Spain: Bubbles, bombs & bombast
It wasn't the story that got the most media attention in Spain this week, but it may be the one with the most serious long-term impact: The combined debt of builders, realtors and families for housing in this country is now as big as the entire gross domestic product of Spain! Un billón de euros -- that is, a million times a million, or what in the U.S. we call a "trillion." Which means, at current exchange rates, about one trillion four-hundred million dollars.
The double-digit yearly inflation of housing prices for the past 5 or 6 years and the mad pace of building -- 850,000 housing units last year, more than Germany and France together (and both are larger countries) -- created an economic bubble that got so big that the building & realty sector accounts now for nearly one-third (32.5%) of all outstanding bank loans, up from about 10% eight years ago. It couldn't go on indefinitely, and the mortgage crash in the U.S. (where Spanish banks had bought bonds that are now plummeting in value) has finally pricked it.
Now suddenly mortgages are more expensive, housing prices are falling, and buyers are disappearing. Realtors who had taken out big loans backed by the expected sale prices of over-valued land and buildings are defaulting. So far no major bank in Spain has come close to failing, as we saw recently in Britain (they say it's because they are more cautious in their mortgage policies), but one significant realtor, Llanera, has collapsed.
Slowdown in construction is expected to cut Spain's 2008 economic growth rate from an impressive 3.4% (predicted in May) to 2.7% (El Mundo, 3 Oct. 2007), and investment growth in construction will drop from 3.8% in 2007 to 0 -- yep, zero -- in 2008, according to the bank Caja Madrid. There go tens of thousands of the semiskilled jobs that have been filled largely by Rumanians, Lithuanians, Senegalese, and South Americans. And lots of other jobs and expectations.
Spain's rapid economic growth in recent years has been almost entirely due to the construction industry, mainly second homes for the wealthy. As economist José García Montalvo put it, "It's a disaster for the economy that a sector with such a low productivity is absorbing so much of our resources." (El País, 7 Oct.)
The building frenzy has wreaked havoc with local ecology, not to mention the scenery of the coastline covered with brick and cement hotels, apartment complexes and shopping centers. The disastrous flooding in Almuñécar less than two weeks ago, when the rain was heavy but no greater than normal, was largely due to "invasions" of riverbeds by eager builders. (The monstrous floods in Alicante today were probably aggravated by similar causes -- we should know later this week.) Almost all new building has been for high-priced second homes, most of which are empty most of the year (and when they're not, the first home is empty). Meanwhile, organizations of youth are organizing massive protests because they can't afford to buy and can't find anything to rent.
No other country in Europe has been building so much for such little purpose or with so little concern for the environment or for the social needs of its population. What has caused such a distortion of the economy? A combination of forces: an eccentric land-use policy legislated under the Aznar government (giving local governments the power to declare almost all land "urbanizable," meaning buildable), Spanish local nationalisms demanding ever more authority over land-use (and thus permitting the well-connected to make fortunes turning farmland and parkland into luxury housing), the growing prosperity of a certain class of Spaniards and the influx of well-pensioned foreigners, all seeking homes on the coast and near golf courses, and a local, city-government financing system that depends on sale of licences to builders (and thus a strong incentive to "urbanize" everything). The inertia is too strong for all the building to stop suddenly, but the slowdown will be felt.
The bombs you no doubt know about. ETA is back with a bang. It all seems so atavistic, violence for "national liberation" at a time when the nation-state is losing its relevance (see the note on Ulrich Beck, below). The problem for ETA is that, if they became a legal political movement and put Basque independence to a vote, they almost surely would lose. But that's a subject for another essay.
And bombast. Today is Spain's "national fiesta." Today, 12 October, Spaniards celebrate -- well, what, exactly? Columbus's encounter with the Arawaks in 1492 and the beginning of Spain's American empire? No, that didn't turn out all that well. Maybe the day of the Guardia Civil? Well, sort of. But really it's for Spain's patron saint, the Virgen del Pilar, who appeared atop a pillar in Zaragoza in the 13th century. Big party (military parade, appearance of all the royals with the government, and opposition leader Rajoy waving a flag to show he's more Spanish than anybody). A great occasion for attention-grabbers of all sorts, including far right-wingers who booed the president right when he and the king were honoring Spain's war dead, and in Basque country, the self-styled "Abertzale (Basque for "patriot") left" trashing everything they could in San Sebastián.
This is just a bit of what seems to me important in Spain this week. More next Friday.
Photo from today's "Desfile de la Hispanidad" in Madrid: EFE, El Mundo