From The Hood: Eurorecovery Made Easy

The Spanish Economy, by a New Zealand Observer

by Lyndon Hood

With the European economy teetering on a knife edge – in fact, on the day after François Hollande’s election as President had changed the game in France – your correspondent took a flight to Spain. By the measures international finance uses to compare European countries, Spain rates poorly. Yet being ranked at the bottom of these economic league tables has, inexplicably, failed to fix it. What I saw when I arrived in Andalusia, one of the poorest provinces of this financial flashpoint, can best be summed up with two words: tourist attractions.

What do the countries at the centre of the European crisis have in common? On the ground in Spain, the answer is blindingly obvious. Olive trees. Lots and lots of olive trees. Firsthand experience confirms the countryside is actually, literally, full of olive trees. I don’t even think I’m exaggerating to say there are more olive trees than there are Catholic churches – and Catholic churches outnumber the actual population three to one.

All very picturesque and traditional, I’m sure. But the fact is all those trees means almost no space for cows. And without cows, as we know, they can’t possibly have an economy. It might be edgy for them, but Iberia will simply have to modernise. Cows.

So much for the underlying settings. But first we have to deal with Spain’s immediate problem, which, as we all know, is debt. We know this because Prime Minister John Key keeps warning us that if New Zealand doesn’t immediately balance the budget we will become the next Spain. (And if we missed that, it also comes up when Prime Minister John Key reminds a European audience that New Zealand is in a better debt position than Germany.)

Granada: I’m not completely sure
why these people were chanting,
but that was about all I saw,
protest-wise.

The solution to this is obvious. I don’t know if the Spanish Government has any profitable commercial investments – possibly in utility companies or vital infrastructure – but if it does they should immediately cash in as much of them as is politically feasible.

If there is concern about ‘selling the house to pay the mortgage’ this is easily dealt with. They don’t have to use the proceeds to retire debt or make new investments. They can just use it to finance ordinary capital spending. So it’s more a case of ‘selling the house to pay for the maintenance’. I’m sure that will make as much sense to the international investment community as it does to me.

In making the previous suggestion I assume they’ve already tried tax cuts.

So Spain should focus singlemindedly on balancing the government books. But that shouldn’t stop them taking action to enhance the overall economy. For example, food – at least the convenience food and alcohol that formed one New Zealand tourist’s staple diet – seems unnaturally cheap. This suggests to me some terrible flaw in the Spanish commercial system that allows people to eat – and possibly even to have a good time – without making the maximum possible contribution to wider economic wellbeing. Possibly some of them even have money left to spend on something else.

I hear their unemployment is also really, really bad so they’ll need to deal with that by kicking some people off the benefit. And then they should set some ambitious outcomes-based targets for the public service. Something like “stage a complete economic recovery”. Sorted.

Oh, and this: At one point I drove on a road that wasn’t a highway. You don’t have to be Steven Joyce to know that represents a tremendous missed opportunity. With the right infrastructure settings I could have got to wherever it was I was going anything up to five minutes faster. Counting the return journey that’s ten minutes of my life I won’t get back spent looking at olive trees. Sort yourself out, Spain.

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Extra for experts:

In 1999 the town of Lanjarón, in the mountains above Granada, banned dying, in an attempt by the mayor to draw attention to lack of available cemetary space.

But here’s the thing: Lanjarón reputedly has the longest life expectancy of any Spanish municipality. At the time I wondered whether that suggested a) a market reaction to constraints on burial-plot supply, or b) a spectacular example of effective regulation.

(Our tour guide attributed it to the local spring water, which as well as being traditional wisdom is commercially convenient, since a bottling plant is the biggest local employer. We tasted some of the many springs. It was as if someone handed you a metal cup full of cool, clear water, and you accidentally drank the container rather than the liquid.)

But this raises the alarming possibility that, in deference to the law, those whose time has come will continue to walk the earth. Strategic history suggests a zombie outbreak in the region might be contained at the Tablate Bridge, but given Spain’s already-fragile economic position the risk hardly seems worth taking.

For more on zombie outbreaks and the unintended consequences of bureaucracy, I defer to Eric Crampton, whose recent exposition of the subject has no applicability to Canterbury earthquake recovery at all.

Lanjarón: Narrow pedestrian streets create a challenging strategic
environment.

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