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29/01/2009
Problems and solutions to the crisis
Starting off of articles on “Economic Situation of Spain� and “They are the really reliable savings banks� and since lately we are attending different opinions from near the different routes from solution of the present crisis, we are going to give our opinion on the matter. In three phases:
- Detection of the problem
- Causes of the Problem
- Possible solutions
- Detection of the problem. Spain has three problems at the moment:
- Real estate bubble (high excess of constructed houses and prices) and excessive indebtedness
- Lack of competitiveness
- Excessive public cost
- Causes of the problem
- The real estate bubble is direct consequence to have negative real types of interest, thing to which we were not customary. If the types of interest are to 2% and the inflation to 4%, it leaves to me profitable to buy something to finance it to 2% i to sell it by a 4% the following year more. And product that allows more leverage you is the real estate one what it has taken to construct 800,000 houses to us to the year. The artificially low types of interest of the last years, have allowed the families to finance in more amount. The money that can be asked to the bank is inversely proportional to the type of interest that payments (because the quota is higher).
- Lack of competitiveness. Spain has had an inflation positive differential with respect to the rest of countries (the USA, France, Germany, UK) that compensated periodically devaluating its currency. The production cost raises more by the ascents of the pays than in these countries because the pays and other costs via inflation raise plus. From the entrance in the Euro this has not been able to become since we could not devaluate. Thus there are lost competitiveness year after year which has caused that to many companies no longer interests to them to produce in Spain.
- Excess of public cost. In Spain they have been yielded competitions to the Independent Communities what it has caused that for example we have 18 ministries of culture, health, education… (Power station and one by Community) what supposes an excess of unnecessary cost that can arrive a day in which there is not money to pay it. As an example is worth more than thousand words, in Extremadura, 32.5% of the active populace work for some of the administrations or public companies.
- Possible solutions to the crisis.
- The real estate bubble has a easy solution but difficult to assume. In the USA the prices have lowered a 50% in 1,5 years, number that can be near the Spanish bubble according to Whatever would have to merit the floors in Spain? Price versus Value. To leave freedom to the market, that the prices adjusts and that the companies assume the losses that correspond to them. If within these organizations there are banks or boxes, it would be necessary to save them. Unlike which people create east rescue is not an option, it is an obligation because or the organization is saved or it is pleased at the expense of the Bottom of Guarantee of Deposits that both leave the public coffers. More difficult it will be knowledge than to do with more than 4 million empty floors that it will have to absorb the system.
- Lack of competitiveness. The solution comes to gain competitiveness that is obtained by two routes:
- Reducing costs. If we consider that the most important cost is manpower, there will be an adjustment of wages. As Spain has very little labor flexibility, the adjustment comes by the dismissal from employees and the later hiring from cheaper others. If the company does not have to pay indemnifications by dismissals will break and the industralist or the own employees, if they can, constitute another one with pays inferiors. One is not which Telephone, Ono, Renault, Nissan, SEAT,… they make a ERE, in Spain 80% of the use generate SMEs and their problems are different from those from the great multinationals. A SME of 30 employees must fight to survive, if the company closes, loses the industralist, but all employees will go to unemployment.
- Devaluating the currency. This would suppose the exit of the Euro, option that analyzes in the following news of Cotizalia Pros and cons of the abandonment of the Euro. Since Spain has an indebtedness of the 150% of the GIP through sector essentially deprived, or we let break all the financial organizations (channelers of the outer financing) covering the Bottom with Guarantee of Deposits to the depositors or I do not see it feasible. The cost to cover the FGD would be brutal reason why it does not seem a feasible solution.
Especially important it is the political energetics, as example in France the effect of the ascent of the 2007-2008 petroleum much less affected because its dependancy in much smaller thanks to the nuclear power as we saw in Nuclear power or ascent of the light. Also the awareness that is important consuming products made in it favors us to Spain to all, via deficit of balance of payments, use and therefore consumption of the services where you work.
- Excess of public cost. We are not expert in the accounting of the administrations, but besides congealing the pay of the civil servants, there are many other expenses that can stand out in vehicles, drivers, moving body, diets, trips,… In addition the administrations must look for to be more efficient, from facilitating the opening of businesses as far as permissions, licenses,… to in the services that provide. We must measure the efficiency economic to have the decentralization level that we have reached.
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