Spain’s economic fiction

The spanish economic model is simply primitive , exhausted and dead.

It is the sort of economic model that requires exceptional quantities of energy-raw material and low qualified labour force to produce small GDP increases.

In consequence high growth rates cause inflation figures above GDP values during expansion cycles.

During contraction cycles the model tends to generate high fixed costs with low growth rates , or in other words stangflation.

The model is specially awqward in Europe because in order to allow the model to provide a similar quality of life in Spain as the north europeans enjoy , it requires a tremendous level of borrowing and indebtedness .

The situation has become dramatic with the clumsy government’s handling of economy during the last years , as no regulations of any kind were imposed on easy credit ( up to 10 times the EBIT ) to companies with no economic future for a mad housing development that sent prices above any other market in the world.

The situation is that Spain has created a housing bubble of bigger proportions than anywhere else in this planet , with middle salaries half those in west Europe , prices much higher and with housing representing a basic huge percentage of GDP.

Yet the government with the support of every media and political parties on both sides of the spectrum , has conveyed to people the idea that the banks stress tests whether real or distorted , is all that the economy needs to recover the old balloon growth .

In reality of course the spanish economy has an impossible problem to solve , with the housing bubble and the inevitable exigence of having to shift from the old construction model to a new model with industries producing services and products of a much more added value with much less raw material and energy inputs while replacing construction workers ( millions imported from different countries who now have become a problem with different implications ) by new technologies engineers and biotechnologists … etc.

That inevitable change will require a different set of polititians than those presently available , who simply ignore the real problems of the country ‘s economy.

The stock exchange has gone temporarily up by the take over of foreign speculators of stocks released by banks to improve their liquidity , who expect medium not informed investors to enter the market , at which stage the proffessionals will simply escape and average investor will again be trapped.

When a big bubble occurs and model has to be changed , the amount of financing needed is three times that used in the creation of the bubble and austerity has to be adopted by many years with the stock exchange strongly dropping and staying in side trading till sound growth is achieved .

Any alternative adopted for a fictious apparent recovery , will only cause total collapse of the economy.

Of course much of what is said here could be applied to some other countries , but the problems in USA , Japan and Britain though having a strong bubble in common , are not exactly the same .


Published in: on julio 30, 2010 at 11:39 am  Deja un comentario