Spain bucks the happiness trend

Market and real economic divergence continues apace in the European periphery and, much like Italy, Spain is again showing worrying signs that further fiscal tightening is creating far more severe negative consequences than “expected”. The deterioration in the economy is once again leading to a re-assessment of targets:

European Union budget enforcer Olli Rehn signaled he might seek to ease Spain’s targets for cutting its budget deficit in a retreat from the demands that helped drive the economy into recession.

EU officials will make a decision on the best pace for Spain’s budget consolidation when they deliver a scheduled assessment of the program in February, Rehn said at a press conference in Madrid yesterday.

If there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path,” said Rehn, the EU’s economic and monetary affairs commissioner, as he sat alongside Spanish Economy Minister Luis de Guindos. “That’s what we did last year in the case of Spain.”

But it isn’t just the national government that is struggling under re-newed economic retrenchment. Regional governments are also in economic trouble and requesting life-lines from the state:

The regional government of Catalonia on Tuesday formally requested 9 billion euros ($12 billion) from a rescue fund created by Spain to save its financially beleaguered regions.

“The amount planned by the Spanish Interior and Public Administration Ministry is 9.073 billion euros,” the government of Catalonia said in a statement.

As I have noted previously, Catalonia is the not only a region with separatist history, it is also the area that has seen the largest fall in wealth from the country’s house price collapse. The latest report from Tinsa once again shows this to be the case with a 40.1% fall from peak on the Mediterranean coast, and I suspect that this is having an influence on the politics of the region.

In Spain as a whole the economic data continues to be very poor with the latest retail sales data being yet another example:

It was one of the most miserable Christmases on record for retailers in Spain as sales plunged last month in the midst of one of the worst consumer crises the recession-hit country has ever seen.

With sales tax hikes biting, unemployment growing and many workers and pensioners watching the real values of their income fall, Spaniards kept their wallets tightly closed, helping to produce a 10.7% fall in sales in December compared with the same month in 2011.

The retail slump actually accelerated, rising from a fall of 7.8% for November and an annual rate for 2012 of 6.8%. Retail sales in Spain have now fallen for 30 successive months, and the decline has quickened since the prime minister, Mariano Rajoy, implemented further austerity measures to bring the budget into line.

And, as I’ve explained numerous times previously, the ongoing economic retrenchment caused by a balance sheet recession mixed with continued fiscal tightening is manifesting in ever-increasing bad debts and unemployment:

You can see from those charts we are still searching for a bottom.

As you would expect the Spanish public is becoming increasingly frustrated with the situation and Mariano Rajoy (not that this is a surprise to me, I was questioning the whole thing from day one ). This, however, is being made much worse by new revelations in the on-going Gürtel corruption affair that Mr Rajoy’s own party it knee deep in it:

Former Prime Minister José María Aznar instructed his attorneys to sue the newspaper El País. Current Prime Minister Mariano Rajoy, a conservative like Aznar, threatened to sue anyone who leveled accusations at his People’s Party (PP).


The general outline of the affair was known, but not the fact that the former treasurer of the People’s Party, Luis Bárcenas, had amassed up to €22 million ($30 million) from dubious sources in accounts with Dresdner Bank in Geneva. The judge on the Spanish National Court only learned of this as a result of legal assistance from Switzerland. Even the conservative newspaper El Mundo could no longer refrain from delving into the scandal.

For as long as Bárcenas managed the PP’s finances, El Mundo writes, the politician handed party officials envelopes filled with banknotes worth between €5,000 and 15,000 every month. A former member of parliament for the PP confirmed this practice. Although accepting additional pay is not prohibited if a person declares it on his tax return, the conservatives are nonetheless worried. Bárcenas may have recorded the source of the funds in his notebooks (anonymous donations to political parties have been banned since 2007), as well as to whom the money was passed and why.

Much like Italy’s new banking scandal this one is another story to keep a close eye on. With the economy in its current state it isn’t going to take much for this story to ignite into something much bigger.

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  1. I love all this talk of eurozone ‘recovery’. In what way is the ‘zone’ in any kind of recovery mode?

    Greece, Italy and Spain will ignite when the summer arrives. The high Euro will ensure this happens.

    The situation in Greece is particularly worrying. The government is starting to employ measures considered ‘unprecedented’ in tackling strikers. Unions are starting to band together.

    • Yea like the transport strike, to me this was like what communist China would do. Greece does not have long before it implodes and parties like Golden Dawn or worse take hold.

  2. Q: I just noticed that the word in the movie title The Pursuit of Happyness is spelled with a y instead of an i. But my spell checker highlights “happyness” as a mistake. Why is it spelled differently here? Shouldn’t it be happiness?

    A: The word “happiness” in the title is deliberately misspelled, just as it was on the wall of a day care center where Gardner once sought care for his young son, Chris Jr., during some of his worst days.” Chris (Will Smith) even points out the misspelling to the Chinese care-giver that the mural decorating his son’s daycare is spelled incorrectly. Chris wanted to make sure that his son was taught things the correct way, so that he could grow up to be an educated man and make something great of himself. Chris “took offense” to the fact that the world happiness was spelled wrong on the wall and became irritated by it. But the word comes to signify Chris’ own pursuit of happiness.

    • Nice background Bob and a story that brings some momentary joy to the heart of every frustrated spelling pedant.

        • GunnamattaMEMBER

          You guys are putting in the short steps – dont you have cojones?

          We need a fully fledged name calling ranting session about the appropriate spelling of happiness or a carved in stone proposal positing that happyness is the way it should be spelled or was spelled until it was taken over by real estate agents, the mining lobby, banksters and rednecked baby boomers etc.

          There doesnt seem to be much barneying taking place here today.

          This is the stoush we need to have – where is 3d1k GSM Op8 and Flawse? Not to mention Patrician Mav Lorax Rusty Penny and Bobby Fischer..

          You know its good for you – get in there…

  3. I don’t believe in the death penalty but after this:
    “For as long as Bárcenas managed the PP’s finances, El Mundo writes, the politician handed party officials envelopes filled with banknotes worth between €5,000 and 15,000 every month. A former member of parliament for the PP confirmed this practice.”

    and the Obeid/McDonald affair

    and British MP’s expense rorts

    I’m prepared to reconsider in the case of proven corruption of public officials.

    Where is the mandatory sentencing when you need it?

    • reusachtigeMEMBER

      No, I think there’s a lot of people who are part of this whole problem that need to be expired.

    • You are dead right, re corruption, a friend of mine who is of portugese background spent christmas in Portugal and the endemic distrust of politicians and corruption that is going on there.
      My big issue with the Obeid/mcdonald affair is that Kristine Keneally is not being called up to get grilled.
      She was planning minister in 2008.
      I think some sort of singaporean solution is required.

      • reusachtigeMEMBER

        Sowing the seeds of revolt, that is for sure! As these countries sink further, and they see more and more of the corruption for what it is, along with a sense of powerlessness, a belief will grow that retribution won’t come peacefully.

    • What is it with this Obeid/McDonald affair! how much evidence do they need before it gets referred as a criminal matter. I’ve noticed that you no longer seem to be hearing Medich’s name linked to McDonald and Richardson. Interestingly I just checked out Graham Richardson’s wiki page which contains no mention of his close involvement with Ron Medich and that whole sordid McGurk affair.

      And you wonder why these politicians cant enact good policy for the tradable goods sectors.

      • Lol. Had a quick look at Richardson’s wiki page. Richardson Lite I reckon – and for the heavyweight he was/is, that’s saying something.

      • There is a lot that seems to get swept off the radar that is for sure and i suspect that it is a bit like the previous Spanish prime Minister, the threat of a law suit.
        Rossendael, Arib, tripodi, and Keneally are the ones I want to see brought before ICAC.
        I am not sure what has happened with Wollongong council corruption findings, i doubt anyone will do Gaol time.

        • Thats the other bugger that needs to be put through the ringer is Kelly who was involved in some dodgy stuff prior to the election in 2011.

        • If you go down that rabbit hole, you will end up with top pollies on both sides of the aisle!!

          Have a look at the directorships at Australian Water Holdings, where Obeid has his finger too.

          It has now come to a stage where BarryO’s media releases are ghost written by Crown Casino !!

          I won’t be surprised if Karl Biter & Mark Arbib (KarlMarks), former ALP fixers, currently in charge of “Government relations” at Crown Casion, had a role in drafting that release.

          In other words, KarlMarks are now BarryO’s speech writers!! LOL.

    • How about an adjustment of the ‘treason’ or ‘treachery’ offenses to encompass these sort of actions ?

  4. Much as it pains me to say it, the French developed a device to encourage people in office and power to pull thier heads in or lose them!

    Start with the EU big wigs!

    YouTube Nigel Farage to see a real man at work.

  5. “Over the last few months, in Spain especially, there has been a terrible sense emerging that it cannot recover within the euro. The Spanish will just be ground down and down, with more and more useless sacrifices, as further rounds of cuts, accompanied by further rounds of bailout borrowing, destroy any hope for the future. This is what risks creating the bitterness and national resentments which encourages people to listen to demagogues and turn their backs on democracy.”

    Antony Beevor, in Prospect Magazine

    • The high euro will soon resurrect the temporarily dormant crisis in the euro zone. I cannot for the life of me see a scenario where Greece, Italy and Spain survive and thrive again under that currency.

      Summer always brings with it the social convulsions. The current congratulatory back-slapping and complacency will be the perfect cover.

      • Actually Ortega income deflation in the South is sucking industrial production (mostly car & chemical manufacturing) from the North (i.e see Ford & Peugeot closures of factories in France and Belgium and expansion in Spain and Italy for example). I am more familiar with pharma and food and the same situation is happening with my German and Swiss suppliers; leaving admin in place but shrinking manufacturing (particularly bulk or generics) in their home base and expanding in the South. If you want a bonfire maybe you should be looking forward to the 5th of November instead?