Spain's building boom reduced to ruins
News Article Date: Monday 19th of January 2009
From the Guardian
The building has stopped in Seseña. Where just a year ago the development known as the Manhattan of La Mancha was rising out of dusty farmland 20 miles from Madrid, now it is an eerie cross between a ghost town and an abandoned building site.
The earth-movers and dumper trucks have disappeared from this brand new town that was meant to house 40,000 people in 13,500 affordable apartments. Where there were once dozens of cranes, only four remain.
Half-built Seseña is now the sorry symbol of an economy with Europe's worst unemployment rate as Spain enters what may be its deepest recession for fifty years.
"If I had known it was going to be this bad, I would never have opened," said Diego Barrios in his Avenida hardware store on the ground floor of an apartment block that stands between two empty, rubbish-strewn plots.
His is one of just a dozen or so commercial units that are not bricked up. "The way things are going in this country, I can't imagine when anyone will start building again," he said.
Seseña was once a sign of the health of one of Europe's most successful economies. The country that created the most jobs in Europe - attracting four million immigrants in a decade - needed new homes for people with new-found affluence.
An uncontrolled building boom provoked a housing bubble that burst last year. Then came the credit crunch, turning a rough landing into a crash. A million newly built properties now remain unsold. Prices have plummeted and construction has ground to a halt.
"This is different to anything we have experienced before," finance minister Pedro Solbes admitted in El País newspaper, and warned of a nightmare 2009.
The economy will shrink by 1.6%. The budget deficit will come close to 6%. "We have used up the margin we had in public spending," he said. Solbes's predictions reveal the depth of suffering to come. By the end of this year, 16% will be unemployed.
By that measure Spain has far-and-away the most troubled economy in Europe. It shed a million jobs last year, a feat not managed by any other European country since the 1930s, according to El Mundo newspaper. Another million jobs are expected to go this year. Spain already has as many unemployed workers as Germany, a country with almost double its population. Spain's savings banks predict unemployment of 18%. "That is surely impossible. It is the stuff of social revolution," commented one senior trade unionist.
"The real problems will come in the second half of this year," said Victor Renes of the charity Caritas - when the first wave of jobless will be reduced to minimal aid from one of western Europe's less generous welfare systems. Caritas has already seen demand for help leap 75% in 2008.
Immigration has increased eightfold in a decade. It is so new that Spaniards have never competed for jobs with foreigners in a recession before. "I am worried that we will see racism and xenophobia," said Renes.
With almost a third of the workforce on short-term contracts, sending workers to the dole queue has been relatively easy. Getting them back into work may not be so simple.
An emergency €11bn (£10bn) public works programme will keep some in work this year. Javier Morillas of San Pablo-CEU university warns: "These are merely temporary measures. They have no long-term impact."
Spain trails Europe's other leading economies in areas such as productivity, education and research and those who left school early for well-paid jobs on building sites are poorly prepared.
Spain may start to pull itself out of recession by the end of the year but meaningful growth will be harder to achieve, said José Carlos Diez of Intermoney.
Tight regulation means Spain's banking sector escaped the credit crunch without government rescues. Some, like Banco Santander, have gone shopping - snatching up Sovereign in the US and adding Alliance & Leicester and parts of Bradford and Bingley to the business.
The building bust, however, will still hurt them. The banks' problem is not mortgages, but money owed by builders and developers. This accounts for 40% of loans and a majority of bad ones.
Socialist prime minister José Luis Rodríguez Zapatero is blaming Spain's problems on external factors such as the credit crunch.
"This is a national emergency," said shadow finance minister Cristóbal Montoro. "Trying to solve our problems with public spending is a huge error."
Back in the Manhattan of La Mancha, the developer has shut his sales shop, halted building and handed 2,000 homes over to the banks. In his hardware store Barrios proposed a solution. "I wish we could leave the eurozone," he said. "That way we could devalue."
Spain was last week one of three eurozone countries warned over its public finances in the space of three days, underlining the parlous state of the single currency economies. Credit rating agency Standard & Poor's said Spain could face a downgrade after entering recession in the fourth quarter, citing concerns about its high private sector debt as well as its deteriorating public finances. Greece and Ireland were also put on notice by S&P - with a downgrade driving up their borrowing costs. S&P said Spain had to cut public spending to match falling government revenues.
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