Well, nice to meet you Pepe. So you are from Navarra I guess. Dealing with the issues by order of importance, I wouldn’t mind seeing this years Spanish league classification ending up like this:

1/. Barça
2/ Osasuna
3/ Vila Real
4/ Valencia

Now what else was there? Oh yes, the Cajas. I think these could become an issue if public finances in Spain started to deteriorate (with the increasing demands of an ageing society). At the moment - and thanks in part to Solbes, and in other part to Rato - the deficit isn’t an issue: but it might become one later, and that I think is the large print behind the Catalan Statute financial small-print. If the deficit did start to rise in a problematic way, then the regional cajas and the financial liabilities of the autonomous communities (particularly the ones who have had little immigration to compensate) could become a big issue.

Meantime, on we go….

Thanks for replying to my post. Once again, sorry about jumping on your comments about the boom, as I know it wasn’t the main thrust of your piece, and you are of course right that it is still going on nothwithstanding the fact that the seeds of its own destruction are there and must germinate sooner or later.

You are also right on the money in pointing out that, unlike most of the other countries that have been experiencing a property bubble (US, UK, Australia, China (Shanghai)) Spain does not have the means to raise rates, and the government does not have the will to take tough measures (as in Shanghai). Maybe the heavy involvement of the regional governments in the “cajas” has someting to do with this.

Cheers from Madrid, an increasingly dangerous town for a supporter of hitherto safe-to-root-for Osasuna.

Pepe

Definitely and this is very important. In Spain people tend to distinguish betweeen internal and external migration. The highpoint of the internal migration was during the 50s and 60s of the last century. It was massive.

To give an example. The population of Catalonia is now around 7 million. Nearly one million of that is an increase due to immigration since the late 90s.

Of the other 6 million roughly half were Spanish speaking in the early 90s (which means, more or less that they were Spanish migrants or descendents of Spanish migrants). The social impact of this was enormous.

Here again it would be important to distinguish between the Basque region and Catalonia. For a variety of reasons the Spanish speaking population has been better integrated in Catalonia than in Euskadi. The communities are not divided here in the way they are there, where there is undoubtedly outright hostility from one part of the population to the idea of increasing Basque autonomy. This hostility, more or less, doesn’t exist here.

Part of the reason is the language: Catalan (which is a kind of cross between French and Portuguese) is not so difficult to learn (even if Aznar still has difficulty) but Euskera (the Basque language) is pre-IndoEuropean and hellishly difficult.

What this means in practice is that the communities are much closer in Catalonia, and there is no serious friction. In part this is due to a very intelligent use of local language TV over the years (Barcelona FC also forms part of this as nearly all Barça matches come with commentary in Catalan) and in the schools, where people are normally surprised to learn that the first language for virtually all teaching is now Catalan, and in school Spanish is just one more subject like English.

What this means is that virtually everyone under thirty now speaks Catalan reasonably well (even if their first choice language may be Spanish), and almost everyone over thirty now understands it.

The two communities here were brought together in recent years by two events. Firstly the asssasination of local socialist politician Ernest Lluc by Eta five years ago: the demonstration here following his death was enormous, the impact was too, and secondly the war in Iraq, which really brought the two communities together like never before with popular ‘caçerorlades’ (banging of pots and pans) across the city on a nightly basis. Opposition to the war brought together socialist opposition to Aznar with nationalist opposition to the idea of a country being in a war without being consulted. Really the current Catalan view can be summed up in: no taxation without representation. Clearly they are represented in the Madrid parliament, but what they feel is that they are not sufficiently involved in taking key decisions about european level issues, or about wars like Iraq, or even, dare I say it, about immigration policy, since their country is obviously one of the most affected.

Incidentally, although I haven’t mentioned this, Madrid, as Charly rightly indicates, also had huge internal migration, as is happening again now with people coming from the exterior. In a sense this makes Madrid and Barcelona a little different from the rest of Spain, more open to outside influences perhaps, and the PP Mayor of Madrid Alberto Ruiz-Gallardon is undoubtedly was of the most sophistocated and intelligent politicians in Spain. If he were to be leader the PP would be a much more balanced and normal centre-right party. He even has a wikipedia entry I see:

http://en.wikipedia.org/wiki/Alberto_Ruiz-Gallard%C3%B3n

So just to close were I started. Spain is changing. The Catalans will have their statute, and perhaps the most significant event of recent weeks has not been the dog-in-the-mangerism of the PP towards the statute, or the fact that some commercial interest are not buying cava for xmas, but the fact that although being trounced, the supporters of Real Madrid stood up and applauded Ronaldinho Gaúcho’s second goal in the recent match in the Bernabeu stadium. Now that is significant!

Basically I entirely agree with what you say, even down to the points about the immigrants.

“You yourself have pointed out the problems:”

Yes, what I tried to do was hedge my wording:

“as long as interest rates stay low, the housing sector can keep booming, and since in the short term interest rates in Spain will stay low, then the boom looks set to continue.”

If you read between the lines here, all I am saying is that things go on till they can’t go on any longer.

The thing is I can’t see how the Spanish housing bubble (yes, I think it is a bubble, not a boom) can rectify itself. Normally a country would try to raise (like the UK) its interest rates, but due to the euro system Spain cannot set its own rates. So normally financial markets would punish countries with the kind of high inflation and trade deficit which Spain has by selling the currency, but Spain has no currency (of its own) to sell, so in the end I don’t see the correction mechanism.

Of course one day there will be a correction, and it will be important. But here I wanted to do a positive post, for the new year, and not another of those ‘oh what a headache the euro is’ ones. And I do think that what Zapatero is doing now, about the ‘national question’ is important.

Actually, the biggest problem Z has on the horizon will be the ‘housing correction’.

Like the US CA deficit, which can’t correct, because the US dollar can’t fall due to continuing euro and yen weakness, Spain is being propped up by an artificial support.

How could all this unwind? Well I have long felt that the weakest link in the international financial system is the Italian public debt. One day the eurobond markets can find themselveswith a big problem as a result of this. If and when this happens people may also start to look at the capitalisation and sustainability of the Spanish banking system. This is the only thing I can think of which could drive up interest rates in Spain. If people start to charge a much higher ‘risk factor’ to the Spanish banks - since many of the people they have lent money to may not be able to repay - then the thing could unwind.

Incidentally I do think one of the big unknowns here is what will happen to the immigrants. If one day a serious recession comes, most of them will have little social security entitlement. So will they stay, or will they move upwards across Europe in search of work. A real mystery, and a key question?

Their wives though look set to stay, since the old people situation cannot survive without a substantial and continuous entry of new cheap female labour to care for the oldest old, and those with the everytime more evident Alzheimer illness.

BTW Pepe, where are you?

No. In fact Arabs were an infime minority of those who entered the Wisigoths kingdom in 711 CE. And it did not fit an “immigration” pattern, so Edward is right.

Comparison with France is rather useless. The general ideology, “jacobinisme” in France, is very different from the Spanish one, which vary strongly with the region where immigrants settle.

DSW

A lot of them have also been able to get into the real estate game thanks to ultra-low rates, 100% financing, variable-rate mortgages (98% of all mortgages are variable-rate) over 40-50 years.

When the developers stop building, what do you think all of these people will do? Your guess is as good as mine. Sell their house (if there is positive equity)? Stop paying and just hightail it home (if negative equity)? Turn to “alternative” sources of income?

The Arabs of Al-Andalus don’t count?

If you take a country with that history, namely France, is there any indication that such experience is helpful?

Nice political anlysis, but the economic comments in the intro?

“Spanish people are of course buying a lot more houses, indeed more housing units were built in Spain last year than in Germany, France and Italy combined, and since, as Brad Delong pointed out yesterday, as long as interest rates stay low, the housing sector can keep booming, and since in the short term interest rates in Spain will stay low, then the boom looks set to continue.”

First of all the DeLong reference is misleading, as he said nothing about Spain. Seems like nobody is looking closely at the Spanish economy. They just go,”eurozone-leading GDP growth, no public deficit = Sparkling Spain”.

You yourself have pointed out the problems: More housing production than France, Germany and Italy combined!! Negative real interest rates!!

You know what this means? Massive misallocation of resources (what you call a boom), which means massive liquidation later (yep, bust). Watch out for unemployment (rising ominously), mortgage defaults, etc.

Look at the private-sector debt figures… look at the trade and current-account deficits!! Bigger than the free-spending, increasingly non-manufacturing Americans. None of Hausmann and Sturzenegger’s “dark matter” here. And guess what, Spain doesn’t have control of its monetary policy, and its money is not the world’s reserve currency.

Sorry for the breathless tone and the excessive use of exclamation marks, but I am just flabbergasted.

Well, I wouldn’t exactly call myself an expert, but I have lived for fifteen years in a country were disputes about identity are routine and form one of the main topics of political debate. I have the feeling that far too much energy is wasted on this topic, energy which could be much better redirected to making a more prosperous ‘happier’ country.

I also was brought up in the UK, were the issue was much less devisive and were pragmatic solutions seem to have worked reasonably well.

“under the left, the regions get more autonomy; under the right, the government holds the line?”

No, I don’t think it is quite that simple. I think, if you have a two party democracy, when one party has an absolute majority the government holds the line, and when there is no absolute majority then the national minorities get more autonomy.

I wouldn’t use the term regions, since that begs the question, and is at the heart of the issue. I think whether you are a nation or not depends on whether you feel yourself to be one or not. That is why I keep mentioning Catalonia dn Euskadi. There is a third ‘national minority’ (the term in the existing Spanish constitution) Galicia, but they may well not really feel themselves to be a nation, and of course have a perfect right to feel they are not.

What I don’t think is that people who feel themselves to be Spanish have the right to tell those who don’t feel themselves so to be that they are.

So back to the left/right thing. If you look at the recent history of political alliances in Spain, Italy and the UK, you will see that there is no clear pattern, either in the attitudes of the central parties, or in the politics of the ‘nationalists’.

In Italy it is Berlusconi who is in alliance with the Liga, and who is offering decentralised reform in order to stay in government.

In the UK both labour and conservative parties have made agreements with the Ulster Unionists in the past to maintain themselves in government in Westminster.

In Spain the PP government of Aznar extended the powers of the Catalan government considerably, and if you get behind the rhetoric today, you will find that they are willing to do so again.

Basically the best hope for the PP to get back into power would be to reach another agreement with the centre right Catalan nationalist party CiU. The difference would then be the umbrella under which the autonomy was granted. There would be no general statute, but a lot of individual specific agreements.

You are right about one thing though: the ratchet effect.What this is about is the modernisation of over-centralised, diversity unfriendly societies, into more modern, decentralised, more diversity aware ones.

I don’t think Spain is in any danger of disintegration, and even the Basques won’t leave unless the government in Madrid make life too impossible for them.

“but how post-fascist is the PP?”

I would say very. Clearly there is no independent ‘hard right’ party in Spain like the Le Pen group in France, and since there are people who hold these opinions, then logically they must be inside the PP practicing some kind of ‘entrism’. But the PP itself I consider pretty post-Franco. Especially since the older generation is now dying off. The big difference would be between those who want a more modern, deregulated, free-trade Spain, and those who probably have more in common with Jacques Chirac (protectionist, rentier etc) but then, I guess you have those kinds of difference in the Republican party in the US, just as you have Republicans who are pro- and anti- immigration.

One last point. The immigration issue is now a coming one in Spain. The last 5 years have seen massive (and I mean massive) immigration into a country which had no significant history of immigrants (as opposed to emmigrants). This week a national poll has shown that 60% of Spanish people now feel there are ‘too many immigrants’. This will probably soon become a major political issue.