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The crisis demands solutions in the long term
The perspective for the economy are not good. And the sent measures do not offer measures in the long term. The Advisory Council of Expansion and the Economic Present time analyzed the present crisis to hit upon with the political prescriptions, fiscal and labor that Spain needs. The crisis that whips Spain demands a deep reflection, in a while in which the experts agree in which the expectations are not optimistic and the raised solutions do not watch the long term. It is what the Advisory Council of EXPANSION and the Economic Present time analyzed, by means of an analysis of the present conjuncture and the possible measures that could mitigate it or accelerate a future recovery. In the debate, they participated like guests Javier Valle's, director of the Economic Office of the President of the Government; Fernando Eguidazu, director of the Committee of Economic Policy of the Circle of Industralists, and Federico Prades, economic adviser of the Spanish Association of Banca (AEB). Also he attended, like old member of the Council, Juan Jose Dolado, university professor of the University Carlos III of Madrid. The debate was fitted, of deliberate form, in identifying the vulnerabilities of the economy and to analyze possible solutions. The majority, although nonunanimous feeling, was that the perspective for Spain are bad or even shady; that the necessary remedies, to be applied, will provide medium term effect and will require of a collective effort of the set of the society; and that, unfortunately, exists serious doubts on the will of the Government to put them in practice. Diagnosis Was quite general agreement in which in Spain two basic imbalances are had agravated throughout the last years. First, a disturbed growth of the construction, accompanied of a strong elevation by prices and the expansion of the hypothecating credit. The second, a high deficit of the balance of payments, financed by means of a high net indebtedness against the outside, carried out fundamentally by the deprived sector, and, in particular, by the credit organizations. - Real estate Bubble is known the factors that encouraged the untenable height of the sector of the residential house - the “real estate bubble” -: by the fiscal side of the demand of house, negative real types of interest, stimuli to the purchase, and the increases of demand derived as much from the strong immigration as of the purchase of second residences and other demographic factors; by the side of the supply, a very restrictive city-planning planning - that the legislation approved by the State in 2002 did not get to modify, to the declared being unconstitutional to invade the competitions of the autonomies, which it generated high income to the City councils and lifted the price of the ground, which caused a bullish spiral of prices that encouraged the speculative purchase. The dominant, although nonunanimous opinion, was that over-sized nature of the sector - that, after the change of tendency, it has generated a high volume of houses nonsold or occupied it does not have to try to be compensated by means of a policy that drives artificially the purchase of house - by example by means of formulas in favor of “arranged houses” or VPO-: the sector will have to adjust or “to deflate in the long term” until a level of sustainable construction - they based some it around 350,000 annual houses, although others considered that, for demographic reasons, the stable demand is superior to that number. - Deficit of outer indebtedness and balance of payments the high growth of the internal demand of the last years has brought about a high deficit by current account, that surpasses 10% of the GIP, and energetics has been agravated by the dependancy and the increase of petroleum, as well as by a continued differential of inflation. That continued and enlarged deficit - al that must be added the financing of great outer acquisitions of companies has done that the indebtedness (gross) of the Spanish economy against the outside comes near to the 150% of the GIP. Paradoxicalally, that external indebtedness grew while the level of National debt was reduced of significant form. - Severity and duration of the adjustment Were two alternative interpretations of the present conjuncture and the future perspective. For, Spain had already initiated, before in the summer of 2007 the crisis of the mortgages exploded in the USA subprioritizes, a gradual adjustment of imbalances both indicated. That smooth adjustment has been intensified by two external factors: the serious crisis of international the financial markets - whose epicenter was and continues being in the USA, that has taken prepared a sudden contraction of the credit (credit crunch) in many countries, Spain including; and the intense elevation of the price of petroleum and the raw materials, that is agravated the imbalance commercial and produced inflationary tensions anywhere in the world. Consequently, so soon such external factors are attenuated, Spain will be able to continue their gradual adjustment. Meanwhile, the policy of the Government has looked for to compensate the fall of rent available of the citizens - with the return of famous the 400 Euros, to maintain the access of the SMEs on the credit, and to accelerate the public infrastructure investment. Against this first interpretation - that some summarized like a crisis “in the form of V”, whose point inferior would be year 2009-, for the defenders of the alternative interpretation Spain faces, even although the external adverse factors are attenuated, to one serious crisis that will demand an intense adjustment. That adjustment will extend during at least 2 or 3 years (it would have, then, in the best one of the cases, it forms of “bathtub” or U), and so much more will be prolonged the more is tried “to prop up” the expired model of until now effective growth. “This goes in serious and has bad dot”, sentenced a participant. Regardless of the adverse international conjuncture, the difficulty of the adjustment will be increased by several internal factors: - The necessity that other productive sectors absorb the high reduction of use that is taking place in the sector of the construction - deprivation of rank and privileges that some based in million jobs. - The impossibility to facilitate the internal adjustment by means of the devaluation or depreciation of the type of change, as it happened in the 1992-1993 crisis. - The possible impact of the real estate adjustment in the balance of the Spanish organizations of credit. - Implications of the real estate adjustment Were unamimity in which the price of the house will have to undergo a significant slope in nominal terms, that still it has not had hardly reflected in the official statistics (based on values of appraisal). One remembered already that in September of 2003 - now five years ago diverse economists of the Bank of Spain had considered that the house was overvalued between a 8% and a 20%. According to some, “the prices not even have begun to lower”, which causes that it has still not appeared any buying interest. For others, the prices have already begun to lower of appreciable form - although the official statistics do not reflect it, but they will have to do it much more. That significant reduction of prices will contribute to reduce to the high relation price of the house average-I fix wages for half annual, that has arrived in Spain at 9 years. It was insisted on that the excess of supply of houses will only produce a desirable expansion of the rent market, and a reduction of the rents of rent, if the legal security of the landladies is reinforced. Some indicated that the fall of the prices of the house will produce a luck of “effect poverty” (that is to say, a “effect wealth” of inverse sign) that, although painful, will contribute to correct the high imbalance of the balance of payments. One stood out that the credit organizations will be able, in general terms, to absorb a significant increase of the hypothecating dilatoriness and a high reduction of the price of the house, as it already showed in the Bank of Spain in his Report of Financial Stability of the past April. The reasons are three: - The high level of provisions and capitalization of the credit organizations. - The moderate average value of the quotient between the amount of the loans and the value of the mortgaged buildings (Loan-to-VALUE or LTV). As it indicated the Bank of Spain in April, that average value is inferior to 50% for the set of the alive hypothecating credit of the Spanish organizations of deposit, since the alive hypothecating portfolio has been originated throughout many years and the loans have been amortized. In addition, in that calculation the historical value of appraisal of the buildings is used like denominator (VALUE) when the mortgages were granted, so that the average LTV would be still smaller if its present price of market were used (it téngase present that, in spite of the change of tendency, the present prices of the house continue being, in average, very superiors to his historical values, due to the strong revaluation of the last years). - For essentially demographic reasons far beyond, the prices of the house will find a ground at a level the one that they had before the algid phase of the bubble. - Political budgetary the majority opinion emphasized the necessity to trim current the public cost. That effort does not have to be limited the central State, but it must be shared by the communities and Local Administration. Skepticism was pronounced on the effective rigor of the Budgets for 2009 in the containment of current the public cost. According to announced, the nominal increase of the public cost - del 3.3%, including the additional game for benefits by unemployment has stayed inalterable after the Ministry of Economy and Property reduced the forecast of real growth of the GIP in 2009. The cost in infrastructures will grow theoretically below the average, but the effective investment could lean by means of financial operations - chapter VIII of the budget of expenses that will elevate the needs of financing of the Treasure, but not the “public deficit”, that would ascend to 2 ' 5% of the GIP. There were critics to the decision of which the call “social cost” grows over the average, in spite of the difficult conjuncture. With respect to the official aid to the development (AOD), a participant remembered his thesis of which the remittances of the emigrants are the most practical form of aid to the development, which recently necessary the AOD. It was criticized, also, the ascent of anticipated 3.5% for the pays of the civil servants, whom an adverse “effect will have in addition demonstration” in the wage negotiation in the companies. Market of work In meeting, had agreement general between experts in great segmentation of market of work, in that days per worked year coexist a 30% of temporary contracts without hardly cost of dismissal -8, with a maximum of 12 monthly installments, indefinite contracts in which the dismissal cost reaches the 45 days per year on watch, with a maximum of 42 monthly installments. For that reason, some pleaded for the equalization of the cost of dismissal for all the modalities of hiring, at a level that, staggered based on the time in grade, provides an average indemnification similar to the present average. There were severe critics to the present system of indiciación, although it is based on the forecast of inflation with adjustment clause. Fiscality the dominant opinion was that the fiscality will have to be reduced to the companies. One remembered that the Government already has proposed an additional reduction of Societies and the suppression of Patrimony. However, it was emphasized that the type in Societies continues surpassing between 4 and 6 points the European average, although others observed that the national differences in the configuration of the base and deductions cause that the types are not directly comparable. A participant remembered his thesis of which by means of a reduction of the taxes that burden the productive activity, accompanied, in necessary case, by an elevation of the IVA that compensates the loss of collection could be obtained, of synthetic form, a change in the relation between the inner prices and the exteriors similar to which long ago it was possible to be obtained by means of the depreciation of the peseta. Political management of the crisis Predominated the skepticism on the practical utility of the “social dialog” that drives the Government. One even stood out by some his lack of political legitimacy, insofar as it supposes the delegation in deprived associations of own responsibilities of the governors. At the same time, some criticized the lack of voice that have in Spain the true industralists, afraid to protest to the authorities that suppress the multiple economic rigidities that tie down the activity of their companies. Throughout the last years a rich enterprise weave has consolidated in Spain, that has given to samples of innovation and international leadership; but, unfortunately, it has a limited influence very in the social and political debate on the precise economic policy so that the Spanish society confronts with success perspective the budding crisis. (The extracted News of EXPANSION)
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