analysis. The only thing, is that I wouldn't criticize that much Suzanne's work. In Spain they are specialists in hiding other opinions than the official lines drawn by the Spanish central governments. She is in Spain just from 2010, it is difficult to understand Spanish dynamics in that short time.
Just to let the people another example, few people from Europe know that in Catalonia there are two official languages ( Spanish and Catalan). The reason, Spanish government never wanted that the Catalan would be considered another European Language.

GirounalistJanuary 4th, 2012 at 1:42 pm

Completely agree with Mr. Hugh's analysis. The only thing, is that I wouldn't criticize that much Suzanne's work. In Spain they are specialists in hiding other opinions than the official lines drawn by the Spanish central governments. She is in Spain just from 2010, it is difficult to understand Spanish dynamics in that short time.
Just to mention another example. Few people from Europe know that in Catalonia there are two official languages. The reason, Spanish government never wanted to add the Catalan to the list of European official languages.

richardshannonJanuary 4th, 2012 at 8:00 pm

And still, the title of the post is "The Rain in Spain Falls Mainly on the Journalists, it Seems." I have to say the writer is spot on in his assessment of the hoodwinking that went on, and has gone on in Spain for eternity. Whether it is foreign journalists flying in for the weekend scoop, "people not in the knowledge of the internal politics in Spain," or Spanish voters being fed a line by their parties of choice — Spain really is different.

So, whether the writer's diagnosis or cure is correct is irrelevant to me. The real story, and what is conveyed in this post is this, you cannot trust the Spanish Media or Political Parties. Just as the New York Times reporter was sold a bill of goods, Spaniards get this same diet of utter rubbish day after day from the papers and politicians here. So what is the cure when you must elect one of 2 deadly cancers? Congratulations Spain. You traded Mr. Bean for Bozo the Clown.

Edward Hugh Edward_HughJanuary 16th, 2012 at 3:05 pm

Hello Guy, it's nice to hear from you. In this highly globalised world it is still surprising to find how many people who have read the article actually live near Figueres. You aren't the fisrt to have contacted me. Salvador Dali, who was born in Figueres, seems to have thought that Perpignan station (where that train I talk about will eventually arrive – the Figueres/Perpignan strip is open) was the centre of the universe, so we aren't that far away.

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