Weekly Report 30.11.12

Weekly Report  30.11.12

Elections in Catalonia

The Catalonia Regional Elections on Sunday resulted in a clear defeat for Artur Mas, the present leader of the governing CiU party, who had exhorted the voters to give him a substantial majority to initiate a process leading to independence from Spain.  CiU lost 12 seats in the regional parliament.  The socialist party also lost votes and seats, going from 28 to 20 deputies. The biggest winner was the radical ERC party,  going from 10 to 21 seats in Parliament.   PP won 19 seats, up 1 on the last elections and the Ciutadans party won 9 seats. Mas will have difficulty finding partners for a coalition government. The ideological distance between him and the other independist party, ERC, being great.  A possible coalition partner for the defeated CiU would be the other big losers in the socialist party, however,  the socialists do not support the independence project of Mas, neither of course do PP, who are ideologically close to CiU.

A public opinion poll has revealed that 61% of the Catalan’s believe Mas and the Pujol’s have, or have had, bank accounts in Switzerland, and 51% believe CiU habitually collects commissions…..

It will be a difficult situation for Catalonia and complex negotiations in the coming weeks.

Energy certificate blocking sales and letting

We warned our readers that Spain would, in accordance with EU Directive 91 of 2002, demand an energy certificate before certain dwellings could be let or sold. Now the first certificate for dwellings built before 2007 are here, a complex document of six pages containing many technical and legal requirements,  and more certificates are coming; Lenox Napier will keep you informed!

Many owners of dwellings, built hastily during the property bubble, will need to upgrade insulation, the cost of which might run into thousands of euros, starting with a technical report, followed by the work needed.

Letting a property without the certification is illegal and will incur fines.  Sales will be blocked at the notary’s office or the Property Registry if the requirements are not met.

Court stops mega-project in Ronda

The Supreme Court of Andalusia has annulled the legality of the infamous urbanisation in the Ronda Mountains, which we have mentioned on several occasions. The court argued that the project, situated in a Biosphere Reserve on the border between Ronda and Cuevas de Becerro, has insufficient water supplies.

In 1995 the promoters, Copisa,  paid Ronda town hall 14 million euros for permission to build the project, comprising 3 golf courses, 800 dwellings and several hotels.  Corrupt politicians now have a lot of explaining to do.

Edificaciones Calpe goes bust

The well-known promotion and building company Edificaciones Calpe, along with its subsideries Andybal Residencial, Desarollos Urbanisticos del Algar and Patrimonial Andybal, all belonging to the group of Andres Ballester of Valencia have gone bust, with group debts of 584 million euros.

Cement production falls 34%

Cement production continues to fall.  By October it was down 34%; representing only 40% of capacity.  Since 2007 the  workforce has been reduced by 33%.

The cement sector expanded enormously during the property bubble but is now down to what can be considered as the normal level.

Shop sales down 8,4%

Sales in Spanish shops fell 8,4% in October, compared with same month of last year. This is the 28^th consecutive month with decreases in turnover. Employment in the sector diminished 1% in the month, the 51sth month with less jobs.

Highest salaries in financial sector

The National Institute of Statistic, analysing salaries paid in the different sectors, found employees in the financial sector are on the highest level of remuneration with 72% being paid more than 2,071 euros a month (for 14 months a year) followed by 68.5% in the energy sector,  63.1% employed in education, and 59.7% in Public Administration.

Workers employed in the domestic sector earn less. 84.4% receive a pay cheque of less than 1,218 euros, as do 60.9% in farming and fisheries.

Unsold properties for social rent?

The Director General of the La Caixa Foundation, Jaume Lanaspa, says that next year it’s possible banks will offer between 40,000 and 50,000 of their unsold properties for ‘social rental’ at 300 euros per month or less. His own bank 2013 will offer 4,000 dwellings for rent at an average of 120 euros p.m.

Punitive interest for eviction victims

The assistance, announced with a fanfare by the government after a series of suicides, to help families in danger of being evicted from their homes for non-payment of mortgages, is for many turning into a saga.

The measure involves suspension of the eviction threat for two years; however, the banks will continue to add interest, including the punitive interest for delayed payments, and after the two years, borrowers may face a demand to pay all the accumulated interest in one go. The net result of the ‘assistance’ could amount to a 43.4% increase on the original loan.

There are 621,000 families in Spain in danger of being evicted.

Easier registration in Catastro

Resulting from incorrect registration in the Catastro thousands of properties owners in Spain have not been paying the correct amount of local property tax, with many not paying any tax at all.

To help town halls collect more tax, the Government has drafted a new amendment to the national budget for 2013 to offer owners who have not paid local property taxes in the past, a kind of amnesty.

Under the proposed amendment, owners who have not paid taxes because of failures to register properly in the Cadastre, can now register their homes (and/or building changes) and avoid fines for back taxes by paying a penalty of just €60. Under the current law, the fine could be as high as € 6,000.

3,000 million ‘debt’ to electricity companies

In spite of electricity companies increasing their prices at every turn, the Government reveals that consumers owe the energy oligarchs 3,000 million euros due to low tariffs. The consumers, eventually ‘their children and grandchildren’ will have to re-pay the debts over 30 years.

From one reader we just got this mail:

Hello:

We just got our electricity bill for the above period and were astounded to see that somehow, without running any extra appliances, lights, etc. our usage supposedly almost doubled in that time.  Our meter seems to be functioning correctly.

Furthermore there are charges “not related to supply” that are as much as the power we supposedly used- ie. the cost of electricity (now at €0.16 per kwh, plus tax)   was only half of the total – what makes up the difference is described as “price adjustment”, going back to October 2011, an electricity tax, and then on all that combined there is a VAT (IVA) of 21% applied to energy and services, plus another of 18% on the price adjustment. “Surcharges due to regulations in force” add up to about a third of the total bill. The explanation offered for this confuses rather than enlightens me.

Is this just another gouging effort? In past years we have seen meters ( water and electricity) go unread for several months, and then all the usage gets piled into one account period, so a surcharge is then applied for an excess.

Have you had a similar experience? If so, perhaps  a number of complaints or protest letters should go to Iberdrola (www.iberdrola.com/claims)  and the consumer protection agency.

Judges and prosecutors in demonstration

Hundreds of judges and prosecutors, shouting that Minister Gallardon should go, demonstrated last Friday outside the Ministry of Justice in Madrid against the new court charges and the reform of the legal system.  Similar demonstrations were held in a number of other cities with courts.

De Guindos worst minister of finance?

For the seventh year the Financial Times newspaper has rated the ministers of finance in Europe. Wolfgang Schauble of Germany tops the list, Spaniard Luis de Guindos is in last place.

Spain Chooses the Worst Moment to Enter the Club of Rich Countries

Spain will become net contributor in the new European budgets. Analysts fear that cuts in the accounts of the EU will bring further adjustments.

(Based on an article from Publico.es 24 November. Translated and expanded by Lenox Napier)

Since Spain became part of the European Union back in 1986, the country has always received more than what has been given: that’s to say, Spain has been a major net receiver of European funds. Thanks to this, Spain was able to take a major leap forward in its development. But those days are gone: in recent years, with the enlargement of the EU, Spain has crosed the room to become part of the club of the wealthier countries in the EU. And that agreeable new condition within the EU makes it liable as a net contributor for the new Community budgets – cresting at a trillion euros – for the six years of 2014 – 2020.

Although there is no final agreement on new budgets of the EU for the next six years, it is certain that there will be major cuts. Germany, the Netherlands and Sweden want the cuts to be 100,000 billion; while the Commission prefers to consider cuts nearer the 80 billion mark. Regardless of the final agreement, Spain will, for the first time, have to contribute more than what she will receive. The amount is still to be determined and will only be known when the 27 Member States reach a consensus, expected in early 2013.

After the failure of the Brussels Summit, the Spanish EFE News Agency has consulted several experts: all coincide in stating that the cut in the budget of the European Union will inevitably mean additional cuts for Spain.

‘Community funds are a transfer to the Spanish State, and when they no longer arrive there will be less money available, obliging the State to make more cuts, or failing that, to use revenue from other sources’, explains the Professor of Economics at the IESE Javier Díaz Giménez.

Professor of Finance at the University of Santiago de Compostela, Luis Caramés, says bleakly: ‘it is the worst possible time for Spain to become a net contributor to the EU. The economic situation of the country and its extreme financial fragility leave little margin for negociation’.

That is why it is essential that Spain manages its alliances in the face of the forthcoming negotiations. Thus the case of the common agricultural policy: ‘France is the country that receives the largest share of funding for the countryside, followed at a distance by Spain’, says Robert Tornabell, a professor at the ESADE Institute. Tornabell thinks that Mariano Rajoy ‘is working well to regain protagonism in agricultural affairs with the President of France, François Hollande’.

According to Tornabell, ‘Spain should consider a Union with two axes: persuade the United Kingdom to remain in the EU, giving it prominence in what has been Britain’s traditional role: defence and foreign affairs. Germany would stay masters of taxation, the European banking system and other financial aspects’.

The strange thing is that, after a century of poverty, a cruel civil war and a rapid if uneven rise to some kind of prosperity, Spain, with its higher than ever barriers between the wealthy and the poor, with a crumbling middle class and a staggering unemployment figure set to rise over the winter, is now one of the Rich Countries of Europe.

The weekly crisis:

The Euro Group and the International Monetary Fund has had to ‘bite the sour apple’ and ‘pardon’ 40,000 million euros of Greek debt, to avoid the country going formally bust and losing the 43.700 million, next installment of the ‘rescue package’….

The Spanish government has indicated that it will again use the reserve fund of the Social Security, which at present has 66,000 million euros, to pay pensions in December

FROB, the Government agency for banking restructure, has agreed to sell Banco de Valencia for 1 euro to Catalunya Bank, after first injecting 4,500 millions to keep it afloat

Bankia will reduce the staff by 6.000 people, 25% of the total, and close down 1.000 branch offices

FUNCAS (Foundation of the Saving Banks) predicts that the contraction in the economy this year will be 1.4% of the Gross Domestic Product, and 1.6 next year

The federation of the metal industry considers the Government budget for 2013 as ‘overly optimistic, which may deepen the crisis’

Non-financial companies assets fell 57.2% in the 9 first months of the year

The public deficit was in October 43,374 million euros, 4.13% of Gross Domestic Product. That is 9% more than at the same time last year

The results of the Catalan elections have made the country risk rise slightly over 420 points, the interest rate on 10 years bond to go over 5.7% and the IBEX to fall below 7,863 points

More letters from readers

Dear Per Svenson

I was sorry to hear that you are giving up writing the Weekly Report but I wish you and yours all the very best for a very deserved retirement.

You said that we should cancel our direct debits for CE subscription.  Does this mean that CE is no more?  Very sad if so.  The breakaway group here, in the Balearics, which calls itself «Ciudadanos Europeas Baleares»  seems to have turned itself into a sort of musical appreciation society!  Hardly what CE was supposed to be!

Let me know about the subscription.

Kindest regards. Bryan Oliver

Dear Per,

I joyfully receive your Weekly Report, but the last one I’m so sad to read.

In your 80 years and my 59, I still think they are and have always been courageous and true to your principles. Every week, at receiving your fabulous Report,  come back memories of those years at the International Institute of Foreign Owners SA, I shared with you.

I wish to express my gratitude for being able to be with you in those wonderful years and to wish you a happy retirement (I think deserved). Say hello to your wife and kids for me.

A big hug from your friend,

Just Miguel Calvo. Economist. Real Estate Agent

===

From: jacqui cotterill [mailto:jacquicotterill@hotmail.com]
Sent: Wednesday, November 14, 2012 2:39 PM

Best wishes and many thanks for all the hard work put into keeping us infomed.

Jacqui (vice mayor of Parcent)

===

===

Sorry to now we are coming to the end of an era !

However, I retired in 1988 and have never been so busy !

Best Regards

John Carrington

===

Economic Crisis Spreads in Spain

Neil Parmar – Huffington Post

Workers across southern Europe took to the streets last week to protest the region’s growing unemployment and government spending cuts.

While few people reportedly turned out in countries such as Denmark and Germany, many participated in nationwide strikes within Spain, Portugal and Greece — forcing the closure of some businesses and public transportation routes as well as the cancellation of numerous flights throughout the region.

In Madrid, thousands of people poured into the city’s center, and some of them left behind a trail of union flyers on the street and graffiti on storefront windows. With the sound of sharp whistles blowing and drums banging, many denounced proposed austerity measures, such as privatizing some hospital jobs and cutting positions for teachers.

Multiple countries across Europe are facing serious financial troubles, though problems have reached historic highs in Spain. One Spaniard in four is now unemployed, and half of all youth are without jobs. Some have turned to the informal economy to earn whatever wages they can. But many rely on their extended family members to help maintain a financial safety net — and in some families now no one is working. «The principle way in which people protect themselves from the risks of the market — that is, not having income, being disabled, needing money to put food on your plate, paying your mortgage etc. — is through their extended family network,» said Kenneth Dubin, a professor in human resources and strategy at IE Business School in Madrid.

«Extended family networks are absolutely critical part of the safety net here,» Dubin added. «It’s what explains why you can have 25 percent unemployment — and not have a social revolution.»
But demonstrations here are becoming more frequent. And vocal. Last was the second general strike in less than one year in Spain, and thousands marched in Madrid last month to protest austerity measures.

Many debt-ridden residents are now growing increasingly concerned over losing their homes. Around 400,000 homes have been foreclosed over the past five years, according to data from AFES, an advisory group for struggling homeowners.

Last week, a woman in Spain committed suicide as officials tried to seize her home. The country’s banking association, AEB, has since announced a two-year freeze on repossessions for «humanitarian reasons.»

The housing industry faces further challenges, though, as there is a lack of opportunities for workers who once rushed into this sector. «Spain went through a housing bubble that drove talent and expertise to construction and real estate,» said Pablo Esteves, director of branding and partnerships at Emzingo, which helps train students and develop business leaders in Spain and other countries around the world. «It will be a long road to reemploy this talent.»

SAP, the German technology company, was hosting 11,000 customers, employees and analysts at an annual conference last week in Madrid. The company’s co-CEO, Jim Hagemann Snabe, moved up his keynote by a day due to the strike and noted unemployment — not a weak Euro — was Europe’s biggest challenge going forward. «For me, the biggest challenge is the unemployment among young people,» he said. «In Spain, we hear 50 percent of unemployment among young people — that is unacceptable.»

Snabe also announced last week that SAP would be launching a new online learning platform to help educate and train unemployed youth affected by Europe’s economic challenges. While it launched in Spain, the program will expand to nearby countries such as Portugal, where Snabe says he met with the country’s president last week to discuss youth joblessness. «Our vision is to educate 100,000 young people in technology in Europe,» Snabe said, «and we will start right here in Spain.»

Joaquín Mencía, an employee at Telefonica in Madrid, blames part of the country’s economic woes on a weak education system. He notes there’s a lack of top-tier schools and that young students need to be better incentivized to excel at their studies. «It’s an education system crisis,» he said.

Separatists reawaken Spanish nationalism

By David Gardner in Madrid

This year’s surge of separatist sentiment in Catalonia and the Basque Country is reawakening what had appeared to be a dormant Spanish nationalism, led by rightwing forces in and around the ruling Popular party, with salvos of rhetorical artillery between the two sides poisoning political debate.

More modulated voices that subscribe to neither brand of nationalism are being drowned out by this increasingly atavistic discourse, which some feel summons up the spectres of Spain’s fractious past.

Faced with a drive for independence by the home rule government of Catalonia ahead of a watershed election there on Sunday, the central government in Madrid is threatening to use the full force of the law to prevent Catalan plans for a subsequent plebiscite on the region’s future.

Reasoned proposals to reform the constitution and move Spain’s pluri-national state towards a more federal model have been caught in the crossfire – not helped by gathering evidence that the opposition Socialist party is heading for a meltdown across Spain, as well as in Catalonia.

Mariano Rajoy, prime minister, insists he is open to dialogue but that the right of self-determination is proscribed by a constitution that consecrates the indissoluble unity of Spain.

Catalan opinion tipped towards secession after a democratically endorsed and Socialist-led attempt to give Catalonia enhanced self-government was struck down by the constitutional court – at the behest of the PP when it was in opposition.

The ruling party, which has an absolute majority in parliament yet governs almost entirely by decree, is treating the constitution with the reverence accorded to a tablet of stone, even though last year it took the lame-duck Socialist government a matter of days to amend the charter to incorporate the eurozone fiscal compact.

“This should all be negotiable but it has become poisoned by an accumulation of grievances,” says Jesus Ceberio, former editor of El Pais, Spain’s leading centre-left newspaper.

Adding to those grievances is the barrage of abuse from the rightwing press in Madrid, worked up into a frenzy of Catalan-baiting. El Mundo, for instance, recently ran a blog claiming Pontius Pilate was a Catalan.

When Catalan socialists called for a federal way out of the constitutional crisis, José Maria Marco, a columnist in La Razón, wrote: “Maybe at some point we will find a left in this country with the guts to call itself Spanish, and even national!”

Mr Ceberio says: “It is true there has been a discourse here of belittling and insulting the Catalan language and culture.”

Says another editor: “The real independence party in Spain is not in Catalonia, it’s the PP – it is a machine to manufacture separatists. The real Spain is plural, but these [PP] people can only abide the idea of a Castilian Spain.”

Mr Rajoy did not help by dismissing the vast rally of Catalan separatists that occupied Barcelona in September, without breaking a pane of glass, as a “rabble” – using a word that dates from the 15th century reconquest of Spain from the Arabs.

But the political temperature went up several more degrees when in October José Ignacio Wert, the education minister, told parliament he intended to “Spanish-ise” Catalan pupils he suggested were being brainwashed into separatism by the Catalan language. This touched a raw nerve and triggered a raucous response.

Catalonia, which withstood the Franco dictatorship’s attempts to expunge its language, operates a bilingual education policy, which education ministry studies show produces children at least as good if not more proficient in Spanish than their peers in the rest of Spain. Some commentators noted gleefully that whereas Catalan leaders are invariably multilingual, Spanish prime ministers tend to be linguistically challenged.

Mr Wert’s intervention in a policy area under Catalan government jurisdiction did not just anger Catalan nationalists. “This is an incendiary attempt to homogenise our education system,” said one anti-separatist business figure. “This man has just created 100,000 more separatists,” fumed a Spanish diplomat. Observers on the sidelines of the dispute expect worse to come.

“We haven’t yet really seen Spanish nationalism go into action, but it exists and it’s pretty belligerent, and what gets them most excited is [internal] territorial conflicts; it’s in their genetic code,” says Mr Ceberio, recalling the adage of one of Franco’s generals in the 1936-39 civil war, that he preferred “a red [roja] Spain to a broken [rota] Spain”.

Many Spanish conservatives contend that it is Catalan nationalists, with their narrative of collective victimhood at the hands of over-bearing Madrid, who have sown divisions among Spaniards.

But Jordi Pujol, the veteran nationalist politician of the transition from dictatorship to democracy who headed the restored Catalan government for 23 years, says Spanish nationalism “was always there, but it has become much more radical recently, due to sensitivity about the economic crisis and the damage to Spain’s self-image – as well as the backlash against the Catalan [secession] movement”.

Another leading figure from that period who wished to remain anonymous says: “We could see a real hardening of Spanish nationalism, but I think this is more in the media and the political class than among ordinary people.”

A former minister in the last Socialist government concurs, but recalls that when José Luis Rodríguez Zapatero, the former prime minister, suggested the idea of nation was “arguable and argued over” he had to retreat under heavy nationalist fire.

“Once this gets going, Spanish nationalism, which works with the gut more than the head, will be a force to be reckoned with,” says a leading Spanish political scientist in Madrid. “What we must avoid at all costs is being pushed into the corner where we appear to be the Serbs.”

If you want to see where Spain is headed, take a long look at Jerez

Decades of financial mismanagement have brought the city to the brink of bankruptcy

The new mayor is determined to impose order, but at what cost?

Guillermo Abril

Jerez, in the southern region of Andalusia, can be viewed as an illustration of all that has gone wrong with Spain over the last two decades: rapid growth based on seemingly limitless borrowing, which has produced a glut of houses and office space that nobody wants. Three years ago the bubble burst, and the local authority has been left with no money. That means it is unable even to pay its utility bills or the cleaning staff in its schools.

To put it simply, Jerez has been living beyond its means. Anybody working in the public sector – or for a company that depends on the public sector – is either on strike, has been on strike, or is likely to be very soon. From one month to the next they have no idea whether they will be paid, or even if they will be left with a job. People were being laid off even before the government introduced new laws to make it easier to fire employees, and the unions have been unable to do anything about it.

Some commentators say that if you want to see where Spain is headed, take a long look at Jerez: ever-declining public services that mean people just have to get on with making the best of what there is.

Around 8pm on a rainy Wednesday at the end of October we meet Moisés Gálvez, the father of one of 7,000 children in the city who haven’t been to school that week, and the head of the parents’ association of the Manuel de Falla junior school. He tells us that around half of the city’s 47 infant and junior schools have been closed this week because of a strike by cleaning staff who haven’t been paid. Negotiations are underway, and it is possible, he says, that the strike may be lifted this evening. But then again, it may not. That’s the way things are in Jerez right now: nobody knows anything.

By fighting for your rights, you’re more than likely to be trampling on somebody else’s

The cleaners are owed around 1,500 euros each in back pay, and have been staging partial walkouts over the last two weeks in protest. This is the fourth time that they have taken industrial action in just under a year. In the new Spain, by fighting for your rights, you’re very likely to be trampling on somebody else’s. That’s austerity for you. When there is no more money in the state’s coffers, people have no choice but to deal with the ensuing cuts as best they can. This means looking out for one’s own interests, even at the expense of those around you. «These women are exercising their right, fine. But at the same time they are affecting our children’s education. And what happens if City Hall gives in to them?» asks Gálvez, a worried and angry parent, like so many others throughout Spain.

Gálvez has been a municipal police officer in Jerez for the last 12 years. Back in 2009, when the crisis really began to bite, he and his colleagues marched to City Hall dressed as Roman legionaries to draw attention to the worsening situation. When the authorities stopped paying them, they set up a camp in the main square. Since then, they have lost a range of subsidies and benefits, as well as having to take a pay cut, like the rest of their colleagues in the public sector. He looks tired: he’s just worked a night shift, and hasn’t slept this morning, having spent the free time looking after his son, who is off school.

«Police officers are not allowed to strike, so that means that City Hall can hold back our pay. At one point they owed us three months’ wages. By the middle of the year we were no longer being paid. Now they owe us two-thirds of our wages for September. Over the summer we were unable to go out on patrol because there was no fuel for our cars and bikes. We could only go out if we got an emergency call. We didn’t even have paper for the photocopier. We’re using the old voting slips from the last elections.» Like everybody else in Jerez he has no answers, and no solutions to the situation: «We just want to be paid, that’s all,» he says.

But Jerez City Hall has no money. In fact this city of 212,000 people owes one billion euros. The loan it requested from the government under a scheme to allow local authorities to pay their suppliers was the second largest, after Madrid’s. Unemployment in Jerez is around 34 percent, with 34,000 people out of work. Meanwhile, City Hall’s budget is getting smaller and smaller.

At one point they owed us three months’ wages,» says a policeman

Since María José García-Pelayo of the Popular Party (PP) took over in May 2011 with an absolute majority, the council has reduced its budget by 20 percent, and its costs – the amount it spends on products and services – have fallen by 40 percent. One of the first things the mayor did was to lay off 260 City Hall employees. She says that in the year 2000 there were 1,650 employees on the City Hall payroll, a figure that had ballooned to 2,150 by 2007, many of them on «generous salaries with significant benefits and perks.» A 55-year-old man who wouldn’t give his name described the layoffs as «arbitrary, despotic, and neo-fascist.»

City Hall brought in consultants Deloitte to go through its books. Its report, which led to the layoffs, reads: «The current situation at City Hall is a reflection of a situation inherited from previous periods. In this sense, during the period between 1995 and 2007, characterized by important economic growth, Jerez City Hall had access to abundant revenue and easy credit, which provided relief to the local treasury, but which covered up the real financial situation at the institution. In the end, the current economic crisis, with its strong impact on revenues and subsequent increase in demand for social services, has highlighted the desperate situation of Jerez City Hall’s finances.»

There is now something of a war economy in Jerez these days. City Hall is fighting on any number of fronts, most of them related to public services.

On the way to the Manuel de Falla junior school, where the next day cleaning staff went in to work after City Hall agreed to pay them part of their salary – albeit without supplying the means to purchase cleaning products, for which there is no money – one passes the local fire station. In front of it is a collection of tents. They’ve been there since September, when firefighters decided to stage a go-slow. They are only covering emergencies. They are not training, studying or even checking their machinery of vehicles. They were paid their August salary in late October. There is no sign of September’s. The provincial firefighters’ union has threatened to expel them if City Hall doesn’t cough up their union dues and back pay. A few days later, City Hall promised to pay them by the end of November.

Jerez City Hall has no money – the city of 212,000 people owes a total of one billion euros

Walking through newly paved streets, lined with rows of small houses built over the last two decades, a bus driver with 16 years behind the wheel tells us that he and his colleagues are resigned to their fate. They too are owed money, and are unlikely to be paid any time soon. «We’re on strike. But the truth is that we’ve no longer got any way to put pressure on City Hall,» he says. «We’ve been on strike for 25 weeks now. But we’re a laughing stock. We’re owed nine months back pay, around 12,000 euros each. Jerez privatized its bus services, but in 2010, the company, called Cojetusa, part of the FCC construction group, went bust. The former manager in Jerez has since been dragged into Operation Malaya, the far-reaching investigation into corruption in Marbella.

Another company tried running the buses, but in May Jerez City Hall cancelled the contract. The bus service is now being run by a local civil servant. City Hall says that after it has settled up back pay, drivers will be offered a 20-percent salary cut in exchange for being able to keep their jobs. «When you see so many people around you with nothing, if they pay me my 12,000 euros and cut my pay by a fifth I will consider myself fortunate,» says the driver.

Jerez, once an important part of the industrial revolution in Spain, and with its long tradition of sherry- and wine-making, once hoped to establish itself as a leading commercial center in Andalusia. Those hopes are now long gone.

This is where the first railway in Andalusia was built to ship brandy and sherry out to the markets in Europe. The industry grew throughout the last century, with sherry production reaching around 200 million bottles a year in the 1990s. Output is now barely 55 million bottles. Of the workforce of 10,000 people directly employed in the wine-making industry a decade ago, just 1,000 or so remain. Juan Luis Bretón Abrisqueta, the former director of vintners Williams & Humbert and John Harvey, says that Jerez’s wine sector is a shadow of its former self. «This is no longer a place where the different wineries are respected for their respective identities.»

Firefighters are only covering emergencies and are not training or checking vehicles

By the end of the 1990s, Jerez was caught up in the construction boom that had swept through the rest of Spain, fueled by cheap credit. Land that for centuries had been used for grape growing was rezoned and sold off for building houses. City Hall was suddenly awash with cash, and used its new-found liquidity to borrow more money. Bretón describes what happened as «a curious approach to municipal management: the city began to grow rapidly, all paid for by City Hall, which was getting deeper into debt as it drove the local economy and became its biggest employer. A motor-racing circuit was built, and costly events were staged to raise the city’s profile, but that brought in little investment.

«This city scares the living daylights out of me,» says Pedro Pacheco, who took over as mayor in the late 1970s, staying in office for 24 years. He is now a local councilor for the left-leaning Citizens’ Forum party, which emerged out of the Andalusian Socialist Party. He tells his version of events. «I was 29 when I was elected. I was very young, and expectations were high. We transformed this city, putting in new roads, sidewalks, lighting, the sewers, sports and leisure facilities… We built the motor-racing circuit, a new sports stadium, and we promoted the show jumping competition. Jerez was a pioneer in a new approach to running a city.»

More than that, as he now admits, «Jerez was living way beyond its means,» borrowing money and getting deeper and deeper into debt: «We wanted to do it all, and we got so caught up in the job that we stopped listening to what people wanted.» He stepped down in 2004, but under a deal with the Socialist and Popular parties, he stayed on as head of urban planning until 2007, by which time the scale of the financial disaster was huge.

Everybody involved in what happened over the last two decades in Jerez has their version of events. Pilar Sánchez, the Socialist Party Mayor between 2005 and 2011, agreed to talk for a few moments during a break at a meeting in City Hall, where she is still a local councilor. Outside, a group of protesters stood forlornly in the rain, being roundly ignored by everyone in the building.

Of the 10,000 people who worked in the wine industry, just 1,000 or so remain

Sánchez blamed her predecessor, Pacheco, for the city’s problems, saying that she inherited an already disastrous situation. «Pacheco’s dreams resulted in a 50-million-euro debt for the motor-racing circuit; 70 million for the show jumping events… During the boom times, the money coming in from the construction sector covered all eventualities. But when the market collapsed, we went from revenues of 22 million euros to two million euros in a single year. We had to pay what we owed, along with the debts we had inherited. And now I’m the one getting all the blame.» She admits that she should have taken tougher measures to reduce the city’s spending, for example cutting the municipal workforce, and putting employees on part-time contracts.

Later that day we joined her for a glass of sherry at the González-Byass winery, where officials were deciding on who would play the three wise men in the Christmas parade.

We were there in the hope of an interview with the mayor, María José Garcia-Pelayo, who eventually found time to talk to us at the end of a very long day. «It’s been a very difficult time, since the first day that I took over,» she says. «The worst moment so far was when we announced the mass layoffs.» When she was elected, her team of accountants recommended declaring the city bankrupt. «I am determined to get this sorted out. But there is no way that we can do that in just 15 months.» Her goal is to reduce the city’s deficit to zero by August 2013, and that means cutting spending everywhere. «We are already into our third financial restructuring plan,» she says.

This has involved renegotiating with suppliers to get them to bring their prices down by 20 percent. García-Pelayo met personally with Florentino Pérez, the president of Real Madrid. He is also the owner of Urbaser, an affiliate of his ACS construction company, and is owed 88 million euros by Jerez city council. She says that more jobs will be shed from the municipal payroll. The city’s water supply is to be privatized. «That will give us a vital supply of oxygen,» she explains. Her approach to resolving the city’s finances is that of a gym instructor hired to get a flabby has-been into shape. She believes that Jerez has a bright future, once it is back on track. «This is a luxury brand; this is not some failed city. The failure has been on the part of the people who ran it: we’re finally waking up,» she says.

Land that had been used for grape growing was rezoned for building houses

But for many of Jerez’s inhabitants, the wake-up call has come too late, and they are unsure what kind of future awaits them; people like Cristóbal, a 78-year-old who survives by selling cane baskets and lives in an abandoned 19th-century sugar processing plant in El Portal, a run-down area to the south of the city. Both Pacheco and Sánchez intended to develop El Portal. All that remains is a half-built sports center and unfinished office buildings, as well as land set aside for low-rent apartments that were never started. On one abandoned site a horse is tied up, chewing on the little grass that remains. A boy squeezes through the fence. He sets a trap for birds using ants as bait. He has already caught one. When he has a dozen he says he’ll take them home for his mother, who will fry them up for lunch