Fiddle About

Economic woe follows the British tourist and lands with him at Spain's airports. There may be more sun in Spain, but the clouds of economic hard times are as in evidence as they are in the UK; indeed, more so.

There was a fine article in "The Bulletin" yesterday; fine, that is, if you like your economics reporting coloured by imagery of doom and gloom. "The Spanish economy is in for a ferocious fall." "It's going to suffer more than Europe and take longer to recover." There is nothing necessarily that new in the article, but it does act to emphasise both the sudden decline of one of Europe's golden economies and the structural impediments to turning that economy around on anything more than an ever-deeper lake of debt.

According to the IMF, Spain is the developed country that will be "hardest hit" by the credit crunch. And it's not difficult to understand why. The reliance on construction, as a driver of the economic boom, has turned to a millstone, with construction companies unable to get the credit they had long used and the housing market all but drying up. There are, of course, those who fiddle while the country burns, and insist that all will be fine, including President Zapatero, but his predictions for growth are at variance with those of the IMF, which forecasts stagnation. And the problem is more than the fiddle-playing of wishful thinking, it is the fiddle-playing that drowns out the noises calling out for structural improvements that would give the country a truer sense of economic well-being, rather than what it has known - which is one based on low-skill sectors, such as construction, and all that Brussels benevolence. An extra whammy awaits in the pipeline for Sr. Zapatero: further interest rises imposed by the European Central Bank.

To place the current economic malaise in a Majorcan context, it is difficult not to be even more pessimistic. To return to a previous theme on this blog: the Majorcan economy is sustained by two main sectors - tourism and construction. The latter is suffering as elsewhere, but the fiddle-players can point to the value of the luxury housing market to cover up deficiencies. The tourist sector will probably enjoy a year as good as 2007, at least in terms of overall numbers, and so the fiddle-players will say all is well. But both sectors are essentially low skill. There is, or has been, way too much complacency that these sectors can continue to fuel growth, while quelling any impetus to seek ways of shifting to a more diverse and competitive economy based on higher skills and also higher salaries. Recently, there was a call for the local government to set about a new round of construction in order to assist the flagging economy. This is economics of the madhouse. There may well be a need for social and affordable housing and also for further civil construction projects, but where does the money come from? More borrowing. Majorca is but a part, but Spain overall has the second-largest current account deficit in the world. To seek a remedy in yet more construction would be to compound the economic problem that already exists while simultaneously papering over the cracks of an unbalanced economy. Among other sectors of the local economy, agriculture for example, there is also uncompetitiveness. The island's almond-growers have seen their market attacked by California, hardly a low-cost producer. The key to this has been the use of technology. In the same way that Californian wine producers exploited technology to attack the French wine market, so have their almond-growers. Technology and skills.

One gets more and more a sense of unrealism about the local economy, and about much of the country's economy. European development funds have been both an advantage and a disadvantage. They have created the grounds for the economic boom but they have also acted as a disincentive to establish a more meaningful economic basis - one of skills, competitiveness and productivity. One wonders just how far the island has really progressed. And I come to an observation about Puerto Pollensa and about kids' futures in a place where they enjoy a laidback, beach upbringing and believe that to be their futures. There has always been the beach, and for the last couple of decades a nice open cheque from Europe has made the beach even more agreeable.

The local government does at least seem to "get it" in that they have a plan, albeit vague, for innovation and development. But then, on the other hand, they indulge in ridiculous posturing on the language issue. If there is one thing to help in maintaining a lack of competitiveness, it is primacy given to the teaching of the Balearic language or Catalan. And then there is the national iniquity of social-security payments. The rate is onerous and is a break on entrepreneurship. The payments are a vicious circle of reinforcing seasonal, low-skill unemployment as they go to fund the queues who apply for their unemployment benefit, the day after the season finishes.

It is hard, at times, to avoid an image of some Majorcans who want the cake of the playa, the fiestas and the traditions and to eat it too, with the bread and jam of easy credit, whoever supplies it. When I talk about progress, I mean the extent to which society here is fronting up to the nature of the global economy and its role in it. This weekend, many Majorcans will decamp to Menorca for Sant Joan, and thereafter the summer is one round of fiestas. It has been easy to maintain all this tradition and all this party so long as the credit line is long. But maybe that party is coming to an end.

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