Is Spain in recession? Think again.
This can't be classed as a recession, more like a crash that will probably change the Spanish economy forever.
Whether Spain's politicians have been deceptive or naive makes no difference any longer. The crude reality is that the country is perhaps in the worst economic crisis of modern times. There is not enough capital anywhere, from the government to the banks, and without external support you can't help but wonder whether there's light at the end of the tunnel.
Don't think, however, that this is something that has only just erupted, we have seen negative signs for the past five years that have kept on getting worse.
The biggest problem is the poor quality administration at the highest levels of the public sector, where those in charge seem to spend their entire budgets without returning anything tangible.
There has been a deficit on pretty much every city council in the country, and there are over 8,000 councils! It's been said that by reducing the number from over 8,000 to 2,000 councils, the estimated savings will be 10 billion euros. While this looks like a fantastic potential turnaround, the main issue will prevail, and that is the people who are in charge of these councils will continue to waste money without providing explanations.
In a recent TV program, they examined where some of the budget had apparently gone, for example, to build a ski slope where there isn't snow, or to build an airport where planes can't land! We don't know if these rumors are true, but what we do know is that no one can explain where the money has gone. The interesting part of all of this is that an investigation has never been launched against those who are responsible for the current situation.
The new government looks more promising, but unfortunately they are carrying over a very high deficit, which was initially thought to be a lot less than what it actually is. This has resulted in the rest of Europe looking down at Spain as an unstable and facetious nation.
As of May 2012, Spain has over 5.2 million unemployed people. Of these, only around 3 million get some economic support. It's predicted that the other 2.2 million who don't receive any benefits might rise to over 2.5 million by the end of this year. This combination of ultra high unemployment and elevated costs in the public sector has created a problem that has spiralled out of control. The only corrective measure is saving, but Spain has never been good at saving, as much of Spanish society gives priority to living a high standard of life in the present without thinking about the repercussions this can have in the future. With almost 2 million citizens living with just £300 per month, and supermarket costs that are higher than Waitrose or M&S in the UK, it's hard to comprehend how these people will save.
Another fundamental issue is the overall structure of the economy. In the UK for example, you can get by on the minimum wage, but in Spain it's practically impossible to survive. I remember the day they introduced the Euro back in 2002, prices went up by over 60% across most consumables from food to clothes, however, salaries did not change. This was perhaps the beginning of a fundamental error that will turn a country that was once bright and stable, into one that is not a million miles away from being a Third World nation.
When you look at Greece today, you are seeing Spain's future.