Spain Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Spain related comment. He also maintains a collection of constantly updated Spain charts with short updates on a Storify dedicated page Spain's Economic Recovery - Glass Half Full or Glass Half Empty?

Sunday, September 10, 2006

A Face That Launched A Thousand Ships

An unlikely Helen, Spain's deputy prime minister, Maria Teresa Fernandez de la Vega, that's for sure. Yet outside a few thousand years difference in timing the two seem to have been cut out for one and the same the same historical role: urging the boats to go back. Indeed the only thing which really separates them might be the magnitude of the problem to hand, since Coalición Canaria president Paulino Rivero suggested this weekend that what might be involved were not a mere 1,000 ships, but anything between 10,000 and 15,000 currently being built along the Mauritanian and Senegalese coastlines.

Joking aside this post is about tragedy, a human tragedy. According to the NGOs who are involved some 3,000 people have already died in attempting to make the hazardous crossing, a crossing which was actually completed over this weekend by a record 1,200 people in 36 hours.

As well as tragedy the post is also about folly, the folly of those economists who think low fertility isn't an important economic issue. This opinion was recently expressed by respected US economist Greg Mankiw, (on his blog) who described the very idea that it might be as 'wrong headed' and, to boot, suggested that a poll of the world's top ten economists would draw a blank on names who thought that low fertility was among Europe's major economic problems. I am sure Mankiw is right about the poll, and this is why I use the expression 'folly'. So what do I mean?

Well lets look at some of the facts. Firstly Paulino Rivero is almost certainly exaggerating, even sensationally so, but this aside, a lot of boats are in preparation. Spanish TV crews spent last week vising a number of makeshift shipyards in Mauritania, and one of the curious economic details you could notice was how the process was in fact exhibiting an increasing returns type feature, in that the incresed demand for boats incresingly meant that a number of would-be migrants were actually not sailing but staying since they could make a reasonable living in the newly developing artisanal shipyard industry, with the consequence that more boats were being built as knowledge and experience (human capital) was being accumulated. So the movement is growing, and whatsmore, feeding on itself. This thriving little industry is now being reflected in the numbers arriving, with more migrants reaching the Canaries in the month of August than in the whole of 2005.

The migrants in fact come from Senegal, and not from Mauritania itself, a fact which makes it virtually impossible to return them to a 'country of origin', since neither Morocco nor Mauritania want to get involved in accommodating long-term would be migrants. An attempt was made by Spain back in May to reach agreement with the Senegalese government to accept repatriation, but this failed at the first hurdle when the first group of 91 refused to disembark on arrival alleging 'ill treatment' by the Spanish authorities, and thus the issue became politically unsustainable for the Senegalese government who had to renounce the agreement. Since that time no-one can be repatriated from Spain to Senegal.

The issue is also about networking, since the recent rise in the number of crossings is more about the fact that a significant Senegalese community has established itself in Spain than about anything else. In order to move migrants need two things: money and information. Both of these they obtain by having famility members and relatives at the other end of the chain. These relatives send money and they also send, via mobile phones, information. Typically the first thing a migrant wants to do on landing is phone relative to let them know they have arrived safely.

So once they have arrived what happens to them? Well since they cannot be repatriated anywhere, and since the Canaries is a small place, they are normally flown in a matter of days across to the mainland where they are served with an expulsion order and then released. Since there is effectively nowhere to send them, and the Spanish authorities are reluctant to invest resources in building long term accommodation centres, they are really faced with very little alternative. On release the migrants normally go directly to the home of a relative, and very quickly they start to work in Spain's very fluid and extensive informal labour market, from whence they send more money home, so, of course, more can come.

The importance of the network component here can be seen in the fact that while in 1999 a mere 2% of maritime interceptions involved Senegalese, by 2004 Senegalese constituted 55% of those intercepted. Meantime the flow of migrants from Morocco has reduced itself to a trickle, and this despite the fact that Morocco is much nearer, and access accordingly easier. I shall return to this decline in Moroccan migration later.

Now, as I have indicated, as far as I am concerned this IS all about fertility, and it does have an economic substrate. Spain, as is by now well known, has long had below replacement (lowest low) fertility (currently in the 1.3 TFR range). Senegal, on the other hand, has high fertility which is stuck in or around the 5.1 range (ie it has barely started its demographic transition). This differential creates what could be called a 'fertility gradient' which, unlike its electro-mechanical equivalents, produces not a flow of protons or electrons, but rather a flow of people. In any event the end result is the same: work gets done which otherwise would not be.

Fertility in Morocco, in contrast, has been reducing rapidly (I have a post about this today on Demography Matters), and is now approaching replacement level. As such the steepness of the fertility gradient between Spain and Morocco has reduced sharply (Morocco is about to enter the demographic dividend growth stage) and the flow of people has accordingly declined significantly.

Now in one sense - aside from the human suffering involved - all this is well and good, since Spain's economy is booming, and the pensions system certainly looks a lot healthier than it did 5 years ago. This 'community of interest argument' has been being made for some time by US economist David Bloom (who is obviously not one of the top ten on Mankiw's list, since he does think that fertility is important to economics, and he is quoted to this very effect in this recent and relevant article by Malcolm Gladwell):

David Bloom, the Harvard economist, once did a calculation in which he combined the dependency ratios of Africa and Western Europe. He found that they fit together almost perfectly; that is, Africa has plenty of young people and not a lot of older people and Western Europe has plenty of old people and not a lot of young people, and if you combine the two you have an even distribution of old and young. “It makes you think that if there is more international migration, that could smooth things out,” Bloom said.

So in a way this process can work for Spain, and it could work for other parts of Europe who eventually will be on the receiving end, but what about Senegal? Well this isn't so clear, since this flow of people may serve to produce what economists call a 'bad equilibrium'. As I have said Senegal has yet to go through its full demographic transition, and allowing the outlet of remunerative migration (remember the remittances) might well serve to reduce pressure for change ( a semi corrupt government being able to maintain its popularity without doing too much) as well as pressure for fertility reduction, since the 'patriarchs' now have even more interest in keeping having those children as they will go abroad and send money back.

But why so much fuss, you might say, since Senegal is a relatively small country (some 11 million or so), and at the end of the day the numbers are never likely to become that massive. Well quite, but here I think it is the process more than the immediate product that matters. Today the flow is from Senegal since the initial network has been created from Senegal, but tomorrow it could be Mali, or Niger, and the day after, well who knows where. So this issue is likely to become more, not less, important with time, and it is an issue to which we need a coherent and rational response, and a response on an EU level (and here we return to Maria Teresa Fernandez de la Vega, who is undoubtedly right in this). What we need is to face the realities of our demographic situation with a response which resolves existing problems rather than simply creating fresh ones. And meantime, even as I write, for sure the next boat is now being built.

Tuesday, June 20, 2006

The Catalan Statute

Well here in sunny Catalonia we don't have a fooball team of our own right now, so maybe that's why we chose this precise moment to hold a referendum about our future.

Now the first thing to get straight is that despite all the direst predictions, Spain is still here the morning after the big vote, and in one piece, I just touched the floor to prove it. Indeed 11 footballers (some of them Catalan) will also come to earth on German turf tonight just to graphically illustrate the point. So it does seem that some of the concerns raised in the coments to this post were well wide of the mark.

Some issues do, however, remain.

"Catalonians vote for sweeping new powers", reads the AP headline. Well this is not entirely the case. Most of the powers in the new statute are not in fact new. What the statute is, more than anything, is a consolidation of previously existing powers which had been accumulated in a ragbag fashion (in pacts with both PP and PSOE governments) during the 25 years since the last statute was introduced, and their elaboration in one single, symbolic, text. Nothing is going to change dramatically as a result of yesterday's vote.

Two changes seem to be being treated as having some importance:

a) A larger share of taxes raised in Catalonia will now be retained and administered locally.

b) Reference in the preamble to the statute to the fact that "many Catalans *feel* themselves to have a national identity".

On the 'national question' the wording is important, as is the fact that it appears in the preamble and not in the actual body of the text. The wording is framed in this way to offer some recognition to the fact that many Catalans feel themselves to belong to a nation (just like the Welsh and the Scottish do), but to do so without giving explicit nation status to Catalonia (this is likely to be a question which simply isn't going to go away). In this sense the text is perfectly compatible with the Spanish constitution which refers to the existence of three 'historic nationalities' (the Basque, the Galician, and the Catalan ones) without exactly clarifying what this expression actually means. In this sense the precise meaning has traditionally been left to interpretative decisions by the Spanish Constitutional Court.

On the taxes issue it should be borne in mind that some 33% of national income taxes are already retained in Catalonia (this was decided by the PP government of Aznar when it needed support in the Madrid parliament from the Catalan nationalist party CiU) and this figure will now be increased to 50%.

But before you run away with the idea that all this money will be something extra, it is worth pointing out that what the money is to be spent on is determined by the additional devolved responsibilities which also come with the statute, like more control of logistical infrastructure, train services and highways etc, and the administration of work permits for immigrants.

It is worth noting at this point that the original Basque statute effectively gives the Basque government 100% control over income taxes collected in their community and that Zapatero has already said he will offer other Spanish regions the same tax arrangement that Catalonia has just obtained. So in many ways, instead of representing a first step to break-up, all of this could be seen as a step on the road to a less centralised, more federal Spain, and one which offers complete recognition to it's national minorities.

But, as I said, there are remaining issues (like the football team). Interestingly, in many ways the statute could be interpreted as representing the first stage in a process, and not the end of a road.

As is well known, Zapatero is also battling it out with the PP on another front: his proposal to have 'talks' with Eta.

Now, in my humble opinion, the talks with Eta question is a side issue. What is really important is the ending of terrorist violence in Spain. This ending of violence will also have another aspect, since it will bring the 'Basque question' back onto the front page of the political agenda, thus rescuing it from the limbo where it has effectively been kept by 25 years of persisitent violence. So the real talks, the important ones, won't be with Eta, but with the Basque political parties, in an attempt to find a final and definitive end to the issue.

And guess what, any final settlement to the Basque issue will almost certainly involve changes to the Spanish constitution. Re-enter Esquerra Republicana (ERC) by the side door.

Essentially this statute has become such a watered-down document due to the real problem of making it fit within the present terms of the constitution at a time when the PP vehemently refuses to play ball, and makes any constitutional change to accommodate the 'new Spanish realities' virtually impossible.

But again, guess what, things do sometimes change. Zapatero has Rajoy 'arinconado' (cornered), like the triumphant matador he looks gleefully in the direction of Manuel Marin (the speaker in the Spanish parliament) during their regular debates to see if he gets to cut the ear now or later.

On their present course the PP is headed for almost certain electoral defeat, and Zapatero is leveraging this for all he's worth, steering them continuously straight back onto their present course. So he is spinning this one out. The talks with Eta will be minimal until after the next election, keeping his groggy opponent well contained against the ropes, and my guess is that little progress will be made towards a Basque political solution during this time.

But after the elections, well, after the elections..... things will almost certainly change. Rajoy will almost certainly go for one, and the PP will alter its disastrous course. Which means of course that it will be possible to talk, and even talk about constitutional changes. What most Spanish voters want is the Basque issue solving definitively, and the PP won't be able to stand in the way of this forever. So, one more time, enter ERC through sidedoor.

Now what am I talking about? Well I imagine that the recent behaviour of ERC has left many external observers feeling a little perplexed. They propose a new statute, get it through the Madrid parliament, then effectively resign from the Catalan government and urge people to vote against. My own view is that all this is a bit tongue in cheek. Most ERC voters support the new statute pragmatically, as being better than the last one, and most ERC members share that view. The thing is, the party, as a party, has been simply reserving its position, reserving it for what comes next, the second course.

Basically there will now be elections soon here in Catalonia, probably in September as the current socialist government doesn't have anything approaching a working majority. And after the elections will come the inevitable negotiating and pacts (Catalonia is above all a country of pacts). Now the most probable outcome of these negotiations, as far as I can see, is a repeat of the earlier 'tripartit', that is the socialists will once more need to share the government with ERC. So the thing is, ERC had to vote no to this statute to be in any credible position to demand yet more changes (as I say this time in all probability constitutional ones), and they will be doing this in a climate which, after the next Spanish national elections, may make such changes possible.

So who knows, maybe next time we have a world cup there actually will be a Catalan squad participating, come'on Cesc, come'on Puyol, come'on Iniesta, come'on Xavi.

Tuesday, April 11, 2006

This Is One To Keep An Eye On

2003 was a good year for the Spanish banks, with interest rates at historic lows, lending boomed. News has it today that net profits at Santander Central Hispano, Spain's largest bank, rose 29.6 per cent in the fourth quarter to ?681m ($857m) mainly on strong mortgage lending in Spain and growth in its consumer finance business in Germany and Portugal. Net profits totalled ?2.61bn for the full year, a 16 per cent increase over 2002 and the best year on record, while credit inside Spain was up 16.2 per cent as the housing boom continued on its relentless path hence generating strong demand for mortgages.

So good luck to the bank, and that's it. Well again, not exactly. Why is there a boom in consumer credit and mortgage lending right now in Spain? That really should be the question.

Well the prime suspect here has to be the rate of interest. Spain as a member of the eurozone has been having the luxury of enjoying a rate of interest lower than the rate of inflation for some years now. In this situation the real rate of interest (that obtained by subtrating the inflation rate from the actual interest rate) is clearly negative. The consequence of this is that no-one wants to leave money lying idly around in the bank, and since opportunities for profitable investment have reduced substantially (here in Catalonia we are currently living through a wave of factory closures as industry - unable to work in the new high cost Spain - moves out). Incidentally whilst people are talking extensively of the way the job creation machine is moving down the value chain in the US, little comment is being passed on this in the European context: yet a staggering 91% of all new contracts in Spain last year were temporary ones. And the people entering employment are now earning significantly less than those they replace, as companies in all sectors struggle hard to maintain profitablility.

Now normally running an economy in this way would be regarded as extremely bad practice, but in the context of the euro 'experiment', what was once deemed to be undesireable may now be seen as a virtue. However does it occur to no-one that the impact of a systematically lower than optimum interest rate (and a correspondingly artificially over-valued currency) might not have been having serious detrimental effects on economies like Spains?

Let's put it this way: you need to divide the Eurozone countries into two camps, those who - broadly speaking - need a higher, and those who need a lower, rate of interest. (In fact virtually none of the economies needs the rate you actually have).

Now the latter group have certainly experienced a loss in GDP in relation to what might have been achieved with an appropriate rate of interest, and Germany is obviously the principle casualty here. They could have run more efficiently, although they have perhaps been able to sell more to the former group, so this offsets the loss somewhat.

The second group, which of course includes Greece, Spain and Portugal appear at first sight to have gained GDP, since they have run a lot hotter than would otherwise have been possible. It is here the biggest problem lies in my opinion. Because this short term growth has only been obtained at the price of longer term problems, being achieved as it is by borrowing more than would otherwise have been advisable.

The consequences of this folly are sometimes extraordinarily clear. Again speaking of Spain, which is the country I know best, we have the most horrendous housing boom. Property prices have risen at around 20% per annum during the last three years. 40% of all residential property built in the eurozone was built in Spain last year. Now put bluntly with an ageing and mid-term declining population, Spain simply doesn't need all those homes. But since they are assumed to be rising in value for ever, and since the interest rate makes them seem so attractive, the typical middle class investor has gone on a shopping spree, just like when they open the doors on 1 January. Here in Barcelona I don't know anyone in this category who has not bought at least one extra property, and normally it's two, three or more.

Has nobody else seen this? Well the IMF, the Commission and the Bank of Spain have been repeatedly warning, but of course, what can anybody do. It is a by-product of the euro. Interestingly enough, the UK which has had its own housing bubble in recent years considered this disadvantage decisive in the recent 'tests' exercise.

So what will happen when this finally bursts? I dread to think. Certainly we will leave a generation of young Spanish people horribly indebted - and even more so if the global environment turns deflationary. In addition two large questions also loom in the background. Most industrial enterprises have seen themselves inexorably converted into what are effectively property companies as the balance sheet impacts of the upward spiral have made themselves felt. So what will be the consequence of the deindustrialisation process here in Spain's industrial heartland, in Catalonia.

Secondly, just around the corner lies another headache. The centres of Spain's big cities have been converted into zones packed with high value office premisses, where again the projected rise in the property value may, paradoxically, have been an incentive for the location decision, and even a prime motive force in the final decision to set up the business in the first place. However out there in front lies another big social transformation: home working. Most vulnerable to this is every kind of office work as employers look for ways to reduce costs as an alternative to outsourcing in India or Argentina. And the 24 billion dollar question is: what happens to city centre property prices when the offices are no longer required as offices?

Wednesday, February 22, 2006

Spain Is Now Over The Radar

It all started with the Catalan Statute, then there was this piece, then Wolfgang Munchau joined in. Today comes the news that:

"The European Union’s top competition regulator will this week issue formal antitrust charges against Telefónica, alleging that the Spanish telecommunications group has abused its dominant position in the fast-growing market for broadband services."

And there is the situation with the takeover bid from the German group Eon for the Spanish utility company Endesa (full copy here):

ImageEon, Germany’s biggest power group, on Tuesday launched a €29bn cash offer for Spain’s Endesa, raising prospects of renewed consolidation in Europe’s energy sector.

If Eon succeeds it would be the word’s largest utility deal, valuing Endesa at €55bn, including debt and minority interests. It would create the world’s biggest utility with 50m customers across 30 countries in Europe and the Americas.

But the move, which trumps a rival bid from Gas Natural, threatened to disrupt Spanish efforts to create a national champion in the power sector and presented a challenge to Brussels just days after it announced an antitrust crackdown in the energy sector.

The curtain is about to be drawn like never before on Spain's inner 'boudoir'. Let's just hope that everything which is to be found there makes for suitable public viewing.

Monday, January 30, 2006

Hot Labour Anyone?

This post has one sovereign virtue: apart from in the current sentence it will not refer, either directly or indirectly, to the Catalan Statute. The topic it does deal with however is probably equally vital for the future of Spain. The issue is Spain's housing boom, and the role of immigration in fuelling it. Two facts above all others stand out: Spain is currently 'enjoying' the longest and deepest housing boom (in the current round) among all the world's developed economies (see this useful article from the Economist, or this one from Business Week), and Spain is also enjoying sustained rates of immigration which - at around 2% of the population per annum, may well be the most intense ever experienced in a developed economy. For purposes of comparison I could point out that Spain’s net migration rate of 17.6 per thousand in 2003 contrasts sharply with that recorded for the old European Union 15 for the same year – 5.4 per thousand – and is even well above the level recorded by Germany in the early 1990s – a maximum of 9.6 per thousand in 1992 – or by France in the early 1970s. So there is a housing boom, and there is immigration, the question is, what is the connection?

Before going any farther on this, I would just like to draw attention to a recent Live Journal post from Randy McDonald. Spain's demographic problems are more or less common knowledge. During the 1980s and 1990s it was among those European countries where the fertility rate dropped to what has become known as the lowest-low level (hitting an all-time low at around 1.2). The consequence of the fertility decline coupled with the continuing rise in life expectancy (Spain with a life expectancy of 79.52 is eleventh in the global rankings) is a very rapid ageing of the population, and an anticipated loss of population of something like 9 million people by 2050, which means a population drop from the 2000 figure of 40 million to 31 or even 30 million in 1950 (United Nations 2002 provisionss, median estimate). But all that was before immigration really got going.

Spain's population on 1 January 2005 was 44.1 million (up by more than 4 million from the 2000 figure) according to data from the National Statistics Institute (INE), of this increase some 600 - 700,000 a year are immigrants, and some 80,000 a year or so are a 'natural increase' due to the steady ageing of the population. In fact in 2003 net migration was estimated to account for 93% of Spain’s population growth.

Now all of this leads Randy, reasonably enough, to ask, whether immigration will not be the saving grace for Spain:

"Within the space of a decade, Spain's population composition has changed radically thanks to a population increase of almost 10%. No one saw this wave coming, but this came nonetheless and transformed things radically. Given this single compelling example, it seems if nothing else prudent not to trace out population curves out to infinity."

The issue here however is one of sustainability. At this point enter commenter Pepe from Madrid, who in an earlier discussion on the fertility problems of the Czech Republic made the following, extremely insightful point:

In purely economic terms, I would liken low fertility to a low savings rate. In such an environment, an influx of foreign capital is needed to maintain growth.

In monetary terms, this can take the form of FDI or foreign equity investment (“hot money”). Now, when people talk about immigration (human capital inflows) as one way to compensate for low birth rates, a similar distinction has to be made between immigrants who become integrated on the one hand, and what I call “hot labour” inflows on the other.

So there is 'hot money' (which everyone is familiar with) , there may also, however, be 'hot labour', labour sucked into an economy which is badly overheating, and which is not a stable element in any given country in the longer term. Like hot money, hot labour can be subject to 'flight', and this is just what Pepe and I fear may happen when the housing boom finally ends.

Now one thing is for sure, immigrantion is steadily nudging up Spain's fertility rate. A good starting point for looking at this would be a recent paper by Marta Roig Vila and Teresa Castro Martín: Immigrant mothers, Spanish babies: Longing for a baby-boom in a lowest-low fertility society. As they indicate:

"Coinciding with the increasing presence of immigrants, there has also been an increase in the population’s natural growth. In particular, the crude birth rate increased from 9.1 per thousand in 1996 to 10.5 per thousand in 2004. This coincidence is not fortuitous: in 2004, the crude birth rate of the foreign population was 20.5 per thousand, double that of Spaniards (9.7). Indeed, the foreign population has an age structure conducive to higher natality. The median age of the foreign population, 31.2 years in 2001, is well below that of the Spanish population (37.8), and the proportion of women in childbearing age is significantly higher among foreigners (70.6% of all women) than among nationals (52%). ........ the proportion of births whose mother has foreign nationality has experienced a remarkable increase in recent years. In 2004, 13.7% of all live-births were to foreign mothers –and 16.9% to either foreign mother or father–, a proportion that exceeded the proportion of foreign nationals in the overall population (7%). As noted earlier, the crude birth rate of the foreign population is twice that of Spaniards, but this could be partly due to their younger age profile."

But there are reasons to think that this boost to Spanish fertility may be temporary. As Roig and Castro Martin point out, there are two main issues. In the first place the operation of what is known as adaptation behaviour, as migrant women steadily 'adapt' to the fertility bavaviour of their adoptive country:

"Some authors suggest that the first generation of certain immigrant groups tend to maintain the reproductive norms and patterns of the country of origin (Abbasi-Shavazi and McDonald, 2002). A considerable number of studies support the adaptation hypothesis, which predicts that immigrants gradually adjust their reproductive behaviour to that of the host country (Andersson, 2004)".

The second issue is the decline in fertility which is already well advanced in the 'sending' countries (ie female migrants may well soon be coming from countries which already have below replacement fertility themselves: this is already true of the Central and Eastern European 'transition' countries):

"With regard to the foreseen future, according to United Nations projections, the fertility in the five countries examined - Morocco, Ecuador, Colombia, Peru and the Dominican Republic - will range from 2.22 to 2.36 in 2015-2020 (United Nations, forthcoming). Thus, in the next decade, immigrants not only will depart from a country with an average fertility close to replacement, but if educational selection continues at play, they will have lower fertility than the national average."

So if the long term impact on Spanish fertility is doubtful, what about the sustainability question, since these new migrants are almost exclusively here for economic reasons, what are the reasons for assuming that they will remain in more adverse circumstances?

Pepe suggests that we divide the migrants into those who will stay the course (those looking for a permanent home) and those who won't, who will move on to the next country and the next job as soon as things get too rough here. I think he is right, but quantifying the situation is hard. Al I can do is offer an anecdote.

My partner's parents have an Ecuadorian women looking after her mother who has Alzheimer. This woman went home to Ecuador for xmas, and now she has come back she has decided she needs a document of salary (or nomina in Spanish). She needs this since talking to other female migrants (she has btw residence papers) she has decided that she would like to go to the bank and borrow 10,000 euros. She needs this money, since she wants to rent a flat in her own name so she can offer accommodation to new immigrants coming - on a sub-let basis - and thus make money from the boom herself (here in Barcelona there is now a new weekly paper for Latin American migrants which they hand out in the metro - it's called appropriately enough Latino - and last week's front page item was about a small flat in the very centre of Barcelona with 25 Ecuadorian women living in it. So there is certainly scope for business.

The point of all this is that the arrival of so many immigrants so quickly has pushed the rent on flats out of the roof: it is more expensive - in monthly payments - to rent a flat than it is to buy one, and that surely is a sign that something is badly amiss. The other point of this little homily is that ideas traval fast. In the age of mobile phone connectivityyou can quickly have viral entrepreneurship, and of course, rapidly built pyramid chains.

So what might happen when the 'boom' ends. Well in the case of our Ecuadorian woman, with a flat which she can't rent if no immigrants come, and with a rent liability she herself cannot meet, and with an outstanding loan to the bank of 10,000 euros she cannot pay, possibly the most intelligent thing she could do would be to get on a plane and go home. The owner of the flat would have a different problem set: they have an empty flat with no tenant in sight, not for kilometres and kilometres and kilometres. And of cousre the bank wants to know about next months mortgage payments, since the majority of these flats which are up for rent are being bought by someone who doesn't need it 'as an investment'.

Now lets think about the building contractors problem set. Well people in this occupation normally live on credit, and normally pay salaries and other costs out of money borrowed from the bank till the building in question is sold. The bank accepts the situation as long as it has good reason to assume that the building eventually will get sold. But this is just it, when the boom breaks for some significant period of time the flats won't get sold, at least not in anything like the quantities they were (Spain's last boom ended in Olympic year 1992, and the property market didn't recover till 1995). Now when the bank sees that their customer isn't going to be able to sell, what does it do? It cuts the line of credit, that's what it does.

What this means is that one fine Friday the boss has no money to pay his workers. So he goes to the site and tells them this, sorry lads, off you go, and no money for now, I'm afraid. That's if he has the 'face' to do this. Some of them of course simply launch themselves from the 13th floor of the unfinished building.

Now imagine what is actually going to happen the day the bubble bursts. This process can happen in building sites all across Spain, and in a very rapid period of time. The Spanish workers will be more or less Ok, but the migrants? Again it's hard to put numbers, but I reckon we could at some point see a million migrant workers, on the streets with no work, and no reasonable prospect of employment, with their home governments possibly pressurising the Spanish one to organise flights and fly them home.

And just when might this nighmare end game to Europe's best known fairy story come to pass? No one has any idea. Since the thing which is driving the boom is the ridiculously low interest rates which are currently on offer from the ECB (in Spanish, not German terms) and since there is little likelihood of any substantial rise in these any reasonably foreseeable future the show looks like it will continue to run, until, of course, the day it doesn't that is.


Abbasi-Shavazi, M. and P. McDonald (2002). A comparison of fertility patterns of European immigrants in Australia with those in the countries of origin. Genus 58(1): 53-76.

Andersson, G. (2004). Childbearing after migration: Fertility patterns of foreign-born women in Sweden. International Migration Review 38(3): 747-774.