Spanish practices - time for a change

The recent uproar in the UK regarding expenses claimed by members of parliament were referred to as "Spanish practices".

Reference to these so called "Spanish practices" was made in the Spanish media at the time. Whilst a certain sense of shame and distaste at the idea of being a benchmark for "perks" of the job was apparent, it now appears that a court decision this week has raised the bar for what might be considered legal, and further blurred the line between the acceptable and the unacceptable.

Now in most countries a judge who is acknowledge to be a close friend of one of the defendants on trail would declare himself unavailable for the case, as his impartiality would have to be questioned.
Not so in Spain. Even when the defendant is a key political figure and media attention surrounding the case is heated, to say the least. Thankfully there is a higher court which will have to review the decision, but we might wait another year before the decision is revisited.

What a surprise. And the leader of the opposition is now boldly claiming that no wrong was ever done... and that justice has prevailed. Why isn't anyone calling for a review of parliamentary procedure, the need for all gifts to be declared or perhaps "given back".

Corruption is not going to help the Spanish economy get out of its current mess and it is time that politicians on all sides started to make a clean sweep and set a new standard for what is acceptable. As for the judiciary...perhaps there were no other judges available!

Marbella - the tip of the iceberg?

The funny thing about the anti-corruption Operación Malaya in Marbella, now in its third phase and an ever increasing number of former mayors and senior public servants in jail or under suspicion, is why did it take fifteen years for the police action.
I visited Marbella a few years ago, but it was already widely commented that there were all sorts of irregularities in urban development.
Recent news reports following Operación Malaya speak of commissions being paid across the construction industry, with some local officials living well beyond the level of their regular salaries.
If this has been going on for years, it would seem that nobody was very interested in opening up a can of worms to see who was involved.
That said, construction has been booming for the past decade in Spain and it would appear that the practice of paying commissions to get land rezoned, for planning permission or whatever other administrative favours might be required is not limited to Marbella. Little by little Spain will increase the level of control, but much of the damage and spectacular profiteering will have been done in the interim.

A recent BBC report captures the latest round of arrests including a former Mayor.
Elsewhere a $1 million liquor bill has recently come to light.

All in all, one should ask what the external and internal auditors have been doing for the past 15 years, not to mention the tax department and the police.

Information management

Governments can be applauded for their efforts to digitalise their information, allowing citizens to get the information they need directly from official internet sites and in some cases initate a number of procedures through online channels.

The advantages of bringing information online are potentially great, although computerising information is not itself going to lighten bureaucracy. We all know the saying "information is power" and the process of introducing e-government can sometimes be seen as a challenge to those who previously managed many of these processes.

I've recently seen some research work that highlights a number of issues related to how e-government initiatives are measured. Significantly, the measures can in themselves act as a barrier to efficiency, as instead of rewarding the simplification of procedures that would lighten the administrative structure they focus on numeric measures such as page views and number of online processes.... in other words, the more the better. Not wanting to capitalise on the research of others, the key is that consultants and civil servants sometimes lose site of the real objective. Less, not more, might work better.

On a personal level I've recently experienced how information management is critical in the internet age. A New Zealander planning to spend 9 months studying in Spain was checking the requirements for her visa application. Accessing the website of the Spanish embassy in Australia, she proceeded to get the required documentation together, including a letter of invitation from her host (that's where I come into this) signed by a notary. This document is rather official (at least 8 pages) and comes at a cost of some 65 euros. I was able to get a notary to prepare the letter within the day (some offices I called said it would take a week) but meantime our future visitor contacted the embassy to check if I could send the letter directly to them (a time saving measure, given the time required to send documents from Spain to New Zealand and on to Australia). Low and behold the embassy advise her that the information in the website is out of date and this letter is no longer required for her visa application. Her call saved the 35 euro international postal express charge, but I wonder how many people have wasted time and money going through procedures that were no longer required.

It's possible that these embassy officials have never really considered the cost for other people of not keeping that information up to date. For me it is totally inexcuseable.

Wouldn't be great if the government had to refund citizens for the costs resulting from their own inefficiency.

The Endesa takeover - and the golden share

The Endesa takeover saga took a new twist earlier this week when the German utilities giant E.on announced a takeover offer that was significantly above the existing takeover offer made by the Spanish company Gas Natural.
The new bid raises all sorts of issues. Some have a very clear answer in a market economy - the highest price rules - but the popular concept of countries having Strong companies in strategic sectors makes it difficult for Governments not to meddle in such cases.
Surprisingly, in many respects, the bid seems to have raised far less antagonism than the Gas Natural bid. It would appear that both the management of Endesa and the local authorities in Madrid who strongly imposed the first offer are much more open to the second offer. This prejudice against all things Catalan seems to be a very clear argument in favour of greater power to the autonomous regions, as it is clear that some political parties have a problem with big business being based in Barcelona.
The labour Government had not opposed the Gas Natural bid, but they are beginning to voice their concerns about a German company coming along and taking over such a large player.
The EU has sent out a strong warning against intervention and the Economist recently commented on the issue of cross border mergers. If its okay for Spanish banks to takeover banks in other European countries, then there is no reason to stop this merger. After all, the sector is heavily regulated by the Government - so it retains control.
As for the Endesa management, I wonder if their recent advertising campaign which was based around the word "on" was entirely coincidental. The Germany company has been labelled a white knight (or Endesa's saviour) but Endesa "on" is not too far from E.on

Demographic challenges

Immigration has become an increasingly important demographic factor over recent years. Putting aside issues related to illegal immigration, the assault of Africans on the wired wall around Melilla, a Spanish city in northern Africa or the tragic drownings that occur as people try to cross the strait by boat, the number of foreigners living in Spain has increased dramatically.

Recent statistics indicate a reversal in the decline of the birth rate, which has recovered to levels not seen in 25 years in the case of Catalonia, one of the regions that is attracting immigrants. For one in five of the 76,000+ babies born, at least one of the parents was a foreigner.
Obviously a demographic shift of this nature represents a considerable challenge for both the Catalan government, in this specific case, and the Spanish government as a whole.
One of the first things that will need to be addressed is ensuring that the State is ready to provide the additional educational, health and welfare resources for a growing population. In some regions, such as Girona, the number of babies with foreign parents is as high as one in three - and the diversity found in urban areas of Barcelona represents a completely new scenario to the Catalan-Spanish dichotomy that has dominated politics and policy making in recent years.

As parent of an infant I'm also concious that those of us with young children can expect to face problems when enrolling children for school. After years of steady decline in the birth rate there are bound to be problems. Overdemand in some areas, inadequacy of facilities and unmotivated teaching staff, just to start. I have no confidence in the state's ability to anticipate these changes which demographic shifts clearly indicate. In the lottery for finding places in schools, those with contacts will be okay, but many people will be faced with bringing their children to schools in other neighbourhoods on a daily basis...
The challenge of integrating a cross section of nationalities in some schools is already a reality. Spain must learn from the experiences of countries like France and England, or cities like Toronto, seeking effective models to follow and adapting them to the circumstances of each region and neighbourhood.

Schooling and pre-schooling only represent the tip of the iceberg when considering the public policy challenges that will need to be faced. But as the demographic structure of the society begins to change, as reflected in the birth statistics, one can begin to appreciate the scale of transformation.

Corporate Robbery - state sanctioned

In the Gas Natural v.s Endesa takeover battle, a report in El Mundo today states that the Chairman of Endesa doubled his personal holding in Endesa on Friday (news broke of the takeover offer on the following Monday).
Even though Endesa has rejected the takeover offer as hostile and insufficient, the Chairman seems to have decided that he can personally profit from the move. Claims by company representatives that there is no connection between the two events just aren't enough. The CNMV needs to get on the case double quick, examine all trading in Endesa and Gas Natural derivatives as well and come down very hard if there is evidence of wrong doing.
So much for corporate governance ... let's not allow state sanctioned corporate greed.

As an afterthought, the Chairman could quickly off-load his recent purchase (50,000 shares) and donate the profits to the Katrina hurricane victims or a similar cause closer at home - US$100,000 may not be a big contribution, but its a big profit on holding shares for two or three days.

Katrina and caos in New Orleans

Whilst most of my comments are limited to Spain or other countries that I am familiar with, the big surprise about the Katrina hurricane aftermath, looking from a distance, is how it took so long to get any real response moving.
I've read lots of comments and articles from a variety of sources in recent days and figure that others are much better placed to provide detailed analysis.

But the question needs to be asked: don't the American people expect their taxes to be used to help in a situation like this? We know the US government has been running a deficit for years, but are American citizens happy with the idea that their taxes finance a huge military operation in Iraq but there is a shortage of support at home. Obviously the scale of the disaster is so great that lots of people are only too willing to help, offering shelter to people, donating money to relief funds and so on.

It was amazing to see the massive traffic jams as the city was evacuated. So the authorities got it right - warned people to get out of the area - and the people who could responded.
I don't trust the media images that we get any more. I don't need to see senior US politicians helping to put food in emergency boxes just for the camera... and if the focus moves to the looters, the issue is moved from one of lack of disaster response and organisation to one of law and order. An effective way of avoiding criticism. Thankfully somewhere down the track there will be an enquiry about why money was never spent on strengthening the dyke, why it took so long to respond after the hurricane, how people where trapped in official shelters without water and food and something will be learned from this tragedy, but not before we are fed more images of death and suffering and more misinformation.

The initial death figures reported by media after the hurricane had passed were between 50 and 100 - but then the dyke burst ... and the disaster really started.

Lets hope other Administrations around the world learn from this disaster. Those are our taxes which you are administering in our best interests - to provide a series of services that include security, health, education, civil defence, economic planning and many others. We expect you to manage these services efficiently and effectively. (Especially in the world's largest economy)

State Corporations, Mergers and Politics

Yesterday's big business story was the rumoured takeover bid by Gas Natural for Endesa to create a Spanish and European energy giant.
A quick glance at the television news reports this morning pitched this as not only a business operation but also a political move by the Catalan savings bank, la Caixa, which is the leading shareholder in Gas Natural and a major shareholder in Repsol (which also holds shares in Gas Natural).
The socialist government is playing down any question of political interests, but naturally the centralist opposition party has hit the alarm bell.
First of all the electricity, gas and petrol industries in Spain would be best described as oligopolies. Inevitably the Government plays a role in setting prices (gas sector) or limiting price increases (electricity) or setting taxes (petrol). That said, both companies are publically listed companies ... so the decision of whether or not to except the takeover bid is an issue for shareholders, not the Government.
There may be legitimate concerns about a lessening of competition, but there is an Energy Commission that is responsible to monitor such questions and the takeover would be subject to clearance on issues of competition. If the mechanisms exist, let them work without political involvement.

And what if the bid is politically motivated? La Caixa is a Barcelona based savings bank - the third largest banking institution in Spain after the giants, BBVA and Santander. Caja Madrid - the leading shareholder of Endesa is a large Madrid based savings bank. Now if the Caja Madrid was smart it might just take the premium being offered in the takeover bid and find some other healthy businesses to invest in. Who really cares whether the head office of the resulting merged company (should the operation succeed) is in Barcelona instead of Madrid - apart from the politicians? The employees faced with moving might opt to take generous severance pay or decide that living on the Mediterranean isn't such a bad alternative.

Banco de España on property

The Banco de España has been a voice of independent opinion in recent years when it comes to the Spanish economy. That's a good reason to take note of their warnings on the property market (article in Spanish) - this is not their first warning, but stating that property is 24 to 35% overvalued should be sufficient warning to potential buyers.

Spain is not alone with its property bubble. An article in the Australian says that property is 25% overvalued and prices are likely to stay put for the next decade. Alan Greenspan gave his clearest warning about the property bubble in the US yesterday (9 June) - although he suggested that some markets were more heated than others.

The Spanish government has not really been able to tackle the housing problem successfully to date. They are trying to encourage the rental market, but have not changed the law. Owners are required to sign 5-year leases when renting property and are relatively unprotected if a tenant ceases to pay the rent.

Meanwhile, the tax incentives to buy remain, and the low interest rate environment allows people to take on large volumes of debt. The Government could do away with the tax incentives, phasing them out over a 4 or 5 year period, and reduce the property transfer tax on the sale of properties. This would help reduce the upfront costs on buying a property, which currently amount to 10% of the price, or more. A bit of pressure on the real estate agents might also reduce the commissions that they earn on selling property (sometimes well over 5%) . Somehow competition doesn't seem to do that, but perhaps it will in the future when it gets harder to find buyers.

Banks are also culprits, in my opinion, as they sign up young people to 30 year mortgages on 50 square metre properties. Now if they really had their clients interests at heart, they would only offer funding up to 70% of the value of the property, forcing people to bid below the asking price. In an overvalued property market they are putting their own capital at risk by lending above this threshold.

So many people believe that the prices won't go down. This provides a floor to the market, but sometime soon there must be a pause in the upward movement of prices - and the volume of construction. For the moment interest rates in Europe are staying flat, but one year, two years, three years out they could have doubled to 4%. Any shock in the economy and they might triple. Either way, there are alot of people who are locking themselves into long-term rigidity with 25 or 30 year mortgages with servicing costs that can only rise. Maybe not the best ingredients to build a dynamic economy in the 21st century. Where are the risk takers, the investors, the entrepreneurs...not the young Spaniards who stay at home or the ones taking on a lifelong mortgage.