The International Writers Magazine: Spain 2012
The Doomed Savings Banks of Spain
Spain's part in the European Economic Meltdown
I’ll remind everyone that the previous socialist PM, Jose Rodriguez Zapatero stated some four years ago that Spain had the best banking system in the world and that the country was in the Champion’s League of the world’s economies. Nothing could have been further from the truth.
At that very moment he and his government sentenced Spain’s downfall as the world crisis was beginning to bite. His infamous interview two years later on the 22nd of September with the ‘Wall Street Journal’, when he literally stated that ‘the debt crisis affecting Spain, and the Euro zone in general, had passed,’ showed how completely ignorant he was of what the hell was going on around the world and especially the impending economic avalanche.
So I’ll start first and foremost with the banking issue as it is probably the one that will put the icing on the cake as we head for total disaster. Enter the infamous Savings Banks that are now, or had been as they are being gobbled up by the main banks or the government, the main culprit to the downfall.
The first time I dared predict that the problem with Spain’s banking system were these unusual entities was exactly two years ago, May 2010 in my ironically titled essay, ‘Will Spain Survive?’ I quote the main paragraph again. ‘This leads on to the peculiarity of the so called Savings Banks created over a century ago as social lending societies. They literally belong to the people, for the people but, and here comes the catch, controlled by the local politicians, i.e. town councils. These organisations have not only grown like Topsy, they have indulged in all sorts of activities, nothing to do with banking such as building and running museums, opera houses, business schools and other social institutions. Because of the crisis (you notice that ZP’s interview was in September, four months ‘after’ I wrote this essay) it now appears that they have overlapped not only in social service offerings but in the number of offices around the country. In other words, they’ve become too big for their boots and have to cut back. As I write this, the latest is that by order of the European Central Bank they’ve got up until the end of June (2010) to sort out the whole mess. They must reduce in number of banks from around 50 to about 15.’
The above was written two years ago and one only has to read today’s headlines in all the European press about Bankia, the now nationalised bank that has absorbed several of these entities full of toxic assets and is now fighting for its life. But let’s dig deeper into the aftermath of this entire Savings Banks extravaganza. What is the real overall effect?
In a nutshell, hundreds, if not thousands of town councils are bankrupt or owe so much money (to these banks) that they need a couple of hundred years to pay back their debts. We’re not only talking about the burst housing bubble but of the thousands of other multi-million projects that I mentioned two years ago that have now turned into ‘phantom’ installations that, because of the general economic meltdown have become totally unviable and unsustainable. Think about public swimming pools, gymnasiums, auditoriums (we’ve got three in Vigo!), museums, airports, yes airports and many other over-invested projects all over the country that no government will be able to finish off let alone maintain. All this is beginning to come to light and it is obvious that it will have an effect on the rest of Spain’s economy.
Meanwhile, back in Brussels the European Union and all the other bunch of international money gurus are praising Rajoy for the implementation of his austerity measures. But what the macro-economic wise kids don’t realise is that although they talk about ‘deficit reduction’, ‘GDP’, ‘Spanish bonds’ and all sort of other buzz words in an economist’s Dictionary they are forgetting about the ‘pennies’ that’ll bring it all down. If a town council can’t pay its staff let alone the main services such as city maintenance all the top level mumbo jumbo just floats into thin air. At the beginning I thought that he was on the right path and in the long run, maybe he is, but he is now running straight into a brick wall with all these ‘dead’ projects. Apart from that he’s beginning to cut back on too many areas all at once including education and health and everything is starting to smell like a New Greek tragedy. It’s also causing the social unrest that was bound to happen and is just starting.
Although it’s a change in subject its all part of the same drama. So here it goes in a nutshell.
- Because King Juan Carlos was out shooting elephants accompanied by his now confirmed mistress and his son in law Sr. Iñaki Undargarin, the Duke of Palma is up for embezzlement of public funds the Republican movement is on the war path to get rid of the Monarchy. A recent biography reveals that because of JC’s famous philandering over decades the King and Queen have been estranged ever since.
- Catalonia and the Basque country are definitely moving along towards requesting independence. It’s only a matter of time. Scotland’s upcoming approved referendum on the same issue could have a tremendous impact on this situation. Give it two years.
- The dispute with Britain over Gibraltar has started again. Apparently the Spanish fishermen have been crossing into the colony’s territorial waters and hence a confrontation between the Civil Guards and the Royal Navy took place. We all know that the Spanish Queen did not go (to add to her woes she was thoroughly disappointed by the way!) to Queen Elizabeth’s 60th anniversary for this reason but the issue has just started. Ironically it’s Rajoy's conservative policy not to give in to Spain’s claim and refusing to talk to the Gibraltar authorities. ZP’s lot had opened doors that are now shut again.
- Unemployment keeps rising due to the cutbacks but probably because of the banking fiasco; there are no loans being issued and companies continue to go bust. The figures are far worse than predicted. We’re up to 24% with nearly 50% of under 30’s out of a job.
- The good news is that the country’s sports are much on top of the world. Helps appease the overall sadness and despair. Spain has the greatest football teams, Real Madrid and Barcelona, Fernando Alonso the Formula 1 driver and we mustn’t forget Rafa Nadal, the number 2 tennis player. They’ve come 10th in the Eurovision song contest. The last time they were in the top 10 was 12 years ago. It’s still a great tourist attraction for all kinds of customers and the numbers keep rising every year. And my usual comment on the restaurants and tapas bars, Spaniards still keep spending the last of their dole money on a glass of wine and a small portion of tortilla.
This all leads me to the final overall problem, a possible future social uprising. I’ll leave this one alone for the moment as so far it’s the odd strike, plenty of street demonstrations and thousands of out of work and out of pocket Spaniards begging in the street, but as yet no real violence. I hate to predict what may happen at this stage as summer is coming along and trouble usually starts around September. However, it could be too dramatic to wait if the rest of Europe continues the downslide and the Euro finally goes belly up. Spaniards will be out in the street, this time with their Molotov cocktails.
© James G. Skinner. June 1st 2012.
Intervention is Inevitable in Spain
• James Skinner
I went to the Galician Social Security Health Service building in my home town Vigo the other day to ask for my initial registration date. The large main hall was empty except for several civil servants working away on their computers. I approached one of them with my question only to be told that I had to go to the building across the road which was the Main Social Security HQ. This is Spain’s problem, incredible duplication of Civil Service.