Why Spain needs bankruptcy reform

Since many enterprises in Spain are suffering under ever higher levels of debt, it is becoming much more important for Spain to have a less destructive bankruptcy law. In the old days, most industries were very capital intensive. It was likely that a significant value of the company consisted of physical assets, and in the case of bankruptcy, creditors stood to gain some recovery as these assets were liquidated.

In the new world, corporations have much less in assets, and almost everything physical the company has is leased rather than owned.  For example, Spainair didn’t own any of its aircraft, which in the old world would have been sold off. Now, the prime asset of a corporation are its customer base, business method and employee know-how. Since none of these assets are tangible (unless you can sell the employees into slavery), liquidating the company is in many cases the worst possible solution to trying to pay off creditors.

Instead, a better course of action is similar to what the US has in “Chapter 11” bankruptcy. A court appointed receiver examines the business to see if it is still viable, or could be made viable by converting debt into equity, renegotiating labor contracts, etc. The court then has the power to enforce a deal between the creditors, employees and the company, which in many cases allows the company to be sold or exit bankruptcy with the business intact. In addition, while in bankruptcy protection, a company has the ability (with court approval) to take on additional debt to keep operations going and preserve the value of the enterprise.

In the Spainair case, I never saw a single analysis questioning whether the business itself was viable (how much money was the company losing before interest and taxes? would the employees have taken a paycut to keep their jobs? would the aircraft leasing company lowered their rates?), and whether the entire business (assuming the debt was turned into equity) had any of positive value. Is there any airline that would have been interested in acquiring the customers, know-how and routes of Spairair for a couple million dollars (which is probably more than the creditors got in liquidation)? Everyone would have been better off, the creditors would have gotten more cash, the employees would have kept their jobs, and passengers would have not had their vacations ruined.

Two-foreigners-kissing etiquette in Spain

I’ve gotten used to the kissing people on hello and goodbye thing, but I’ve run into a problem: what happens if you meet another foreigner who is from a hugging or shaking hands country? Do we do the Spanish protocol, the shaking hands, the hug, collide awkwardly?. When in Spain act Spanish and all that, but then, if it’s just you and the other person and there’s no one else around, should you act differently just because you are in a different country?

Any opinions?

Everyone wants to be flexible now

Let’s see how this works out…

First, Spain defies the EU and demands additional “flexibility” to run higher deficits than it had agreed to just days earlier. The EU was outraged, but ultimately powerless to do anything about it.

Now the region of Cantabria is asking the central government for more “flexibility” in running a higher deficit. At the same time, cuts are now called “flexibilización del déficit”, so who knows what they are asking for...

My guess is that the next year will see an orgy of borderline-legal money printing in Spain as the government pawns every turd it can lay its hands on to the European Central Bank. At the same time, everyone with half a brain and a positive bank balance will transfer their money out of Spain.

This creates a massive imbalance in the Target2 payment system, where Germany is already “owed” 500 billion euros by the rest of the Euro-system. There is no theoretical limit to this number, but at some point it will start creating inflation in Germany. This might actually not be so bad, since by causing inflation in Germany, it would reduce the need for other Euro members to deflate costs/wages. Unless the hard-currency fanatics flip out and do something stupid of course (like sending in the Luftwaffe).