The Brexit Referendum and Property Sales

PM David Cameron
The Prime Minister is pushing to remain in the EU

On June 23rd, 2016, the UK will go to the polls to decide if they want to remain a part of the EU or go it alone.

As a result of the announced referendum there has been a lot of scaremongering from both sides of the argument and many people are unsure what a “Brexit” might mean for them, especially those that already own a property in Spain, or live there permanently (or in other EU states).

I have been receiving emails from my friends suggesting that if the “Leave” camp wins I will be kicked out of Spain, along with all other Brits. There have also been rumours suggesting property owned by Brits will be appropriated by the Spanish government; Unlikely, but nobody can be sure at this stage. I hope that as I have lived in Spain as a registered resident and tax-payer for over ten years I will be able to stay.

I have also read that there is already talk of a reciprical agreement between the UK and Spain as there are also many Spanish people living throughout the British Isles.

Of course, at this point it is all speculation and rumour. Nobody is sure what will happen and I certainly am not listening to either David Cameron, who is pushing to keep the status quo, or Boris Johnson, who is pushing to leave. Both of them are talking rubbish and trying to scare us into following them.

So what do you all think about it?

I would like to gauge what effect this whole shenanigans is having, if any, on prospective property buyers. I’d like to ask, if you were thinking of buying a property in Spain (or other EU state), are you now likely to wait until after the referendum or proceed as planned?

Please submit your answer below and check back in a few weeks to see the outcome.

 

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Is Spain running out of options?

Treasury Minister Cristobal Montoro
Treasury Minister Cristobal Montoro

After months of assurances from Spanish Prime Minister Mariano Rajoy that the country will not need an international bailout it seems the reality of the situation has finally hit home as Spain has admitted, for the first time, that it can not raise the money required to refinance the country’s debt.

Asking Europe to stand by the mutual obligations of euro membership the prime minister said Spain is “in an extremely difficult situation,”

“Europe must say where it is going and show that the euro is an irreversible project that is not in danger, that helps nations in difficulty,” he added.

According to treasury minister Cristobal Montoro Spain can no longer raise money as the doors are being closed on them.

“The market is no longer open. The risk premium is telling us that Spain as a state has a problem accessing the market when we need to refinance our debt.”

He also insisted that “the European instistutions must open up and help us facilitate bank recapitalisations.”

Sr Montoro also sent shivers across Europe saying that Spain’s economy is simply to big to be fixed with an EU bailout. “Technically, we can’t really be rescued,” he said.

Montoro said the capital needed for Spain’s banks was substantial but “not astronomic” and would be less than the €40 billion suggested by Santander chief Emilio Botín. “The men in black are not going to come to Spain,” he quipped.

However, despite these comments Spain continues to hold out against making a formal request for help similar to the rescue packages for Greece, Ireland and Portugal, instead asking for EU action to recapitalise Spanish banks.

Spain, the fourth largest eurozone economy, will put two billion euros of bonds up for auction tomorrow which will be considered a key test for the country.

This all comes as the EC plans to outline proposals to stop taxpayers money being used to shore up failing banks, instead making shareholders and creditors responsible for losses. It’s about time, but lets see it put in place before we breathe a sigh of relief.

European Commission may give Spain a little more time for deficit cuts

Guest post by Jimmy Kane

EC ready to help Spain
Officials are ready “to consider” giving more time

Spain can breathe a little easier if the European Commission decides to give the country more time to meet its budget deficit rules while battling with an ever-deepening recession.

Commission officials are reportedly ready “to consider proposing an extension of the deadline to correct the excessive deficit by one to 2014,” Olli Rehn, the Economic and Monetary Affairs Commissioner said during a news conference in Brussels.

So far, Spain has the third-largest budget gap in the entire euro zone, comparable to Greece’s situation. Yesterday Prime Minister Mariano Rajoy repeated a plea for European authorities to support his government’s efforts as the yield on Spain’s 10-year benchmark bond jumped 22 basis points to 6.67 percent.

On the other hand, Economy Minister Luis de Guindos said that the yield premium investors demand that they should hold Spanish 10year debt over their similar maturity German bonds (which, by the way, reached a euro-era record of 540 points today) isn’t a sustainable option.

Rajoy, who has held power since December, pledged in March to reduce overspending by cutting the budget deficit to 5.3 percent of the GDP. The equivalent of 3.6 percent is what’s been overspent this year alone, but the limit set by the EU for all other euro zone members is a mere 3 percent, a number Rajoy hopes to meet by 2013. The shortfall last year reached 8.9 percent. Rajoy’s People’s Party administration is stepping up these sorts of austerity efforts even with the economy itself set to contract 1.7 percent this year.

Why would the Commission agree to more flexibility? It’s only under the condition that Spain can effectively “control the excessive spending at the subnational level, especially by the autonomous regions.” Additionally, Spain will need to present a solid 2013-2014 budget plan.

The European Commission said in a staff report that the policy plans Spain has submitted so far “lack sufficient ambition” as the nation hasn’t done nearly a large enough overhaul of their labor rules and its tax system. The recommendation is for Spain to raise environmental and consumption taxes while at the same time, reducing tax advantages, such as the favorable fiscal treatment of residential housing.

Miguel Angel Fernandez Ordonez, better known as the Bank of Spain Governor, said meeting deficit targets will be “tremendously arduous” as projected tax receipts may come in lower than anticipated and spending might even be higher than planned.

Jimmy Kane is an avid traveler and Spanish real estate hobbyist. When he’s not traveling or studying the Spanish property market, he maintains a telecommunications website called Cable in Dallas, Texas.

Spain struggles on as an EU bailout gets closer

Guest post by Jimmy Kane

Will the Euro survive the year?
Will the Euro survive the year?

Spain’s economy is still slowly limping along, getting worse all the time. Concerns about the European country’s financial condition and mounting doubts about Europe’s ability to bail out the country dragged stock markets and the euro sharply lower on Wednesday.

Although Greece may be the epicenter of the debt crisis, Spain has been a growing source of stress and fear over recent weeks. Everyone’s watching Spain’s banking system and this microscope view has magnified last week after Bankia, the country’s fourth largest lender, announced it need 19 billion euro ($23.8 billion) in state aid.

Not surprisingly, investors are biting their nails that Bankia’s woes might translate across the Spanish banking sector, which suffered terribly from the collapse of the construction industry. This economic recession has unemployment at almost 25 percent, which just adds worry fuel to the concern fire. Some speculate Spain will become the fourth euro country to be bailed out after Greece, Ireland and Portugal.

Given that precedent, who’s to say the rest of the European Union wouldn’t follow suit? It’s not like Germany can bail out the entire continent. Naturally, the European Union’s executive office on Wednesday called on the eurozone to create a so-called “banking union” that can centrally oversee and bail out the sector if it needs to be. Lately, it’s a weak link in a very weak chain in the continent’s financial system.

However, bank failures have already overwhelmed the public finances of Ireland, which has forced it to take an international bailout. Will Spain be next? The European Commission recommended that Spain be given an extra year to meet its deficit targets, however likely or not that seems to happen.

The problem with the idea of bailing out a country the size of Spain is that its economy is double the size of the three countries already bailed-out and investors are skeptical whether a rescue operation can be mounted or would even do anything.

The general malaise hit stocks even harder, particularly in Europe, and the selling was aggravated after a VPRC poll for Epikaira magazine in Greece gave Syriza 30 percent of the vote, followed by conservative pro-bailout New Democracy at 26.5 percent.

This year, Spain’s stock market has been performing as terribly as a legless circus monkey on a unicycle. It dropped yet another 1.6 percent Wednesday – and the country’s cost of borrowing has rocketed higher to frightening levels. The euro itself fell another 0.6 percent to $1.2411, a tiny bit up from its nearly two-year low of $1.2405 hit earlier. Economic confidence also continues to slump.

Jimmy Kane is an avid traveler and Spanish real estate hobbyist. When he’s not traveling or studying the Spanish property market, he maintains a telecommunications website out of his hometown of Dallas, Texas.

Can the Euro survive the crisis?

Guest post by Jimmy Kane

Euros
There is a crisis of confidence in the Euro

A wide-ranging survey of public opinion found Tuesday that there is a wide dislike of the Euro, but there is little desire to abandon it. The contempt was brought through the debt crisis that has ravaged Europe for the best part of three years.

Pew Research Center, who conducted the survey across eight European Union countries (among them, Spain, Greece, France and Italy), learned that the regions financial woes were the catalyst for full-blown fears about the future of Europe’s economic climate.

Pew said in a statement accompanying its survey, “This crisis of confidence is evident in the economy, in the future, in the benefits of European economic integration, in EU membership, in the euro and in the free market system.”

In spite of these wide-eyed concerns, Pew discovered there was no desire for those countries that use the euro to return to their former currencies, such as the Spanish peseta or the French franc.

Greece, called by many the epicenter of the debt crisis, revealed 71 percent of those polled want to keep the euro around, as against the 23 percent that wish for a return to the Drachma. Most people in Greece, which is now its fifth year and counting of restless, violent recession, believe the euro is doing more good than bad. 46 percent of those surveyed said so, compared to 26 percent who thought the euro was a curse, rather than a blessing.

What makes these finding so important involves Greece’s upcoming polls on June 17, which many see as a referendum on the country’s euro membership.

In contrast, most in France, Italy and Spain think the euro has been more destructive than helpful. In Italy in particular, which has the second highest debt burden in the eurozone after Greece, 44 percent of Italians surveyed think the euro has been a terrible thing, compared to the mere 30 percent convinced it was benevolent. Italy is also filled with the largest anti-euro constituency, with around 40 percent of those polled wishing to resort back to the lira. 52 percent of those surveyed still want to keep the euro around.

Of the five euro countries polled, not a single one had a majority (that is, over 50 percent) that agreed the introduction of the euro has been beneficial.

These surveys were conducted either by telephone in some countries or face-to-face in others between mid-March and mid-April, with at the very least, over 1000 people surveyed in each region. The margin of error varies from country to country, but stays at about 3.3 percent to 4.4 percent.

Jimmy Kane is an avid traveler and Spanish real estate hobbyist. When he’s not traveling or studying the Spanish property market, he maintains the website Time Warner Cable Dallas.

Spain agrees new deficit target

Mariano Rajoy
Rajoy claimed victory over deficit target

Brussels has set a new deficit target for Spain and Mariano Rajoy’s government have accepted it, claiming a victory after winning some concessions.

The target for this years budget deficit is now 5.3% of GDP, slightly lower than the 5.8% target that Rajoy set last month without consulting EU officials.

Following the decision Spain’s economy minister, Luis de Guindos, said “Spain is completely committed to the budget adjustment,” and that the new target “will be accepted by the government”.

The new target is half a percentage point lower than Rajoy was hoping for and this means an extra five billion euros must be saved via spending cuts or tax increases. This is on top of the 15 billion euros of savings already expected in the upcoming budget.

Rajoy is claiming a political victory despite EU ministers rejecting his 5.8% target, which he said was a matter of national sovereignty, as the original target passed from Brussels was 4.4%, previously agreed by Zapatero’s socialist government.

The prime minister argued that his government had inherited a large deficit overshoot when they were elected in November and risked another recession if he imposed too much austerity, an argument which the EU’s senior economic official, Olli Rehn, accepted.

Spanish foreign minister, José Manuel García-Margallo said “The Spanish government has won this battle.”

He added that EU leaders had taken the Spanish arguments seriously saying “They gave us the maximum possible.”

The Spanish government have previously said that Spain will cut their public sector deficit to 3% of GDP by 2013 and this was reiterated in Brussels.

Sr. Rajoy has yet to announce how he intends to meet the target as the national budget has been postponed pending the outcome of the regional election in Andalucía, due later this month. The region is currently under socialist rule.

Economists and analysts say it will be difficult for Spain to reach it’s target without increasing the risk of a second recession. Too many spending cuts or tax raises could push the economy downwards, increasing unemployment which, in the long run, will not increase tax revenue for the state.

“We remain concerned that it will be very difficult for Spain to achieve this level of fiscal consolidation, especially given that the economy has already moved into recession,” Barclays Capital said on Tuesday.

Spain seeks support over deficit target

Mariano Rajoy, Spain’s prime minister, is seeking support from his EU counterparts after requesting a reduction in his country’s deficit target.

Rajoy, elected last November, said on Wednesday that Spain would do “everything we can” to cut the budget deficit because the public sector could not continue spending 90 billion euros more than it earned each year.

Spain announced this week that its 2011 budget deficit was 8.5 percent of GDP, much higher than expected. This will make the 2012 target harder to achieve.

The PM said recently that Spain’s target of 4.4% is almost impossible to meet and has discussed the options for increasing the target.  This has apparently upset a few people within the Commission, where officials view Rajoy’s efforts as improper politicisation of what should be a technocratic judgement by staff economists.

Rajoy accepts that deficits need to be cut but not at the expense of job creation, which is a top priority for Spain where unemployment is currently at 23%, one of the highest rates in Europe.

“We will lower (the deficit) as much as we can, but these policies should be made compatible with those used to create jobs,” Rajoy said speaking to Radio Nacional de España. “We will do it with no rush but no pause.”

But the Commission says it is not willing to show flexibility until Spain provides an explanation of why the 2011 deficit was so much higher than expected and puts forward new austerity measures to help meet this years target.

“There is an in-depth debate: is it logical to maintain targets as if nothing had happened?” said Joaquín Almunia, Spain’s European commissioner. “That is a political discussion that may start tomorrow [Friday] in the European Council and I think it is better to have this discussion with as much data as possible on the table.”

Some smaller euro-zone countries have expressed anger over Rajoy’s efforts saying they viewed it as an attempt to get special treatment.

“It would question the entire economic governance tool kit,” said a senior diplomat from a smaller country that has previously had it’s own fight with the Commission over deficit targets. “We hope there is equal treatment.”

Chairman of euro zone finance ministers, Jean-Claude Juncker, told Spanish radio he was sure a solution could be found for Spain, but with a second recession on the horizon, escalating unemployment and unpopular tax increases there has to be a question of whether a reduced target could be met at all.

EU Employment experts coming to Spain

youth unemplyment
Spain has highest unemployment in EU

The President of the European Commission, Jose Manuel Durao Barroso, has announced that he will be sending employment experts to Spain to help develop a plan of action to battle the “big problem” of youth unemployment.

Almost half (48.7%) of 18-24 year olds in Spain are unemployed with the figure being over 50% in the Malaga region. Spain currently has the highest unemployment in the EU, more than double the rate in Germany.

The initiative will involve the creation of “action teams” including employers, Spanish unions and the Government, but will also be rolled across other EU countries with high unemployment including Greece, Portugal and Italy.

The European Union executive’s spokeswoman, Pia Ahrenkilde, said “We must act now, and in the short term, to do more to combat the urgency of youth unemployment. It is unacceptable to have these very alarming rates of youth unemployment in some Member States”.

The experts will “visit each of the countries concerned in February, for one or two days, to identify where the EU contribution could be useful to help develop a youth employment plan”, she added.

European aid to the value of 10,700 million euros has been assigned to Spain up to 2013, and the action teams will consider the best way to spend this money in order to increase employment.

“One of the objectives of these ‘action teams’ should be to agree on how to accelerate and, where necessary, redirect these uncommitted funds”, Ahrenkilde explained. Also they will “review the priorities of existing programs in order to have more impact on measures for young people and job creation in SMEs”, she added, going on to say that “there are no new funds” for fighting youth unemployment.

The ‘action teams’ aim to create the action plan by mid-April.

Prime Minister, Mariano Rajoy, responded by saying he was quite prepared to send his own experts to Brussels to accelerate the implementation of this initiative.

The plan was agreed and endorsed by EU leaders at the summit on Monday.

“…for one or two days” – is that enough to fix such a huge problem? To me this sounds like some EU executives fancy a holiday around Europe. What can they really do in two days? Watch this space for yet another failed EU initiative.