Hidden Data in The Spanish Economic Crisis

Spain has been all over the press this weekend with a 100 Billion euro bailout agreed to by   Eurozone finance ministers. I spent the last three days in Spain and I find the coverage I’m reading somewhat disconnected with reality.

I drove down to Madrid from where I live in Southern France and spent Thursday, Friday and Saturday morning there, then drove back home and spent Saturday evening in Pamplona where the San Fermin festival starts in a month with the running of the bulls.

Madrid is a shining jewel in Europe. The city is immaculately clean and has a wonderful mix of new buildings like the Cuatro Torres that make for a spectacular modern skyline juxtaposed against gorgeous old buildings like the Royal Palace.

Walking in the Parque del Oeste where the Egyptian temple of Debod was moved to save it from the Aswan Dam, the park is filled with locals who have come out at night for their evening walk. Kids playing, groups of older women or men walking together, lovers in a quiet secluded spot in the park. Everyone is happy and full of life.

Driving around Spain there is an incredible amount of active road construction and the roads that aren’t being worked on are in great condition with many spectacular bridges.

Pamplona was absolutely heaving with party-goers on Saturday night including a huge Spanish rock festival, packed bars and pubs and streets literally filled from wall to wall in the older part of town – and the newer part was full of locals out for their evening walk. I visited a heavy metal bar with an Iron Maiden cover band doing a terrible rendition of Maiden’s older stuff and the standing-room-only crowd loving every second of it.

While in Madrid I got chatting to a local shopkeeper and went out on a limb and asked her about the informal or under-the-table economy in Spain. She explained that many people are employed off the books. I asked why, speculating that the tax in Spain is very high. She explained yes that’s one reason, but taxes are higher in Italy where she’s originally from. Another reason is to keep getting social benefits like a housing benefit. She also said it’s popular to pay someone only 70% of what they’re really paid into their bank account and the rest in cash to avoid tax.

More evidence that there’s a thriving off-the-books economy is that when we stayed in Madrid, we rented self catering accommodation. The proprietor asked that we pay the roughly 200 euros bill in cash.

All the economic indicators used to describe the “Spanish crisis” and provide rationales for bailing out spain or to predict how bad the “coming collapse” will be don’t take the informal economy into account. It also makes it difficult to understand the needs of the Spanish people, what the GDP really is, how dependent they really are on social programs and what Spain’s real ability is to service it’s debt.

To some the informal economy in Spain may seem to be immoral because conventional wisdom holds that one should “pay your taxes” and put your money in a safe place like a bank. But the Spanish people seem to be discovering a way to live without banks and government visibility on how much they earn or what they do with their money. I suspect many of the government assistance programs are over subscribed and do little to serve their intended targets.

It makes one wonder who the Eurozone is really bailing out.

10 thoughts on “Hidden Data in The Spanish Economic Crisis

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  2. I disagree. You seem to be basing your assessment of an entire huge nation’s economic state on some casual encounters with people in the street and that–big surprise–they do some under-the-table dealings.

    There is a lot more to the story than this. How many Spaniards in their 20s and 30s still live with their parents to save money? How many old people rely on government checks? How many of those receiving under-the-table pay are getting badly screwed by their heartless employers, but can do nothing about it in a country with > 20% unemployment? Etc.

  3. @Earl: 3 months? Are you serious? I’d like to know where do they give you 3 months of vacations a year. The only people that even approach that amount are politicians 😛

    The average Spaniard enjoys only 30 (natural) days of vacation.

  4. The practice of paying part of the salary in (“bajo cuerda”, we say in Spanish) has been always popular in certain professions, specially in those where a base salary is complemented with productivity.

    About the oversubscribed assistance programs, I remember reading a Danish study on their own unemployment benefit program, which they had extend for a period of up to four years! They discovered that most people using this service would actively seek employment at the beginning of those four years… or by the end of the fourth year, and thus they decided to cut the program back to only two years, like they had it before (and like it is here in Spain).

    I don’t believe that those people would just lay at home, with a minimal income. I think this is something pervasive to all countries with this kind of subsidy system. Some will admit it, other won’t. Not that I’m against the system; only that its current form is too easily abused.

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