Spain’s solution to the crisis: embrace entrepreneurship

IE News

IE Focus | By Patricia Gabaldon, Professor at IE Business School

The nanny state is telling its children it’s time they became more independent by creating their own companies and jobs.

It would appear that the Spanish state is forcing its “sons and daughters” out of the “family home”. The offspring in question actually quite like living at home and don’t mind contributing to the household budget if they know that the money will be used for the common good of the family, and they trust the system that has worked so far.

But now reality seems to be kicking in and it’s time to make their own way in life without the protection of a nanny state. Just like Tanguy in the French film of the same name, they are constantly receiving hints to ensure that they realize the Spanish state will not be there to catch them if they fall, and that they have to increasingly depend on themselves and their own means and actions. The hints are pretty clear – a medium-term reduction in unemployment benefits as from the sixth month, a reduction in civil servants’ salaries, less healthcare coverage, more restricted access to education… The Spanish welfare state is being watered down and the Spanish are gradually realizing that they cannot depend on a nanny state. The way in which these cuts will affect the Spanish labor market in the short and medium term is not yet clear, but what is clear is that working as a civil servant will no longer be an attractive career choice and that a proactive search will henceforth have to be even more proactive, if that is possible in these difficult times.

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Roubini’s magic figures

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IE Focus || By Javier Vega, Professor at IE Business School

A famous New York University professor has predicted that the Spanish finance system saga will end in tears and that Spain will be out of the Eurozone within two years. What is the reasoning behind such a prediction?

Professor Nouriel Roubini of New York University, famed as one of the soothsayers who foresaw the US real estate crisis, landed a few days ago at the offices of Financial Times with the prediction that Spanish Banks were going to need between one hundred and two hundred and fifty billion to meet the requirements of the competent authority – based in Switzerland, naturally – of 9% of the capital. Moreover he declared that Spain could leave the Euro in one or two years.

“I once had a broken watch that gave me the correct time twice a day”, said the popular Mr  Roubini. Journalists from accredited media informed, on the same Friday, that the number of potentially toxic real estate assets now stood at one hundred and forty billion, not counting those of Bankia and BFA, which are already covered by the state, and that provisions in place to support them stood at fifty billion. This means that if all the Spanish real estate assets were worth nothing, some ninety billion would have to be deducted from banking profits.  Banks and saving banks should have recurring annual profits of some 20 billion Euros, and not all real estate assets are going to be worth absolutely nothing, unless there is something they are not telling us and the 9% isn’t mandatory. This means that in two or three years the Spanish banking system would be as clean as a whistle. Then, as long as you and your fortune tellers don’t also think that the 10% of the remaining loans (1.2 trillion) are going to become bad debts, just exactly where is Roubini Global Economics Consulting getting that magic figure from? Basically we don’t know, but it is certainly serving its purpose, which is to put the frighteners on us.

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