Last year, I was driving along a narrow road in Spain, going from Javea to Granadella. They’re both on the Costa Blanca. I’ve got an appartment in Javea‘s port, which I’ve owned for over twenty years, so I’ve witnessed a large number of ill-advised and ill-constructed building projects. The worst are the urbanizacions, which are to be seen from Valencia to Alicante, then on to Malaga. During this drive I noticed a new blight. The new blight was an urbanizacion, half built and then abandoned by the builders. It’s located on the east shoulder of Cumbre de Sol, a place of partridge, snakes and falcons.
“Do you want to buy my villa?” he asked.
I apologised and said I was merely being nosey. He looked thoroughly miserable, so I asked him what the matter was.
“I am in the early stage of Alzheimers, and I want to go back to England. I want to go back to Southampton, and I want to spend my last days there. But I have no money. I bought this villa when prices were high. There is now no market for it. I took my UK savings, and converted my pounds into euros. That was a disaster, too.”
“Do you have any relatives who can help you?” I asked. He said no, so I bade him goodbye and good luck.
But, in London, we are beginning to see the re-appearance of Spanish waiters.
When Spain joined the European Union, all the Spanish waiters in London went home. There they invested their English savings in property. They sold these properties to the English initially, but the French, Swiss and Germans soon joined in the spending frenzy, along with a surprising amount of Swiss and Swedes.
Meanwhile, it was clear that there was a cosy clique comprised of local politicians and property developers along the Costa Blanca, just as there were in Ireland, Italy, Greece and Ireland, which fanned the flames of the approaching credit collapse. The situation got so bad in Spain that English residents started to stand in local elections to oppose the situatation.
So, the euro clearly was at the centre of Europe’s economic troubles from 2008 onwards, but there were plenty of other reasons for Europe’s financial tempest.
There are three key reasons for the mess, and they apply principally to Europe’s southern states:
1. Easy credit
People built houses because they could afford to do so. Buyers bought houses because the credit was there. Now, the credit is no longer available.
2. Failure to achieve fiscal union
Fiscal union requires political union. And political union requires fiscal union. We had a degree of political union, but did not have fiscal union.
3. Not making things
Turkey is doing well by not being in the EU. Despite the EU’s tarriff barrier, Turkey sells all it can make to the EU. It can do this because it has sorted out its costs. The EU has not sorted out its costs, Greece, in particular, being a prime example.
Both Spain and Greece, and Italy too, have difficult political systems, which makes decisive action hard to take. Spain and Greece have huge unemployment rates, over 21% for Greece, and nearly 25% for Spain. Both have staggering debts, but Spain’s debt is very much the junior to that of Greece.
Further, Spain makes things. But Greece does not.
So, Greece remains the EU member most likely to repudiate its debts. Greece has never really been industrialised, whereas Spain has developed, especially in Zaragoza and Valencia, a manufacturing base which is going in the right direction.
The Greek islands are focused on tourism. The Greek mainland is focused on EU subsidies. Syntagma and Omonia Squares are full of expensive German 4×4 cars, most with a list price starting at 30,000 euros. Clearly, the Greeks will have to sell extraordinary amounts of feta and kalamata olives to pay off the debts.
Finally, the key lesson for Europe from the last for years is this: service-based economies are exceptionally fragile.
Successful economies make useful things. Simple, eh?