Tag Archives: Spain

Video: Spanish Elections. Conservatives Win, Left Wing Coalition Risk (CNBC)

Courtesy of CNBC

Fear of a Portuguese-style “left wing” losers’ coalition seems small as PSOE (Socialists) would need to agree with up to 11 different parties. Challenges for PP (Conservatives) to reach a government agreement despite the victory.

– Conservative party wins with small majority (123 seats) despite austerity backlash, but loses absolute majority, while Socialists get worst result in Spain´s democracy history.

– Vast majority of Spanish citizens voted for moderate, centre parties (PP, PSOE and Ciudadanos)

– Neither PP+Ciudadanos nor PSOE+Podemos+Communists reach clear majority for government.

– Key to stability and growth will be to find a coalition between Conservative PP and Ciudadanos and maybe PSOE.
– Biggest risk is a coalition of populist radicals Podemos with PSOE and other radical and nationalist parties looking for constitutional changes and anti-EU measures
– If a left-wing coalition unwinds all reforms made by the PP and starts a constitutional change it could mean 0.7%-1% impact on GDP and zero job creation.
– We can expect a few months of uncertainty, affecting investment, growth potential and investor confidence.

Read my article (here)

It was difficult to think that Spain would make a comeback in 2011 when the Conservative Party (PP) won the elections. The challenges were too large.

The previous administration, PSOE, Socialist, had left a deficit of 9% of GDP after promising a maximum 7%.

When the crisis started, the socialist government consciously decided to substitute the bursting real estate bubble with a massive civil works stimulus. It spent 3.2% of GDP, debt ballooned by 350 billion euro and destroyed more than 3 million jobs. On top of it, in the period from 2007 to 2009 the average annual trade deficit was around 6% of GDP and at one point in 2008 reached 9% of GDP.

Spain was a Keynesian dream becoming a nightmare.

When the socialist government left office, Spain had more than 40 billion euro in unpaid invoices from the public administrations to the private sector, the public savings banks presented a capital requirement of 100 billion euro and the regions and municipalities faced a bailout of 125 billion euro.

It was an unsurmountable situation.

However, after a large austerity plan that was split 50% in tax increases and 50% in spending cuts, and a very substantial set of reforms, including the financial sector, labor market, entrepreneurship programs and early payment schemes, Spain recovered.

Between 2014 and 2015 Spain started to grow well above the EU average. It led job creation in the Eurozone, with more than one million jobs, and brought unemployment rates back to September 2010 levels. It went from a massive trade deficit to a balance by 2015.

In summary, Spain undertook the largest adjustment seen in an OECD economy, 15 points of GDP, and managed to do so growing and creating jobs.

Despite critics´calls of a recovery fuelled by the ECB QE and low oil prices, these claims are easily refuted as Spain is growing more than countries with a similar sensitivity to interest rates and oil prices, like Italy or Portugal, and has recovered with no increase in total (public and private) debt.

However, all is not well and many challenges remain.

– A high unemployment rate, despite the reduction and the evidence that many jobs are hidden in the underground economy and counted as unemployed.

– A large fiscal deficit. Despite the massive adjustment, Spain´s deficit is well above the EU stability pact target.

– External debt remains at 100% of GDP and public debt at 97%.

The austerity plan helped bring Spain out of the living dead, but did not create social stability. Despite the conservatives´efforts to maintain social spending, the population perceived that the cuts were unacceptable. Public debt increased to 97% of GDP partially due to the bailout of the regions and savings banks as well as taking care of unpaid bills, but increasing pensions and keeping unemployment benefits didn´t please part of the public, as real wages fell. As in Greece, fringe parties started to appear fuelled by “magic solution” promises of default, massive increases in public spend and interventionist “miracles”.

In any combination, the new government will not have a strong majority, and most of the likely agreements may only come with parties who promise more spending.

The risk of Spain falling under the QE trap, putting all the bets on the European Central Bank, as it did in 2008, and go back to the same mistakes of deficit spending and public sector white elephants to “boost growth” is not small. Halting reforms and going back to past failed measures will likely give the same results. Less growth, less jobs, more debt.

Spanish political parties tend to mention the Nordic nations and Obama as examples, yet they support the rigidity and intervention of France and Greece, not the economic freedom and flexibility of the leading economies. And when you copy France and Greece you get the growth of France and the unemployment of Greece.

Let us hope the decision is not to bet on repeating 2008.


– Daniel Lacalle is an economist, CIO of Tressis Gestion and author of Life In The Financial Markets and The Energy World Is Flat (Wiley)

Interview On New Spanish Unemployment Data & Spanish Energy Sector

Listen here:


(The following was published in El Confidencial on 29/4/2014)

On Tuesday,   the Spanish Labour Force Survey or the first quarter of 2014 was published. The official release of the Statistical Bureau (INE) states that “the total number of unemployed has fallen by 344,900 people in a year.”

The number of unemployed decreased by 2,300 people in the quarter and stands at 5,933,300.

Unfortunately, the job participation fell by 184,600 people, although the decline is the lowest in a first quarter since 2008 .

The few positive data show fragility and weakness . These are insufficient. Taxes have to be cut. Political spending needs to be cut. The country needs to stop hindering job creation.

Labour participation fell by 195,800 people in the private sector, and increased by 11,100 and the public sector. Increasing public employment with more debt is not creating jobs.  It enlarges the hole .

Taxes have to be cut. The fiscal effort in Spain remains one of the highest in the OECD. And it’s not a race to raise revenues, as I explained in the post ” Spending is the problem . ” The policy of sustaining GDP  with bloated spending  does not reduce unemployment. It’s urgent to cut taxes.

Spain has the potential to create millions of net jobs. It is expected that the country will create 650,000 new jobs between 2014 and 2015 – (I estimate about 800000 to 2016) – but it’s not enough.

Jobs will not come from a hypertrophied Administration that consumes nearly 45% of the country’s resources and where spending on public employment represents 11.9% of GDP, higher than the average of all the developed countries, which stands at 11.3%. Not to mention advisors (one billion euro per year) or employees of public companies.

Jobs are not going to come from large companies that already have an average of 20% more employees than its European peers (employees relative to turnover in the country, according to Bloomberg). Jobs will come from self-employment and SMEs.

To reduce unemployment Spain must:

–  Encourage self-employment . Create businesses in 24 hours, as in many countries, not being one of the OECD countries where it is more expensive and slower to start a company. The time required to start a business in Spain is twice the average of the OECD. Creators of small businesses and startups can not see that the cost is unaffordable relative to the risk assumed.

–  Encourage SMEs.  We should not forget that they are the ones that create 70% of the added value of the country. Lower corporate taxes and Social Contributions to create jobs. The Spanish companies spend a total of 58.6% of their profits to pay taxes, according to World Bank data.

–  Reduce self-employed fees.  Self employed tax contributions have increased by 20%. This has to change now.

–  Reduce taxes on businesses.  New companies should not pay social security contributions and taxes until they have two years of profits, as in the UK. And drastically curtail bureaucratic obstacles and the extreme complexity of a country’s legislative system with seventeen regimes creating hundreds of rules each year. Change incentives: less foremen to “stop and control” and more facilitators.

–  Reduce income tax to increase consumption.  Yes. Save.Without savings, and later with consumption, the economy does not kickstart. Discouraging savings to keep an inflated GDP is a wrong and dangerous policy. The gross salary of a worker deducts 47.3% in taxes. Adding VAT, 67.4% of an average salary goes to the state.

–  Cut political and superfluous spending, subsidies and bubble excesses , as I said in this  post . Spain has increased government spending by 48% between 2004 and 2009 and only slightly reduced by 5% since 2010.

The solutions will not come from the same wasteful policies and interventionism that destroyed 3,000,000 jobs.

The Official Survey data shows the obvious: Not enough jobs are being created with a hypertrophied state.  Data shows recovery but it is fragile and insufficient.  Much more can be done.

We must lower taxes, and now.


Important Disclaimer: All of Daniel Lacalle’s views expressed in his books and this blog are strictly personal and should not be taken as buy or sell recommendations

Conference “Is Spain on the Road to Recovery?” London School of Economics 19/3/2014


Conference with Luis Garicano, Emilio Saracho and Pablo Zalba moderated by Ferdinando Giugliano at the London School Of Economics on 19th de March 2014

Conferencia con Luis Garicano, Emilio Saracho y Pablo Zalba moderada por Ferdinando Giugliano en la London School Of Economics el 19 de marzo de 2014





Spain: Recovery, yes. But high taxes and bureaucracy limit potential

“The real goal should be reduced government spending, rather than balanced budgets achieved by ever rising tax rates to cover ever rising spending”. Thomas Sowell
high taxes and bureaucracy limit potential

Spanish bond yields have fallen to pre-crisis levels despite debt to GDP reaching c100%, a deficit that will be above the target 6.5% and refinancing needs of c€224bn in 2014. The “Draghi put”, added to much better comps on unemployment (fallen by 147k in 2013), consumer spending (+2% in December) and added to expectations of an 0.5%-1% growth in GDP have helped. Continue reading Spain: Recovery, yes. But high taxes and bureaucracy limit potential