I had to see it for myself. I couldn’t believe the Spain I knew, once the 9th largest economy in the world -- per GDP -- had unraveled into an economic mess, harboring 25 percent unemployment, weathering a horrendous real estate climate akin to the U.S., political fragmentation, and insurmountable deficits that have left the central government in a bona fide quagmire.
I have always been fascinated by Spain’s culture, history, people, wine, gastronomy, and that peculiar Spanish ‘mystique’ that radiates everywhere throughout the country. After traveling to Spain many times between 2000 and 2005, I noted something unsettling about my generation in Spain: many were idealists, thinking the good times were here forever. Many times in conversations with Spaniards, I was annoyed by the naivety in regards to economic-political matters, seeing the world through a wonderland prism, dismissing the shades of grey that are present in many facets in life, and worrying about trivial matters instead of pursuing further growth and advancement.
Too much ‘fiesta’ and ‘siesta’, not enough real world experience. To this day, I’ve never met a Spaniard complaining about his own business; instead I constantly hear complaints about big business. Entrepreneurship is a foreign word. I have never came across a young Spaniard attempting to take advantage of the opportunities available Latin America. They share the same language, same religion, similar cultures (more or less), but the gap in terms of synergy could not be any wider. I find it astonishing and frustrating that the bridge between Spain and Latin America has always been made out of wood, instead of steel.
Because of all these reasons -- and many more -- I am not at all surprised about the situation Spain is in.
I know it is not fair to pin the majority of Spain’s problem on the 20-35 year old demographic. It’s not. However, it is, in a nutshell, why Spain is in a weakened position instead of one of the world’s leaders.
In 2004, with the national elections just three days away, a Moroccan national bombed Madrid in a terrorist attack, killing 191 people and wounding 1,800. According to many polls, Mr. Aznar’s Partido Popular (PP) party was in the lead for the upcoming elections, by a slight margin. However the bombings changed Spain’s path. Spaniards reacted angrily, ousting Aznar’s conservative government and electing the Spanish Socialist Worker’s Party, governed by Mr. Zapatero. Unlike the U.S. after 9/11, where Americans rallied behind former President George Bush, the Spaniards blamed the PP for the unfortunate tragedy. Protests were in abundance, blaming Mr. Aznar for getting Spain involved in the Iraq war, which in turn gave the terrorists reason to attack Spain. Albeit, Prime Minister Aznar didn’t do himself any favors by not handling the bombings in the most effective manner, jumping the gun by first blaming the Basque terrorist group, ETA.
As such, Prime Minister Zapatero inherited a strong economy, and in turn ran up deficits, shattered the alliance President Bush and Prime Minister Aznar had solidified, and fanned the flames of anti-Americanism, a sentiment that has always subtly existed in Spain since World War II. In addition, Mr. Zapatero was aloof in economic matters, showing his lack of awareness of the economic catastrophe that was breaching the shores of Spain. Instead of bunkering down, Spain continued to spend.
Basic logic tells us that when you spend more than earn, you create deficits. When you earn more than you spend, you create surpluses. Sounds easy, but very hard to practice (see U.S. subprime mortgage disaster). In Spain, the entire country was on a spending binge, easy credit was available, and real estate became the new phenomenon. This all transpired under the thinking that the Spanish economy would never slow down. The autonomous regions were spending at unprecedented levels on services, benefits, pensions, and urban developments. Labor agreements were being finalized on the coattails of easy money; according to the Wall Street Journal, Spanish labor costs rose 23 percent from 1999 to 2006. Spanish banks paid no attention to economic fundamentals, discarding textbook economic fundamentals and risk management, over-leveraging themselves to a point of destruction, financing real estate loans without proper due diligence, and abating a real estate bubble that eventually popped in 2007. Currently, construction in Spain has virtually stopped, leaving ghost towns in many places as a reminder to everybody what irrational optimism (or aloofness) does when it is not contained by prudence and pragmatism.
After just returning from Spain for a 10 day visit, my conclusion is that it is not going to get better anytime soon. The country is too divided; the austerity by the Spanish government is too extreme; the people do not want to make any more sacrifices. Most concerning, I didn’t feel or sense the vibrancy of business, entrepreneurship, and resiliency that other countries currently foster. As much as I wanted to declare that Spain would be fine, to offer a recommendation that their economy has bottomed out, to advocate investment, the reality is the opposite. Unfortunately, I fear things could get worse, risking the possibility of Spain missing the train of the 21st century.
The IMF recently released a report that Spain will be the 15th largest economy by 2015. From 2005 to 2015, Spain will have fallen seven slots in world rankings -- a truly lost decade. So, I pose the following question: Can Spain recover?
It can, if the people allow the central government to reform laws to make the country more economically competitive, and if the country becomes more global in their outlook. It’s not impossible -- clothing retailer Zara has found tremendous success in tapping into international markets, and telecommunications giant Telefonica has made a solid run the last few years. It sounds cliché, but it’s up to the Spaniards. But the word "Spaniard" can sometimes draw a negative connotation. I met a woman from the Canary Islands, and she adamantly insisted that she is not a Spaniard; instead, she identified herself as a Canarian and only a Canarian from the city of Tenerife. Oh boy.
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Why I’m Shorting Spain…for a Very Long Time
November 2, 2012
I had to see it for myself. I couldn’t believe the Spain I knew, once the 9th largest economy in the world -- per GDP -- had unraveled into an economic mess, harboring 25 percent unemployment, weathering a horrendous real estate climate akin to the U.S., political fragmentation, and insurmountable deficits that have left the central government in a bona fide quagmire.
I have always been fascinated by Spain’s culture, history, people, wine, gastronomy, and that peculiar Spanish ‘mystique’ that radiates everywhere throughout the country. After traveling to Spain many times between 2000 and 2005, I noted something unsettling about my generation in Spain: many were idealists, thinking the good times were here forever. Many times in conversations with Spaniards, I was annoyed by the naivety in regards to economic-political matters, seeing the world through a wonderland prism, dismissing the shades of grey that are present in many facets in life, and worrying about trivial matters instead of pursuing further growth and advancement.
Too much ‘fiesta’ and ‘siesta’, not enough real world experience. To this day, I’ve never met a Spaniard complaining about his own business; instead I constantly hear complaints about big business. Entrepreneurship is a foreign word. I have never came across a young Spaniard attempting to take advantage of the opportunities available Latin America. They share the same language, same religion, similar cultures (more or less), but the gap in terms of synergy could not be any wider. I find it astonishing and frustrating that the bridge between Spain and Latin America has always been made out of wood, instead of steel.
Because of all these reasons -- and many more -- I am not at all surprised about the situation Spain is in.
I know it is not fair to pin the majority of Spain’s problem on the 20-35 year old demographic. It’s not. However, it is, in a nutshell, why Spain is in a weakened position instead of one of the world’s leaders.
In 2004, with the national elections just three days away, a Moroccan national bombed Madrid in a terrorist attack, killing 191 people and wounding 1,800. According to many polls, Mr. Aznar’s Partido Popular (PP) party was in the lead for the upcoming elections, by a slight margin. However the bombings changed Spain’s path. Spaniards reacted angrily, ousting Aznar’s conservative government and electing the Spanish Socialist Worker’s Party, governed by Mr. Zapatero. Unlike the U.S. after 9/11, where Americans rallied behind former President George Bush, the Spaniards blamed the PP for the unfortunate tragedy. Protests were in abundance, blaming Mr. Aznar for getting Spain involved in the Iraq war, which in turn gave the terrorists reason to attack Spain. Albeit, Prime Minister Aznar didn’t do himself any favors by not handling the bombings in the most effective manner, jumping the gun by first blaming the Basque terrorist group, ETA.
As such, Prime Minister Zapatero inherited a strong economy, and in turn ran up deficits, shattered the alliance President Bush and Prime Minister Aznar had solidified, and fanned the flames of anti-Americanism, a sentiment that has always subtly existed in Spain since World War II. In addition, Mr. Zapatero was aloof in economic matters, showing his lack of awareness of the economic catastrophe that was breaching the shores of Spain. Instead of bunkering down, Spain continued to spend.
Basic logic tells us that when you spend more than earn, you create deficits. When you earn more than you spend, you create surpluses. Sounds easy, but very hard to practice (see U.S. subprime mortgage disaster). In Spain, the entire country was on a spending binge, easy credit was available, and real estate became the new phenomenon. This all transpired under the thinking that the Spanish economy would never slow down. The autonomous regions were spending at unprecedented levels on services, benefits, pensions, and urban developments. Labor agreements were being finalized on the coattails of easy money; according to the Wall Street Journal, Spanish labor costs rose 23 percent from 1999 to 2006. Spanish banks paid no attention to economic fundamentals, discarding textbook economic fundamentals and risk management, over-leveraging themselves to a point of destruction, financing real estate loans without proper due diligence, and abating a real estate bubble that eventually popped in 2007. Currently, construction in Spain has virtually stopped, leaving ghost towns in many places as a reminder to everybody what irrational optimism (or aloofness) does when it is not contained by prudence and pragmatism.
After just returning from Spain for a 10 day visit, my conclusion is that it is not going to get better anytime soon. The country is too divided; the austerity by the Spanish government is too extreme; the people do not want to make any more sacrifices. Most concerning, I didn’t feel or sense the vibrancy of business, entrepreneurship, and resiliency that other countries currently foster. As much as I wanted to declare that Spain would be fine, to offer a recommendation that their economy has bottomed out, to advocate investment, the reality is the opposite. Unfortunately, I fear things could get worse, risking the possibility of Spain missing the train of the 21st century.
The IMF recently released a report that Spain will be the 15th largest economy by 2015. From 2005 to 2015, Spain will have fallen seven slots in world rankings -- a truly lost decade. So, I pose the following question: Can Spain recover?
It can, if the people allow the central government to reform laws to make the country more economically competitive, and if the country becomes more global in their outlook. It’s not impossible -- clothing retailer Zara has found tremendous success in tapping into international markets, and telecommunications giant Telefonica has made a solid run the last few years. It sounds cliché, but it’s up to the Spaniards. But the word "Spaniard" can sometimes draw a negative connotation. I met a woman from the Canary Islands, and she adamantly insisted that she is not a Spaniard; instead, she identified herself as a Canarian and only a Canarian from the city of Tenerife. Oh boy.
