Published on May 29, 2009

Spanish housing bubble

A Spanish MEP and a Spanish trade-unionist discuss the housing crisis in Spain and the European consequences.

Lenght: 16 minutes

How can Spain get out of its dreadful housing crisis? Did Zapatero’s government found the trick to reboost the economy but avoiding mistakes from the past? The European elections are imminent. What will influence Spanish votes in June? Answers this week in Action.

Hello. We’re going to Spain, another country hit by the economic crisis. Because of an explosion of the property bubble, last year in Spain, there was too much construction: for example on the coasts, the equivalent of two pyramids of Kheops was built daily. But only debt remained. The average debt for each family was 45%. Too much. And then the system exploded like an air bubble. To talk about the situation in Spain today, Mr Íñigo Méndez de Vigo, MEP and member of the EPP. Hello.

Hello.

And Mr Paco Soriano from the syndicate Comisiones Obreras.

Hello.

Hello. I’ll start with you, Mr Méndez. What happened in Spain? How did we reach such a blast?

You mentioned the property market with second homes, etc. That is not the problem. I think we had a good policy between 1996 and 2004 and then we had the wrong policy, it’s like the ant and the grasshopper. I think we must adopt structural reforms and useful policies for the future, which will generate benefits on the long run. The socialist government has not implemented any of the structural reforms needed. The property bubble didn’t cause this situation, it’s just a consequence. The cause is a lack in necessary structural reforms.

I remember that Brussels was sending warnings to Madrid, saying things were getting out of hands, as soon as 1999-2000, under Mr Aznar. There was a housing peak until 2008, more or less. It all started beforehand.

It started before, but we, the Popular government made structural reforms that were not repeated. And I insist, the property boom is a consequence, but not the cause. Some talked about the Spanish miracle, but I don’t think there was such, and I do believe in miracles, but not in this case. You can make economic and social policies which are right or blatantly wrong. And when the economic policy of the government is determined only by blind optimism, forgetting reality.

Let’s discuss this after our report from Barcelona.

These are ghost towns, thousands of flats for sale all over Spain. They are the most visible image of this crisis after the economic boom. The standstill in the building sector has left thousands jobless. Last week, Roger lost his job as an accountant in a building firm. It is a typical case: he has a mortgage and two children. from now on, he will depend on his wife’s salary.

The job market is at a standstill, it won’t be easy to find employment. This is my main worry: not keeping on for 3 or 4 months. It is bearable for a while, but what worries me is the slowdown, not finding a job easily.

The recession and how to fight it was the main theme of this bankers conference in Barcelona. Jordi Gual, chief economist of the main savings bank in Spain thinks the banks encouraged excesses.

Even if the Spanish Central Bank issued general provisions and forced the banks to reduce loan granting, it wasn’t enough to calm the euphoria. At the time, we knew there was too much euphoria but nobody dared to spoil the party. Spoiling that party wasn’t very popular. It’s easy to say it now, but back then it was not popular to say that the euphoria had to end. It seemed it would last forever, but finally not.

After years of frenzy consumption and loans for everyone, the hangover strikes. The crisis affects everyone: property and car sales, general consumption...

People are starting to get fed up, it’s been a while now, and... When I speak to them I notice a widespread feeling of anger.

Yes, indeed, we can feel the crisis.

Sales are down, it’s difficult to close deals, to negotiate with banks, we will face a couple of hard years.

At this stage we don’t know who to blame it’s chaotic, you don’t know who to blame. We all suffer from the crisis somehow.

The economic hardships make the lack of trust in politicians even worse. Especially young people who live away from the noisy politics. Francesc Marc Álvaro, is a professor of journalism and editorialist faces a lack of interest in politics and in EU institutions every day.

In Spain, as in other EU countries, young people tend not to look back. They don’t study history in order to understand political processes. They don’t appreciate Spanish democracy or the European framework, they don’t appreciate the welfare, cohesion and progress framework offered by the European Union, unique in the world.

This Vox Box in the centre of Barcelona aims at encouraging citizens. Surveys foresee a very low turnout for the elections in June and politicians try to attract votes with their messages.

This crisis altered our way of life, and we have the opportunity on 7th June to choose a different governance paradigm in the EU and in the world.

Mónica knows which paradigm she stands for: a job where she can reconcile work with her family life. The magazine she worked for lost all its advertisers and she lost her job. Job hunting is an exhausting challenge.

There are some vacancies, but what worries me is that for every offer there are 500-700 candidates. You send your CV and you’re already disappointed, frustrated.

Obviously, in the short term, the situation of the job market will be hard, the unemployment rate will keep increasing for a few months. But I am confident about the fabric of production in our economy.

Thousands of flats are now left without buyers. And more and more unemployed people are unable to meet the payments for the mortgages signed during the property boom.

Mr Soriano, the situation is far from simple. Can you tell us what your affiliates’ situation is on site? Is it that bad?

Yes. The situation is dramatic, 4 million unemployed people... No EU country had reached this figure for a long time. This leads to dire personal and family situations One million families already reached the end of their unemployment benefits. The situation is serious. I can’t agree with Iñigo on the causes of this situation. This gentleman from the savings bank explains it very well when he says we were in a bubble that intoxicated us, has intoxicated the governments, it started with Mr. Aznar’s government and went on with Zapatero’s government. Ten years ago, we, the trade unions, thought that changing the country’s economic structure was absolutely necessary, that we couldn’t indefinitely ‘live off the brick’, as we say in Spain, or depend on services. We proposed alternatives: industry, research, etc. But as he said: in the golden years, when we lived like in Hollywood, nobody listened or dared calling for moderation.

Wasn’t there a lack of control? Clearly, there were abuses. I’m asking you both.

Not all banks are equal, some granted too many credits, encouraged by the introduction of the euro and the low interest rates, maybe without thinking. As you mentioned before, Maria, the international and national bodies who know best how the wind is blowing. So do the trade unions. They were warning us this wouldn’t last forever. And I go back to the ant and the grasshopper fable. The grasshopper gets told it won’t be able to sing all its life. I blame this government for not foreseeing this. In the last elections in 2008, not so long ago, we warned them the storm was gathering. They called us unpatriotic.

The minister who just resigned, Mr Solbes advocates non-intervention and market self-regulation. The government seems to have understood. It announced some 14 billion euros for companies. Is this last plan from the government will be enough to reboost the economy?

For us it’s important that all economic and political forces in the country agree among themselves to get the country out of the crisis. It’s very difficult to criticize one side only... One part of this situation. Among other things, our situation is made worse because of the international crisis. We are faced with the international crisis and our own national crisis. It’s crucial that all of Spain’s political and economical agents work and focus to get Spain out of this crisis. It would be a good thing that the EPP presents its proposals to get out of it. I was going to ask him.

Mostly, the media mainly show criticisms and not the proposals which often get lost in the air, that’s for sure. Two weeks ago, Rajoy made proposals, we made 10 proposals against the crisis. I agree with Paco on one thing regarding the pact. Only if it is a real pact and we agree in order to see what to do. Often, this government seems to seek approval for the decisions it took. But when you think the measures aren’t the right ones, and are not heading in the right direction, we have to denounce it. We remember the 400 euros rebate. That was foolish. A huge mistake. So, I agree with him, we are willing to speak, to meet and find an agreement with social agents, with entrepreneurs. But the agreement must be loyal. Let’s sit together with the proposals and see what we do together. But the government only wants us to support its proposals. If we don’t do this, they call us unpatriotic.

Obviously, we also criticise the government’s policies. For instance, we didn’t welcome last year’s tax rebate made by the government a 400 euros rebate for those doing their tax return. We think it’s a way of depleting the national Treasury. without this serving any concrete plan of reboosting anything.

The next event is the election of the new European Parliament. Is Europe talked about at all?

Yes, it’s crucial. Besides... I’m not a politician but a unionist. We are a pro-European union, we’ve always advocated European values. We keep defending them. At the European Trade Union Confederation and with our affiliates. We’d like this campaign not to be used to solve our national conflicts but so that political proposals address European issues. We want to know what the Socialists think of Europe, if they will support again something like the return directive. We want to know if the PP will commit to not deregulating social policies. That’s what we want to know.

The problem is that very few people will go and vote. My feeling is that politicians deliberately talk about everything except Europe. There’s topics such as a new mandate for Barroso at the head of the Commission. You hear nothing about this.

I think that you do.

Will the treaty finally be enforced, that’s a topic very dear to you. You don’t hear about this.

I’ll answer both questions with pleasure. They should talk about that, no doubt. But again, that is all. It’s a national issue. It’s a European debate too. The Lisbon Treaty is a European issue but a national one too. And what Paco said too. It’s important to discuss the return directive, of course. The topic is European but it affects Spain. The directive has to be transposed in Spain and turned into national law. We have to have this debate. For instance, on the 65 hours: that’s a European topic. But it affects Spain and I am willing to debate upon this at any time.

Young Spanish people feel they’ve been betrayed by the European spirit, the enforcement of the Bologna Process on academic degrees. Were they right in demonstrating? Those who demonstrate want to and I fully respect this. The Education Minister who also was a rector for a famous Spanish university, is right saying that the Bologna Process has been explained very badly. All Bologna aims at is to facilitate things for students. All it wants is that a Spanish degree to be recognised in other countries, to work abroad. So that a student in one country, you can go and work anywhere within the EU. Bologna isn’t understood. Yet, there are a few problems with a few particular degrees. Our role as politicians is to fix the problems and provide answers to citizens.

Were the young afraid the government wanted to privatise universities?

That has nothing to do with Bologna, it’s a political decision. It’s got nothing to do with it.

Thank you very much.

Good bye. Good bye.

That’s all for this week. Good bye.