Still Discovering Spain...

Spain has benefited hugely from European funding, though many projects have been poorly planned. Despite art centers sitting empty and railway lines lying unfinished, the EC says corruption is rare...???

“What were they thinking when they misspent European money?” asked the prime minister of one European Union member state during the 2012 bank bailout talks between Madrid and Brussels. Attitudes within the EU’s northern countries toward the perceived profligacy that led to the collapse of the property market in the southern periphery were perhaps best summed up by a cartoon in a German newspaper in 2008 featuring a Greek, a Spaniard and an Italian lying on the beach and demanding that their cowed-looking German companion buy them all a beer. But soon after Spain was plunged into an unprecedented financial crisis that awoke it from a dream largely financed with European money.

Inoperative desalination plants, empty arts centers, rail lines that go nowhere… Between 2007 and 2013, Spain received more than €23 billion from the European Regional Development Fund (ERDF), with just 61 percent of projects completed and paid back. During the same period, Spain was given €11.5 billion from the EU’s Social and Cohesion Funds. Almost all the money has been well-spent and accounted for, and has improved Spaniards’ quality of life and helped grow the economy. But this can’t hide the existence of corruption and negligence in making better use of EU money. The Anti-Fraud Office has already recommended that the EC ask Spain to return €250 million for allegedly exaggerating the cost of the stone used to build the El Musel port in Gijón.

“We lacked a rigorous before-and-after evaluation of the social worth of these investments, which explains why there were some absurd decisions taken that were partially financed with European funds,” says Santiago Lago, a professor of applied economics at the University of Vigo and the author of several studies on the impact of EU funds. “They have certainly helped us move closer toward European standards of living, but we could have managed them much better,” he concludes.

Spain hasn’t only misspent EU money. The European Investment Bank has also been generous with Madrid: it pumped €130 million into a new port in A Coruña; along with a further €180 million into a stretch of the AVE high-speed rail line between Seville and Málaga, which had to be returned after the project costs overran.

The new port in A Coruña has its roots in the sinking of the Prestige oil tanker off the coast of Galicia, in northwestern Spain, in 2002. The environmental disaster prompted the government of the day, led by the Popular Party’s José María Aznar, to build a new port for La Coruña. The idea was to prevent any further danger to the city, which sits on a fjord, or ría, from vessels carrying fuel, and to do away with the need for the six-kilometer underwater oil pipeline. But the planners overlooked the question of how Repsol, Spain’s leading oil company, was going to transfer products from its current refinery to the new port. Twelve years on, Repsol remains at its old site. The EU pumped €267 billion into the project.

Spain’s desalination plants provide a similar illustration of poor planning. In 2012, the then-agriculture minister Miguel Arias Cañete described the project as a “complete disaster”. After spending €1.6 billion on building 17 plants, they were working on average at less than 20 percent of their capacity. Brussels has since demanded Spain do something. Cañete has not mentioned the issue again, but the problem has not gone away. Two of the plants, in Ibiza and Menorca, are still not even operational, and remain unconnected to the mains water supply. In Barcelona, which was hit by severe water shortages in 2007 and 2008, the El Prat desalination plant, which cost €230 million, 75 percent of which came from EU funds, is functioning at just 10 percent of its capacity.

There are other examples involving smaller amounts of money. In Córdoba, in Andalusia, an arts center is still to be opened two years after construction work finished. It was funded with €27.3 million of ERDF funds. Granada’s Federico García Lorca center also remains unopened. Work was stopped when it was close to completion more than three years ago.

“Cases of misuse of EU funds are the minority,” says the European Commission’s office in Spain. A spokesman there explains that in the rare number of cases where fraud has been detected, such as stretches of the AVE rail route between Madrid and Barcelona, which have recently come to light, “we simply do not pay the money.” But the Commission says there are no specific studies carried out into how much corruption or poor planning costs EU tax payers.

Before this Sunday Spanish chef and TV personality José Andrés had never attended a university graduation ceremony. He quit high school as a teenager and educated himself in “the kitchen of life,” he confessed to the 25,000-strong crowd at last weekend’s ceremony for graduating George Washington University students in the US capital.

The occasion was not his own graduation but rather his confirmation as one of the most important voices in Washington today. As the owner of the number of successful restaurants who has been invited to show off his talents in the White House kitchen, Andrés has also carved out a place for himself on the exclusive list of names to have delivered the graduation speech at one of the most prestigious seats of learning in the United States. Last year actress Kerry Washington had the honor of addressing the university’s graduating students; before that it was the turn of TV journalist Brian Williams. In 2011, then-mayor of New York Michael Bloomberg delivered the speech and before him First Lady Michelle Obama sought to inspire students setting out into the world of work.

Dressed in the university’s blue-and-black gown, Andrés admitted that when he told one of his daughters that he had been invited to such an important event, she immediately asked him “if he was going to cook for or speak to” the 25,000 guests. The chef apologized to the crowd for not having been nominated for an Oscar or having received a Nobel Prize – “yet” – and for not being as “interesting” as the wife of Barack Obama.

Then he revealed the surprise he had in store for the graduating students and their families: a star-studded video that set the bar very high for whoever is chosen to follow him in 2015. The montage showed actors including Gwyneth Paltrow, Morgan Freeman and Owen Wilson turning down university president Steven Knapp’s request to deliver the address with a variety of excuses, before all going on to propose the same idea: calling Andrés.

After the joke, which received a standing ovation from the crowd on Washington’s National Mall, Andrés turned his address into a invitation for the new graduates to adopt a more ambitious definition of personal success, one that includes making a positive impact on the lives of others.

“The challenges we face today – hunger, poverty, inequality, war – have been around forever, but that doesn’t mean it always has to be this way,” he said. “Success is no longer only about achieving your goals. It’s about using your skills and talents to do something bigger in the world. This is the new American Dream.”

The chef, who recently obtained US citizenship, said he had always wanted to form part of this dream. “I fell in love with the idea that no matter what your background, anything was possible here,” he said, looking back on his journey as a Spanish immigrant in Washington and the effort it took to forge a brand that has been recognized in the capital for several years now.

“My story is not one of overnight success. When I found myself alone in a new country, I didn’t buy a lottery ticket and hit the jackpot. I just kept going,” he concluded.

The Spanish real estate brand is very much in fashion, at least for a large number of investors who gathered together yesterday (Tuesday 20th) in Madrid for a forum organised by the Global Real Estate Institute (GRI), a first for this Spanish firm. One of the main investment firms present at the forum confirmed,  "Everyone wants to talk about Spain. There is a lot of excitement around the real estate industry at the moment".

Spanish real estate focused the debate in the corridors of the Wellington hotel in Madrid, where 200 leading players from the domestic and international sector decided to be sincere about the real estate market but on one condition: 'one can mention the sin, but not the sinner.' i.e., all comments are public, but the media can not reveal who has expressed them.

However, despite the craze over buying in Spain, finding a balance that pleases buyers and sellers is not so easy. Administrative barriers, lack of information or long processes to bid for the assets are some disadvantages faced by investors, while sellers criticise the huge discounts that are required to close deals.

An international investor admitted that in recent years they have been observing Spanish real estate seeking opportunities. They dabbled in the past testing the water but those adventures brought no real profit. Now they have decided to take another look at Spain because they believe that now is the time.

But why Spain? The forum emphasises that Spain is much better compared to others who have suffered the economic crisis even more. Greece has a lot of pressure from the European Union to reform, sell assets, etc.  and the investors have  come to Spain because they believe that the assets are now at a low enough price and are going to increase in value with time.

This also indicates that in the last two years the government has taken many constructive measures. It highlights the launch of SAREB. Many of these investors consider the implementation of the so-called “bad bank” as a turning point for Spanish real estate.

Some of the participants emphasised that one of the current obstacles for the sector is the lack of banks willing to finance.  This, they insist is the result of the restructuring of the banks, which only left eight entities standing, a number of lenders who they believe to be too few especially when you consider the additional handicap that they already have lots of real estate on their balance sheets.

As a matter of fact, the Spanish banks have been under-represented at this event, as only bank Sabadell and Caixabank were listed speakers. The limited presence of national institutions contrasted that of the foreign banks who confessed that they were studying finance different finance options for Funds that wanted to buy assets in Spain. "We're on the dance floor and holding conversations", said the head of a European bank.

For this reason, investors are convinced that the financing for real estate will quickly return, something that can be seen in processes such as the debt refinancing of Colonial, where Axa and Generali Insurance entered the new syndicated loan.

However, some opt for caution and are wondering what will be the liquidity of Spain in the coming months. They also stress that no prospect of improvement in consumption is perceived or that housing prices are going to go up. The investors believe they are in a promising trial period. According to many almost six months ago nobody came to Spain, only the bravest. Now they see a whole group of investors chasing the same assets.

Is now finally the time to buy?

The average price of housing in Spain fell by -4.7% year-on-year in April, accumulating a decline of -40.1% since the peak prices reached in December 2007, before the bursting of the housing bubble, according to the latest IMIE house price index data from the real estate valuation and appraisals company, Tinsa.

The April decline moderated to -4.7%, despite beginning the year with a decline of -7.2%, and is far from the variation recorded in the same month of 2013, which was -10.5%.

In the first four months of the year, the value of housing registered an accumulated average decline of -1.2%, well below the -5.9% decline recorded in the period of January to April 2013.

By areas, the Capitals and Major Cities suffered the largest cut year-on-year, of -7.2%, followed by the Mediterranean Coast with a decline of -6.9%, and the Balearic and Canary Islands, which closed the month with a drop of -6.7%. The Metropolitan Areas registered a decline very close to the average, at -4.3%, and the Rest of the Municipalities, not included in the above sections, experienced a slight increase, of +0.5%.

With regard to the accumulated declines since the highest values reached, the Mediterranean Coast registered the biggest adjustment in April, of -48.9%, followed by the Capitals and Major Cities with -44.7%, and then the Metropolitan Areas, which have experienced a decline of -42.8%. Clearly below the average decline stood the Rest of the Municipalities, down -32.7%, and the Balearic and Canary Islands with a drop of -29.5%.

The average rental price of housing in Spain fell by 0.7 % in the month of April compared with the same month last year, according to the latest data from the National Statistics Institute.

Thus, rental prices have now accumulated thirteen consecutive months of declines. This decline in rental prices contrasts with the evolution of the overall CPI, which rose by 0.4% in April.

El Mundo reported that, month-on-month, the cost of leasing remained stable and so far this year has declined by 0.3%, while year-on-year, fourteen regions recorded decreases in their rental prices.

The greatest declines were registered in Madrid (-1.9%), Navarra (-1.9%), La Rioja (-1.6%), Extremadura (-1.3%), Valencia (-1%) and Murcia (-1%), and with declines below 1% stood the Canary Islands (-0.9%), Andalucía (-0.8%), Castilla-La Mancha (-0.8%), the Balearic Islands (-0.6%), Aragon (-0.5%), the Basque Country (-0.3%), Cantabria (-0.3%) and Castilla y León (-0.1%).

Increases in rental prices were registered in the autonomous cities of Melilla and Ceuta (+0.8% and +0.3% respectively), Asturias (+0.2%), Galicia (+0.1%) and Catalonia (+0.3%).

The number of families and businesses that filed for bankruptcy due to not being able to meet their payments and debts totalled 2,090 during the first quarter of the year, which represents a decrease of 29% over the same period of 2013, according to the latest Bankruptcy Proceedings Statistics published by the National Statistics Institute on Thursday.

Specifically, 178 families filed for bankruptcy during the quarter, representing a decrease of 24.3% over the same quarter of 2013, while the number of insolvent companies fell by 29.4% year-on-year, to a total of 1,912 bankruptcy procedures.

Quarter-on-quarter (first quarter of 2014 over the last quarter of 2013), the number of debtors fell by 8.5%, the largest decline in the first quarter in the last five years. This reduction was due to the drop in the number of insolvent companies (-9.6%), as the number of families filing for bankruptcy between January and March increased by 5.3%.

Over 78% of the companies that were declared insolvent between January and March were limited companies, compared to 16.4% which were corporations. Specifically, the number of corporations filing for bankruptcy during the first quarter fell by 34% year-on-year, to a total of 315, while the number of limited companies in this situation fell by 28.7%, to 1,500 procedures.

The number of individual business persons filing for bankruptcy also fell by 28.9% year-on-year, although the figure increased by 8% quarter-on-quarter to a total of 54.

During the first quarter, the number of voluntary bankruptcies amounted to 1,945, a decrease of 30.8% year-on-year, while the necessary bankruptcies increased by 8.2% to a total of 145.

El Economista reported that, between January and March, 24.1% of the bankrupt companies were principally engaged in construction (460 proceedings), while 19.5% were involved in trade (372) and 15.6% in industry and energy (299). In total, these three sectors accounted for almost six out of ten of the insolvency proceedings in the first quarter.

Catalonia, Madrid, Valencia and Andalusia were the regions with the highest number of bankruptcy declarations in the first quarter, as they accounted for over 60% of all procedures. Specifically, Catalonia had a total of 450 proceedings, Madrid registered 316, Valencia had 265, and Andalusia, 231.

Year-on-year, the regions where the number of bankruptcies fell most were the Balearic Islands (-85.2%), Asturias (-57.6%) and Aragón (-46.2%), while the only regions to register increases over the first quarter of 2013 were La Rioja (+25%) and the Canary Islands (+20.3%).

The regions with the least insolvencies declared in the first quarter were Asturias, with 28 procedures, followed by La Rioja and Navarra, both with 30.

Miguel Ángel Fernández, “El Tigre,” a construction worker, is drinking orujo liquor and talking nonstop. He may not realize it, but his life serves a good illustration of the public works frenzy that Spain has experienced in the last few decades.

Fed by European funding, the country has built deserted airports and high-speed rail networks used by very few passengers. Between 2004 and 2013, Spain received €20.56 billion in European money for transportation infrastructure. Of this, €7.45 billion went to the high-speed AVE train.

A prime example of the waste is the series of rail tunnels being built in Pajares, a mountainous area in the northern region of Asturias.

The tunnels, meant for the AVE, have already swallowed up more than €3 billion, and there is no opening date in sight.

El Tigre worked on that project for nearly 10 years. “It was a botched job,” he says. “Construction companies just wanted to get it over with as soon as possible and get their money.”

His story coincides with statements made anonymously by several engineers and geologists who did not want to openly criticize the Public Works Ministry.

“I worked on the Guadarrama tunnels and they came out well,” notes Fernández, 60, in reference to the AVE tunnels going through the Madrid mountains that were built between 2002 and 2007.

Happy with that experience, in 2003 the ministry awarded the contract for the Pajares project — two 24.6-kilometer-long tunnels, plus several smaller links to connect Asturias and León.

The project had a budget of just under €1.8 billion and involved nearly all of Spain’s major builders: FCC, Acciona, Dragados, Ferrovial, Sacyr, Constructora Hispánica and others.

But the trouble started soon, when water began seeping into the tunnels. “The tunnelling machine kept running into pockets of water,” recalls El Tigre, who is currently unemployed. “I have seen the water pull away containers weighing three tons. But instead of stopping to seal the tunnel properly, we were told to go faster to get out of the water area fast.”

The tunnels were completed in record time. On July 11, 2009, then-Public Works Minister José Blanco attended an event to celebrate the occasion. But the water problems were still there.

El Tigre orders another orujo and notes: “Instead of boring the tunnels eight months ahead of schedule, they should have taken longer, but that was money for the construction companies. Our orders were to finish fast, no matter what.”

A spokesman at Adif, the state-owned railway infrastructure manager in charge of building the AVE tracks, said this was no time to assign guilt, and that other countries have had similar problems with their own projects. He also underscored that the Pajares works represent one of the largest and toughest engineering projects in all of Europe.

Adif commissioned a hydrologic study of the terrain when the work was already underway. However, a study conducted as early as 1986 had already warned that this was a karst area, made up of porous bedrock that lets rainwater seep through. “It is expected that the route will be affected by significant water formations,” read the report.

The various problems led Adif to accept cost overruns that the builders claimed were necessary to complete the project. In the course of a decade, the initial plans were altered 15 times, and price tags reviewed. So far, €2.99 billion has been invested (a cost overrun of €1.2 billion, the same amount that led to the dispute over the Panama Canal construction work). The tracks have not yet been laid, meaning that the cost of the entire project will soar to at least €3.5 billion.

The European Commission, which contributed €724.3 million to the Pajares project, is now asking questions about the overruns. The Anti-Fraud Office has already recommended that the EC ask Spain to return €250 million for allegedly exaggerating the cost of the stone used to build the El Musel port in Gijón.

Pajares is probably the biggest excess in a long list of failed public works projects that include two deserted airports in Castellón and Murcia and the AVE link to Extremadura, with stretches that run to the middle of nowhere that railway technicians have privately dubbed “the AVE of Okavango,” in reference to the African river that empties into the Kalahari Desert.

“It pains me to say this, but Pajares is the greatest failure of Spanish engineering since the Ribadelago dam,” says one geologist, in reference to the ill-designed dam that burst and flooded the village of Ribadelago, in Zamora, in 1959.

See link on the state of the tunnels. They have dried up all the underground water deposits that were supplying the wells and pastures in the region, an ecological disaster.

https://www.youtube.com/watch?v=MX8Pc-7rTRA

They don’t want to give the system a good kicking, but rather see it completely turned around. They don’t want a revolution, nor do they want to imitate the youngsters who took to the streets in Paris in 1968. But they do want change, and it needs to be radical – albeit with the preservation of the foundations provided by Spain’s institutions. Spain’s young people are not extremists nor antiestablishment, but they reject the Spain of today, the official Spain. So much so that they are invoking something that they didn’t even experience first-hand: the spirit of the Spain’s transition to democracy, in the wake of the death of former dictator Francisco Franco in 1975.

That's according to the results of a new study by Metroscopia called “Young Spaniards 2014: a collective portrait,” which shows that if it were up to younger voters alone, the Socialist Party would win the European elections of May 25 and the Spanish general elections of 2015.

Young people in Spain reject the way political parties are running things in their country, but they would rather see these organizations transformed than abolished altogether. Most under-35s feel loyalty both for Spain and for the particular region they are from, although they also embrace Europe.

Politically they tend to lean to the left, with a majority expressing sympathies for the Socialist Party and growing support for the United Left (IU) and the center party Unión Progreso y Democracia (UpyD), which was founded by a former Socialist.

This suggests that youths may be the driving force that pushes the Spanish left out of the slump it has found itself in since 2011, when it performed dismally at local, regional and national elections. Experts blamed voter anger at the Socialist government’s budget cuts and other austerity policies, which many felt was a betrayal of leftist values.

The opinion poll, which targeted the 18-34 age bracket, also shows no appreciable indication of antiestablishment attitudes among Spain’s younger voters, who feel that there can be no democracy without political parties and elections. This result debunks popular theories about growing social unrest threatening the democratic system.

Asked to define themselves politically, 14 percent described themselves as “liberal,” 13 percent as “centrist,” 12 percent as “socialdemocrats,” 16 percent as “socialists” and 10 percent as “conservatives.” Only one percent said they were far-right radicals, with an identical percentage for far-left activists.

But even though they trust politics, 80 percent of youths also reject the current structure and management methods of the parties, and feel that this is stopping them from attracting the country’s top talent.

Slightly less than 28.8 percent of respondents will vote for the Socialists at the European elections later this month, compared with 22.6 percent for the center-right Popular Party (PP) and 14.2 percent for IU. Around 8.6 percent said they will vote for UPyD.

But this does not reflect real voter intention, because older voters need to be factored in, and surveys show that the final result will likely be a PP victory by a few tenths of a percentage point.

The survey also asked youths what they thought about allowing regions to become independent states – a clear reference to the sovereignty drive by Catalan nationalists – and the result was that only 13 percent of them agree with this option. A majority, 34 percent, would like to keep the state structure the way it is now, while 16 percent would rather recentralize Spain and eliminate regional self-rule. Another 16 percent would like the regions to receive greater powers but stop short of independence.

Asked if they had a choice of being born again in Spain or elsewhere, 66 percent said they would choose to come into the world as a Spaniard once more, while 30 percent confessed they would rather be born in the United States, Germany, Britain or France, in that order.

On social issues, a full 72 percent of respondents feel there is no need to reform existing abortion legislation, despite the PP government’s insistence of popular demand for a change.

Although Spanish society appears to favor a republic over a monarchy, there continues to be widespread support for King Juan Carlos, on the basis that he helped avert the antidemocratic coup of 1981, and that the monarchy can provide the nation with positive services, such as helping secure foreign investment.

The middle class family home cannot find buyers, according to real estate firm Alpha. The purchases, which have occurred, are mostly in the region of extreme prices, or homes in luxury areas or affordable housing below 150,000 euros.

Luxury homebuyers are Spaniards and foreigners, once identified the property they like, "They are fast and agile in closing the transaction knowing that they will no longer find these prices," says Jesus Duque, vice president of Alpha Real Estate

The other type of housing is property with a price close to 150,000 euros. In this case it is mainly small investors or savers who seeing the low returns that banks offer, choose to invest in an asset, which in the medium to long term, has always been profitable. In many cases, transactions are made in cash, without applying for a mortgage which does complicate matters increases the cost of the operation." As with high-value transactions, the acquisitions are also closed in a very short space of time, with no beating about the bush” says Duque.

Alpha Real Estate concludes that the family home of the middle class has no buyers. Properties, which are having most problems selling, are those that range between 250,000 and 500,000 euros. These properties, with an average size of 100 to 200 m2, located in medium or large residential housing developments, are far more complicated to change hands.

The problems that owners face are many. The first is the large existing supply. The second, the difficulty - or impossibility – for the buyer to obtain financing and finally, the resistance from the sellers to lower their prices and accept the fact that   if they want to sell their flat now, they should be adapting the price to the current market , even though it may mean having to lose money, says Jesus Duque

However, their message is positive. "The Spanish real estate sector has started to recover and the proof is that it is generating great interest from large fortune holders and international funds, sooner or later this situation will spread to the entire real estate sector and all property will recover its value within reason" Duque concludes.