Page 34 Irish Daily Mail, Saturday, July 7, 2012

by Brian Carroll

SPAIN’S SQUEEZED MIDDLELidia is a 27-year-old Madrileno lawyer earning ¤500 a month. Crushed by the crisis, she and her friends live in squats and have even raided supermarket bins for food. Now, after years of denial about the depth of their difficulties, Spain is slowly facing up to a brutal reality...

IT’S 12.30am on Monday, and victorious Spanish youths are dancing in the fountains in Puerta del Sol, a plaza in central Madrid. Scores of young men, some naked to the waist, all soaked to the bone, chant ‘Y Viva España’, as thousands of advancing fans join

in, streaming through the square from the cobble-stoned side-streets.

Spain have just thrashed Italy to win Euro 2012, and become the first team in history to successively win three major

press as a victory for prime minister Mariano Rajoy giving Spain’s banks access to �€100billion, and a defeat for Angela Merkel’s Germany.

But the reality is Spain has another �€250billion in hidden bank debt; it currently spends �€64billion more every year than it takes in; and it has maturing debt of �€27.5billion, which has to be repaid by October.

The summit deal allowed money from the European Stability Mecha-nism (ESM) to go directly to Spanish banks, rather than to the government — unlike Ireland, where the debt was passed directly to the taxpayers.

But the ESM will only have a total fund of �€500billion for all the distressed states. Spain’s bill is likely to be north of that amount. There simply won’t be enough money, unless the other eurozone members contribute more. In such a scenario Ireland would have to contribute a further �€11billion to

help Spain. Yet, despite all this, the Spanish are dancing in the streets of Madrid — and not just last Sunday.

Luis Rivera Gurrea-Nozaleda, 32, is an entrepreneur, helping to hothouse start-up mobile and internet compa-nies in Madrid.

‘We are zombies. We are in complete denial. I guess we can afford to be in denial because two-thirds of the population can’t read a newspaper from outside Spain.

‘The politicians, the banks, the old establishment control the media. It’s a bit like living in China. I don’t mean to conclude this in a demeaning way, but a lot of the Spanish are lazy or don’t have the culture to understand how bad it is.’

Unemployment benefits are good in Spain but they run out after two years. Until then you will get an aver-age of �€1,000 a month — compared to about �€800 in Ireland. But often you

can get more because your unemploy-ment benefit is linked to how much you previously earned. It’s possible, if you were previously well-paid, to receive up to �€2,000 a month on the

dole. In a country where the average wage is �€26,000, and only a remarkable 4.6 per cent earn more than �€60,000 a year, being on the dole can be an attractive time-out. Luis believes that, for many, there will be no future

string, the bank got all the family,’ says Lidia. ‘The number of homeless has increased and social services don’t cover it. The Church is helping and there is a net of mutual help, but it’s not enough.’

Caritas, a group which uses Church funds to help the poor, said demand increased 100 per cent last year. Some 50,000 were evicted in 2011, double the figure for 2008.

Tatiana Koleva, who has a 16-year-old daughter, was the first person whose eviction was successfully prevented by PAH in Madrid. She lost her job as a confectioner and couldn’t meet the payments on her �€200,000 mortgage with the Spanish banking giant BBVA.

At a meeting in the Plaza del Carmen on Thursday night, she explained how, on June 15, 2011, dozens of people flocked to her apartment on Calle Naranjo and prevented bailiffs from entering the house. She then got a six-month stay in the courts.

As the deadline approached, PAH organised a campaign to harass the bank with telephone calls, and

arranged for hundreds of people to physically block the eviction. At mid-night the day before the scheduled eviction in January this year, the bank agreed to negotiate.

Tatiana’s debt was written off, but she lost the house, and now lives with friends. Her daughter has moved to the US. The courts have since become much stricter — the eviction notice period now ranges from 15 days to one month, and injunctions are routinely used to stop PAH from physically blocking evictions.

Tatiana now works with PAH and Psychologists Without Borders, coun-selling people facing evictions.

‘Most suffer depression and a great feeling of guilt from the bank calling and pushing 24 hours,’ says Tatiana.

‘We have already recorded several cases of suicide. Suicides have risen 20 per cent since the beginning of the economic crisis.’

And yet there are no obvious signs of financial distress. The tapas bars, jazz clubs, theatres and restaurants are full with tourists and Madrilenos, whose post-midnight zest for life only underscores Ernest Hemingway’s conclusion that, in Madrid, ‘nobody sleeps until they kill the night’.

But, there’s a sense among the busi-ness community, journalists and economists that Spain is still sleep-walking through the euro crisis, still in denial, still attempting to spin the ignominy of a �€100billion bailout into another Spanish victory on the world stage.

The critical EU Summit deal of June 29 was largely spun in the Spanish

soccer competitions. As the plaza fills, the crowds spill up

Calle de La Montera, a pedestrianised boulevard of café bars, restaurants, casinos, legalised prostitution and strip clubs, before turning right on to Gran Via, Madrid’s main thor-oughfare, and down the long-winding road to Plaza de Cibeles, now the traditional destination point for victorious Spanish teams.

Cibeles is the Goddess of Bounty, and, in sport, Spain’s many cups runneth over.

The sound of bullhorns fill the air, as fireworks illuminate the moonlit night. Young men use their Spanish flags to play matador with any cars foolish enough to try and make it down Gran Via.

Street vendors sell beer, whiskey, chocolate-dipped doughnuts and almonds, as hundreds of thousands of supporters and visitors dance until well after 3am, when Madrid’s clubs only really start to get going.

It’s hard to believe that, statistically, one in two of these young men and women is unemployed, or that 300,000 people in Madrid alone are facing eviction. Like the Spanish banks, which, by some estimates, are hiding more than �€250billion in undeclared losses, what lies beneath is somewhat different to the spectacle.

It was in Puerto del Sol — the ‘gateway of the sun’ — that the first overt signs of civil unrest regarding Spain’s economy emerged on May 15, 2011. A gathering of 20,000 protesters there sparked the occupation of public spaces in 60 Spanish locations.

Lidia Posada Garcia — a 27-year-old junior lawyer who works for �€500 a month and squats in a bank- repossessed apartment — was one of the original May 15 group, dubbed the Indignados. Now, almost 14 months later, the Indignados have split into various groups, including the Plataforma de Afectados por la Hipoteca (PAH) — the platform to help those facing eviction.

Many have young families and some have resorted to raiding the rubbish bins of supermarkets at closing time, when they discard food that’s about to perish or reach its sell-by date.

Lidia too has taken discarded food from supermarkets.

‘I have food because we know where to get it in that period before the food is bad and the markets get rid of it. We call it recycling.

‘People are mortified, but that’s when you see how it [the euro crisis] is affecting people — those people [taking discarded food] are not evicted yet but they are doing whatever they can to pay to keep their houses.’

With 24.3 per cent unemployment — 4.6million in a population of 47million — Spain has the EU’s worst jobless record and its social safety net is being eroded. With insufficient social housing, evictees either go home to their parents or on to the streets.

However, many parents were co-guarantors of those mortgages, so now two generations are trapped.

In recent years, people were encouraged to take out mortgages for more than 100 per cent of the value of the property, as Spanish banks were bundling up mortgage debt and selling it on to investment houses in the secondary market.

The average wage is just �€26,000, but the average price of a two-bed apartment in Madrid was �€250,000. In many cases, people were loaned ten times their annual salary.

‘Most got extra warranties from their families, so when you pull the

in Madrid

‘Suicides have risen 20 per cent since this began’

‘We’re proud, but in denial of

what’s going on’

Activism: More than 20,000 people protested in Madrid in MayDissent: A protestor calls on prime minister Mariano Rajoy to step down

Irish Daily Mail, Saturday, July 7, 2012 Page 47

SPAIN’S SQUEEZED MIDDLELidia is a 27-year-old Madrileno lawyer earning ¤500 a month. Crushed by the crisis, she and her friends live in squats and have even raided supermarket bins for food. Now, after years of denial about the depth of their difficulties, Spain is slowly facing up to a brutal reality...

in Spain. ‘There is a generation who live at home and will get to be 35 without having done anything. If you haven’t worked a single day in your life by 35, forget it.

‘It’s hard to say that to someone who is out of a job a year-and-a-half, is about to run out of his unemployment but is blissfully unaware of how bad the situation is, of how much the politicians are lying to him and how much the bankers are lying to him.

‘You guys [the Irish] call bulls**t when it’s bulls**t, in the same way that the British do. The Spaniards as a culture are extremely proud and that makes us very successful.

‘It’s part of the recipe of success in football, tennis, golf — we are proud and competitive. But the opposite side, is we can be very hyper-critical and live in absolute denial of what is going on.’ An independent assess-ment of Spanish banking by US firm

Oliver Wyman and German firm Roland Berger estimated the total amount of Spanish debt to be in the region of �€62billion.

Very few, however, believe this assessment to be accurate. Up to two years ago, 80 per cent of Spain’s banks were controlled by politicians or trade unions, with the boards littered with political appointees. In Valencia for example, a ballet dancer was on the board of one bank, while in another

bank, special instructors had to be brought in because the board, which included politician’s wives, didn’t know how to read balance sheets.

The banking sector claims house prices have only fallen 20 to 25 per cent, but no one believes them. On Wednesday, a Spanish national judge ordered Rodrigo Rato, a political ally of Spain’s prime minister, to appear in court to face criminal fraud charges over his recent role as head of the

giant Spanish mortgage lender, Bankia. Bankia falsified its accounts — claiming profits of �€390million, when it had actually made losses of �€3billion — in order to sell shares in the bank and keep it afloat.

Savers were encouraged to swap their savings for shares, and were wiped out as a result as the shares are now worthless. Bankia is a Spanish Anglo Irish Bank in every sense, and responsible for 80 per cent of the evictions in Madrid. Many other banks — such as Novacaixagalicia, Banco de Valencia and CatalunyaCaixa — are also being sued by investors.

Luis, who through Start Up Spain helps new tech companies to access venture capital, said: ‘I have heard some reports of up to �€400billion losses hidden in the banks — I think it’s a reasonable number. I don’t believe in [the Wyman/Berger figures]. Bankia alone is going to be north of �€100billion.

‘In the extreme, I see a scenario where we start really integrating from a fiscal standpoint and become the United States of Europe and that’s going to hurt a lot.’

Irishman Joe Haslam is a professor in the Department of Entrepreneurship at Madrid’s IE Business School, ranked number seven in the world for its MBA programme.

From Limerick, the 39-year-old father-of-two is married to Lara, a Spaniard working for Vodafone, and has lived in Madrid for eight years. He believes the Spanish are refusing to face up to the crisis.

‘If Madrid was a country, on many levels, it would actually be performing better than Germany. But in the rest of Spain, there are places like Andalucia

that are basket cases — nobody works, it’s seasonal employment only. I go out in Madrid when supermarkets are closing and see people rummaging in the bins.

‘There is a pride element though — it’s like that Oscar Wilde quote: “These cigars are so expensive I can only afford them when I’m in debt.” The more debt someone has, the more important it is for them to demon-strate that everything is okay.

‘Only 4.6 per cent of Spanish households earn more than �€60,000. In Spain, �€60,000 is considered space-age money.’

He sees a lost generation of Spaniards under 35, living with their parents. Spain has reportedly the highest internet piracy rates in the world.

‘The kids just stay in the house all day and download films. They pick up pocket-money jobs on the black economy. It’s almost for some people that this is great — no pressure, stay at home, mum washes my clothes, out with my friends at the weekend, sleep all morning, then do a few hours handing out leaflets.

‘You ask them about ambition, or what are you looking to do with your life, and they look at you like: “What are you talking about?”’

For others with ambition, like Luis the entrepreneur, they face huge obstacles to starting a business. ‘Spain

is similar to Ireland,’ Luis tells me in his über-cool start-up offices on Bravo Murillo in northern Madrid. ‘You guys also had a housing bubble but there were things built with the benefit of that bubble.

‘You started attracting a lot of European technologies, started having a tax scheme that was benefi-cial to big business, reversed a very long trend of your brightest guys going out of the country, and started getting in bright guys from all other countries. We didn’t do any of that.

‘We just sat back and said: “Oh it’s amazing, we can buy a house and sell it three years later making more money than I would make with my professional career.” I don’t really know where the growth is going to come from here.’

Joe Haslam agrees, pointing out that there is no limited liability for companies in Spain, and it can take up to 100 days to get a company formed and secure a VAT number. None of Spain’s 73 universities is in the world’s top 400.

‘Spain had reached the eighth rich-est country in the world. Now there is a realisation that Brazil, Korea, all these countries are growing,’ he says.

‘The Spanish used to think, “How can we get from eighth in the world to sixth?” But now they are looking at “how do we stop going to 15th?” You can’t have 50 per cent of young people unemployed — it’s just not sustainable under any evaluation.’

The Spanish government, which has to reduce its budget deficits from 8.9 per cent of gross domestic product in 2011 to 5.9 per cent this year, is considering increasing taxes on energy, property and consumer items.

Cuts have been introduced in education and health, and the VAT rate has been increased to 18 per cent for certain items.

The next move is to reclassify many bars and restaurants — which pay from four to eight per cent VAT, depending on their size — so that they pay the highest rate of 18 per cent.

Visitors to Barcelona will be hit with a tourist accommodation tax, with Catalonian authorities charging between 75c and �€2.50 per night, depending on the quality of the hotel.

For some, the answer is emigration. Limited by language — only about ten per cent of Spaniards speak Eng-lish — most are heading for Brazil, seeking construction work in the boom ahead of the 2014 World Cup and the Olympics in 2016. About 1.5million of Spain’s unemployed worked in construction prior to the crash.

There are no official figures on emigration, but it’s estimated that between 100,000 and 200,000 have left in the past two years, along with many immigrants who returned home. In 2011, Spain had negative migration for the first time since the Eighties.

Pablo Rodriguez Suanzes is interna-tional economics reporter for El Mundo, Madrid’s second best-selling daily newspaper, which recently let 150 staff go. Pablo agrees that Spain is in denial about the crisis but ex-plains that, for many people, life has actually become easier since 2010.

‘For the 75 per cent of the people who have a job, there is no crisis — prices are low or, at least, not higher than they used to be. Mortgages have been halved in two years as most have their mortgages tracked (to the ECB rate which is now 0.75 per cent, its lowest ever). My girlfriend used to pay �€1,300 per month in 2008, now she’s paying just over �€700. Her real income is �€600 better, even though we have suffered a 15 per cent wage cut.’

The financial pain is starting to spread though. Spanish savings rates have plummeted.

‘Today was the first time since 2005 that savings of Spanish families went negative,’ says Pablo. ‘In 2008, people started saving for the crisis. But, step by step, they spend this money and now it’s negative, because they have broken the piggy bank and they say, “Whoah, what’s next?”’

‘I don’t know where growth

will come from’

MONDAY DEBT AND TAXES: THE ECONOMIC MORASS EXPOSED

Struggling: Junior lawyer

Lidia Posada Garcia in

Madrid

Dissent: A protestor calls on prime minister Mariano Rajoy to step down