Richard Leese, the leader of Manchester City Council has pushed his dreams of turning Manchester into another Barcelona unceasingly. This is despite the fact that Manchester has high unemployment and a number of children in poverty. He has continued with his policies which only benefit multi-national companies and starve the City of any real inward investment. I wonder if he has bothered visiting Barcelona again, to see the unfinished buildings and the blight the City is now suffering from? Has he not noticed the unfinished buildings here in Manchester, the empty office blocks and empty retail units. Then there is the EU grants which cannot be fully accounted for and the EU may want to claw back. Reading an article about Catalan, of which Barcelona is the capital City on the Share Centres web-site. I started to wonder if we were heading the same way as Catalonia?
But then there is the problem of local government debt. Catalonia is a wealthy region. Perhaps you could say that the region is to Spain, what California is to the US. And it has one other thing in common with California – it carries enormous debts. Its President Artur Mas displays all the hallmarks of a troubled man. On Friday, he said at a press conference: “We don’t care how they do it, but we need to make payments at the end of the month. Your economy can’t recover if you can’t pay your bills.” This year the region has to refinance 13 billion worth of euros. But how? The citizens of Catalonia do their bit, but, according to Reuters, a quarter of their savings are already in patriot bonds, and that source of funding is now dry. The region could turn to the banks, but, again using Reuters as the source, the region next door Valencia paid out 7 per cent interest on a six month bank loan recently. And that is not really affordable – or so we are being told.
But Catalonia is just one of 17 regions. Last week Moody’s downgraded the rating for Catalonia, but also downgraded three other regions: Murcia, Andalucia and Extremadura. In all, the regions that make up Spain have to re-finance around 36 billion euros of debt this year.
Mr Mas wants to see central government underwrite loans to the regions.
But this is the scary thing. It is generally agreed that Spanish house prices have further to fall. And with unemployment running at nearly 25 per cent of Spain’s labour supply, how can further falls in Spanish house prices not result in more defaults, more bad debts, more bank losses, and the need for even more bail-outs?
How can Spain possibly manage such a situation?
Only through getting many more of its work force into productive jobs can this problem begin to be fixed. But too high a proportion of the workforce only has experience working in construction, and the Spanish construction industry is not likely to recover for a very long time.