Lost in Sant Cugat

Explaining Spain’s unsurprising deficit fudging

2012-02-15T08:51:00.001+01:00

Reports are finally coming out that Spain’s 2011 deficit “miss” may have just been the new government trying to make 2012 look better.

When a government changes, you generally only get blamed for what happens on your watch. If you get elected in December, it’s almost a gift from the gods, since its trivial to make the old guys look bad and you look good.

It likely started like this: three years ago, when the deficit was starting to look bad, the government shifted a bunch of costs from the end of December to the beginning of January. Obviously this trick only works once, because once you get to the next year, you’ve already shifted as much from December to January the next year.

So the new government comes in and says, geez, we have a bunch of expenses in January that should have really been for December, lets just shift those back to December. This way, we get a head start on the deficit next year, and we can drum up a panic to justify what we were going to do anyway.

Of course, sometimes politicians can be too clever for their own good… in the case of Greece, the new government tried this trick in 2009, but instead of inspiring confidence in the next years budget numbers, the reaction of the markets was total panic and the rest is history.

Urdangarin’s amusing “I paid a lot of IVA” excuse

2012-02-13T06:17:00.001+01:00

A couple weeks ago, the lawyer of son-in-law of the king tried to make Urdangarin look better by saying that everything he did was legal, and that he even paid a lot of IVA.

The funny thing is, that if Urdangarin did what he was accused of (get lots of money to his institute for services that were never rendered), then naturally he would have paid a lot of IVA, since he would only have been able get rebates of IVA against the IVA that he had to pay for services.

This is because IVA is a “Value Added” tax, so you end up paying it on the amount of value you add to the product or service. If someone pays you for doing nothing, you pay 100%, since that is your mark-up. (Well, the guy paying you technically pays the IVA, but you are the one that needs to collect it and give it to the government.)

Why Garzon may have a case at the European Court of Human Rights

2012-02-12T17:05:00.003+01:00

I was very disappointed at the recent conviction of Baltasar Garzon. It was the equivalent of a head of a horse delivered to every judge in Spain.

We can already see part two of this playing out in the trial of Urdangarin, where the CGPJ (the same friendly folks that suspended Garzon) have opened disciplinary proceedings against the judge without any real evidence.

There’s a host of problems with the recent conviction of Garzon at the hands of the Supreme Court of Spain. The fact that the Supreme Court managed to convict someone all by itself without any determination by a public prosecutor that a crime occurred should make anyone nervous.

There may be some issues that could be appealed to the Constitutional Court, but given the unanimous verdict of the Supreme Court, it’s obvious that in Spain, the wagons are being circled.

The European Court of Human Rights may provide an interesting route of appeal, since as part of the European Convention of Human Rights, anyone convicted of a crime has the right for the conviction to be reviewed by a higher tribunal. It's not clear that the Constitutional Court would qualify, since its mandate is only to review constitutional issues, not to act as a court of appeal.

Antibiotic use in Spain

2012-02-10T10:14:00.001+01:00

I’ve always been surprised at the fact that many antibiotics are available here without prescription. However, a first look shows that Spain is actually in the middle of the pack when it comes to antibiotic use outside of hospitals:

Interestingly enough, when you rank the correlation between penicillin use and the prevalence of antibiotic resistant bacteria, a somewhat different picture emerges:

Wow! What is Spain doing way up there all of a sudden? Here’s the key paragraph from the paper (Outpatient antibiotic use in Europe and association with
resistance: a cross-national database study):

However, the ESAC antibiotic use data for Spain (21·4 DID, in 1997) differ significantly from those of Cars and co-workers (32·4, in 1997).13 Our study covers reimbursement data for Spain, thereby excluding drugs that were sold over-the-counter, which were included in Cars and colleagues’ sales data. However, these sales data could also be biased because they include antibiotics exported to other countries (parallel export). Nevertheless, we could estimate that the over-the-counter use in Spain stands at around 30% (ie, difference between sales and reimbursement data), which confirms the results of Orero and colleagues14 who showed that only two-thirds of antibiotic packages in Spanish households were prescribed by a physician.

Teaching your kids Computer Science

2012-02-04T21:02:00.001+01:00

If you live here, it means that you’re not getting any help from your school in getting the little ones interested in Computer Science. By Computer Science, I don’t mean being able to use PowerPoint, Word and being able to browse the web. I mean being able to program computer, and eventually being good enough at it to make a living doing so.

Even schools like Agora or Europa, which allegedly have computer science programs as of ESO 4 (Grade 10) are typically Spanish in their approach, and spend a lot of time on description and memorization and not that much on actually learning how to program.

If you think that Grade 10 is too early, that was already three years into my computer science career, and the school I went to allowed me to attend a local university for extra enrichment.

So as an English speaking parent, probably the best you can do is many of the great online courses.

Math enrichment: Khan Academy

Basic programming: Scratch (a visual programming environment similar to Logo of old days)

More advanced: Hackety (thanks Josh)

Great e-book on learning Python for Kids: Snake Wrangling For Kids

Any other suggestions?

Not learning computer science in Catalunya

2012-02-02T17:28:00.001+01:00

We were talking to a principal at a local school the other day, and I happen to ask about their computer science program in ESO (grades 7-10 for North Americans). He looked at me and said “Well, there’s no requirement for computer science in ESO in Catalunya.”

“What do you mean? I remember taking computer science in grade 8 about 25 years ago, but I guess that was not Spain.”

“Well, there is ‘technologia’, but that more like learning how to make a chair or how the engine of a car works.”

OMFG

The 44% youth unemployment rate doesn’t look so crazy anymore.

The only place in Spain that has optional computer science in ESO is are Basque countries. I’ve read other good things about the educational system there, and it is interesting that their unemployment rate is more like 10%.

Shorting English phrases in Spanish

2012-02-01T18:21:00.001+01:00

I find it funny how Spanish people take English phrases, and then just use the adjective to describe the item. For example:

Web site –> un web

Skiing and Snowboarding –> esqui y snow

Playstation –> un play

Educating the next generation of cargo-cultists

2012-01-30T08:53:00.001+01:00

If you ever read any of Malcolm Gladwell’s books, you will have encountered the famous “cargo cults”, where Pacific Islanders built imitations of landing strips, airplaines, etc, hoping that magically attract the wealth of more advanced cultures.

Of course, you could argue that Spain’s massive airport over-expansion is a more advanced form of cargo-cultism. It would be interesting to know exactly which magical rituals they were hoping to invoke by building an enormous (ironically slightly Easter-island like) statue of a corrupt Valencian politician next to the plane-less Castellon airport..

But enough about airports and airlines. It was just meant as an introduction to my son’s latest homework assignment.

“Today we are studying cameras in science!” he says.

“Great! So what have you learned?”

“Well, they have given us a sheet with a picture of a camera and all the names of the buttons and we need to memorize them. Flash, macro, zoom, show picture, power.”

“Do you know what flash is?”

“No.”

“Did they explain to you anything about how a camera works?”

“No”

“Did the teacher bring a camera to class?”

“No. Just the photocopies.”

“What about the button to take the picture?”

“Well we don’t need to learn that one, it doesn’t have any label”

And this is supposed to be one of the best schools in Spain.

Spanair and Spain’s harmful bankruptcy legislation

2012-01-29T22:14:00.001+01:00

Spain managed to score a huge own-goal with the abrupt shutdown of Spanair. In a country that relies on tourism as a huge fraction of it’s GDP, the secondary damage to the tourist sector will be huge. The sad thing is that this is a lose-lose situation for everyone: tourists get stranded in Spain (or never come in the first place) and unsecured creditors will get little to nothing.

In the US, Spanair would have entered bankruptcy under “Chapter 13” last year, which would have allowed it to continue day-to-day as the owners, receivers and creditors figure out a way to either shrink, sell, renegotiate, etc in order to maximize the value for everyone. Only in the case where things were absolutely hopeless and there was no business value whatsoever, would the company have been liquidated.

Spain is different, of course. If you want the gory details, go here, but the executive summary is this:

A debtor in Spain would only resort to file a petition for suspension of payments or bankruptcy as a last measure, when it is generally too late to take effective actions for restructuring the business. Thus, most of the insolvency cases in Spain (including both suspension of payments and bankruptcy proceedings) end up with the liquidation of the debtor’s assets.

There you have it. Expect this to only get worse as companies are squeezed on one end by higher commodity prices, and by lower demand on the other. At the same time, debts increase and there is no way of restructuring other than liquidation.

The only action the Spanish government seems to have done is sue Spanair for not honoring their commitments to passengers, which seems like the ultimate in pointlessness.

Autism in Catalunya

2012-01-24T11:50:00.001+01:00

One of our kids has a relatively mild form of autism (helpfully named “Pervasive Development Disorder-Not Otherwise Specified”), which basically means he does really well in school but gets teased a lot. In hindsight, I’m pretty sure I had the same thing. It actually took us much longer than normal to get a diagnosis, because we had the bad luck of getting a psychologist who was from the psychoanalytical persuasion. In case you were wondering, psychoanalysis is that old-school Freudian thing where you blame people’s problems on frigid mothers, repressed emotions, etc.

What we hadn’t been aware of, was that there is a bit of a time-wrap here in Catalunya, France and parts of Switzerland, where psychoanalysis has managed to remain a dominant force in the treatment of autism, despite the fact that the rest of the world realized this was a really bad idea since the 1970s or so. One explanation is that that during the Second World War, pro-Vichy psychiatrists believed in the genetic theory whereas pro-Resistance professionals took the psychoanalytic approach. A recent film has been stirring up controversy in France, mostly due to the fact that it makes psychoanalysts look like idiots. You can watch it on YouTube with English subtitles.

In any case, if you think your kid might have social or development issues, one very good place to take them is the “Unidad Especializada en Trastornos del Desarrollo” at Sant Joan de Deu Hospital in Barcelona. Unfortunately the waiting list is quite long (we contacted them in April and got the diagnosis in December). On the positive side, since this is a public hospital, the diagnosis can be used for official purposes, such as getting a certificate of disability, which can be used to get priority assignment to a school would be a good fit for your child.

Unfortunately, due to funding cuts, Sant Joan de Deu doesn’t do treatment anymore, but there are very good resources out there. For Sant Cugat, we’ve looked into the Asociación TEA (Asperger) valles occidental, which provide psychologists (more along the lines of behavioral and congnative therapy), in addition to a extra-curricular space, where kids with similar issues get together and practice their social interaction while being supervised by psychologists. So far our experience has been very positive, even just being with other parents that have similar concerns has been a great help for us.

Espeonza Aguirre

2012-01-12T15:50:00.003+01:00

I have a new twitter stream to follow…. the fake Esperanza Aguirre. Here are my favorites:

"Dear three wise men: I need new minorities to marginalize. Bring me a tribe of black Basques and sissies." LOL I'm a dreamer.

In 2012, we will require banks to provide social assistance, they’ll let you sleep in ATMs! LOL It's funny because it's humiliating.

The curtain rises. Appears a school and a hospital. The title of the movie? "Something to cut!" LOL It's about people with feelings.

Mary had a little lamb

2011-12-22T21:13:00.002+01:00

Our five year old at the dinner table today:

"We're eating lamb?"

"Yes."

"Is it dead?"

"Yes, I hope so."

"Where is the wool?"

"Umm, we took it off first."

"Is the lamb an animal that is in peligro de extincion?"

So you think you can just take your money and run…

2011-12-20T17:44:00.001+01:00

I was talking to a banker today about how to transfer money out of Spain. Turns out that if you are a resident here, you can’t just go to your bank and give them an IBAN number from the Cayman islands (or another European country for that matter) and ask them to transfer it. Even if the money is perfectly legitimate and you’ve paid your taxes on it and everything.

Turns out that before the bank will allow you to transfer significant sums of money (I think it’s around 50,000 euros), you need to have a certified DD1 form from the Bank of Spain, telling them about your foreign account. This can take some time. Once you have this, then your bank needs to do some of paperwork on their and you can expect the transfer to be done several weeks after that.

So, if you are planning on engaging in a little bit of capital flight, you might want to do a bit of preemptive planning, because if things get crazy, getting your money out before they get turned into Pesetas might be impossible. The doors are already there, and shutting them would not be that difficult.

In any case, it appears that if you are a resident in Spain you need to declare to the Bank of Spain that you have opened/closed foreign accounts or transferred large sums of money.

Toilet paper rationing hits Catalan schools

2011-12-13T19:27:00.001+01:00

Now students are only allowed to consume 25 meters of toilet paper per month. Exactly how this limit is going to be enforced wasn’t really clear. Currently, it seems that schools will just receive a strongly worded letter.

Euro banking circular firing squad

2011-12-12T22:08:00.001+01:00

Okay, so according to the European Banking Authority, European banks must raise 114 billion Euros of fresh capital in order to deal with the sovereign-debt crisis.

The funny part is that much of this capital “shortfall” is due to banks being forced to mark down European government debt (by European bank regulators no less). Since much of this new capital will probably eventually come in the form of government guarantees (such as the 5 billion euros bribe that it took for Sabadell to rescue CAM), this would drive down government debt even more, and then the banks have to mark down again, rinse and repeat.

The ECB was helpful enough to say:

“It’s important that banks raise their capital, but they should do it in a way that wouldn’t imply a reduction in lending,” European Central Bank President Mario Draghi said.“That’s not an easy task at this point of time.”

Not easy, ie impossible.

CAM to become Banco Sabadell

2011-12-08T20:38:00.001+01:00

Sabadell bought CAM for one euro minus five billion today. Francisco Camps was horrified to hear that as one of the first changes, they will be changing all their signs from Valencian to Catalan. Just kidding.

(In case you were wondering, Valencian and Catalan are as different as American and British English, but due to the fact that Valencia and Catalunya are run by rival political parties, Valencia insists that each of their dialect be treated as a separate language, and all documents from the central government need to be translated both into Catalan and Valencian.)

Pushing the boundaries of neighborliness

2011-12-03T12:19:00.001+01:00

Okay, so Catalans (or at least the Sant Cugat pijo-variety) don’t talk to their neighbors. I can get that. It does go both ways though… if you don’t even say hello to your neighbor, they are probably less likely to be helpful.

So yesterday evening, the doorbell rings and it’s the nanny from next door. (They even make her wear the nanny outfit, which I always thought was a bit demeaning). She was looking really uncomfortable and started stammering:

“Mister Pablo from next door told me to come and ask you to please try to keep the noise of the kids down in the morning until 10am so that they can sleep.”

“Why didn’t he come and ask us himself?”

“He was too embarrassed”

So when the kids got at 6:30am today and were running around screaming at their usual volume and dropping heavy objects on the floor, somehow I didn’t feel the urge to tell them to pipe down.

Instead, we decided to take the dishes out the dishwasher with the maximum amount of clinking and clashing.

Nice new FBAR exemption

2011-11-24T15:53:00.001+01:00

The IRS was kind enough to amend FBAR with a new exemption for owners of foreign corporations.

Modified Reporting for United States Persons Residing and Employed Outside of the United States. A United States person who (1) resides outside of the United States, (2) is an officer or employee of an employer who is physically located outside of the United States, and (3) has signature authority over a foreign financial account that is owned or maintained by the individual's employer should only complete Part I and Part IV, Items 34-43 of the FBAR. Part IV, Items 34-43 should only be completed one time with information about the individual's employer.

So if you own a foreign corporation, use it for business or trade, and live abroad, the accounts owned by the company are not reportable via FBAR.

However, it will be reportable via the new form 8938 if you treat your company as a disregard entity for tax purpose.

Failing again at constructive feedback

2011-11-23T13:23:00.001+01:00

I often pick up food from a nearby restaurant when I don’t have time for a full two hour lunch break. The other day, the soup I had picked up tasted a bit off, so the next day I commented to them that the soup yesterday hadn’t been so good.

“Then why did you come back? Normally people who don’t like our food just go somewhere else.”

Generalitat Bonds at a discount

2011-11-22T09:05:00.001+01:00

Soon you will get a phone call from your friendly bank representative flogging the latest issue of bonds from the Generalitat of Catalunya. What patriotic Catalans they must be to spend so much time and effort helping out our struggling government.

Well, not so much.

What is missing from the picture is the juicy commission that the bankers get from convincing overly patriotic and perhaps not so financially astute citizens when they sell the bonds at retail. Exactly what the commissions are is not clearly disclosed.

However, if you want to buy an equivalent bond for a much better price (ie higher interest), have your bank open up a renta-fija account for you and you can buy the bonds yourself.

Boerse Frankfurt has a nice bond search engine that you can use to see what’s going on with Generalitat debt:

Name	ISIN	Last price	Maturing on
GEN. CATALUNYA 09/14 MTN	CH0105004060	16.84%	1/10/2014
GEN. CATALUNYA 10/16 MTN	CH0110411532	15.74%	24/03/2016
GEN. CATALUNYA 11-13	ES00000950L4	12.01%	4/4/2013
GEN. CATALUNYA 02-12	ES0000095770	11.19%	30/09/2012
GEN. CATALUNYA 06/16	ES0000095895	10.20%	15/11/2016
GEN. CATALUNYA 04-14	ES0000095838	9.13%	16/07/2014
GEN. CATALUNYA 05-15	ES0000095861	7.90%	15/09/2015
GEN. CATALUNYA 10/15 MTN	XS0499156080	6.59%	7/4/2015

The first two bonds are kind of interesting… they were issued in 2009 in Swiss Francs. You have to wonder what kind of stupidity was involved there. The ones with an ES prefix are regular Spanish law bonds and the XS one trades in Luxemburg.

High bond rates and the Spanish economy

2011-11-18T09:06:00.001+01:00

Although I’ve seen a lot of press worrying about the ability of the Spanish/Italian governments to fund themselves at the current rates, what I haven’t seen much has been the knock-on effect this has had on other lenders.

This happened to me yesterday, when La Caixa phoned me flogging a CaixaBank junior 5-year bond at 7.5%. Holy Crap! 7.5%! I thought… what a great deal! Then I thought about it some more… hell, I could by a Spanish Government bond that would yield 6+%. Why would I want to make a much more risky loan for only 1% more? (It would also be interesting to see how much this junior bond trades for on the secondary markets…)

The bottom line is that if the Spanish government has to pay 6+%, anyone else in Spain is going to have to pay significantly more to make it worthwhile for any lender. How many businesses are able to get a real 6% return on money, especially with inflation this low?

The other thing you got to wonder about is how a bank can make money lending at 2% and borrowing at 7.5%… let’s see how that would work:

La Caixa borrows €1000 at 7.5% per year. They then lend it to a bunch of homeowners and create a €1000 “covered bond”, which they can fob off to the ECB for (let’s say 10%) haircut and get back €900 from the ECB. They then lend out the €900 to another bunch of homeowners, etc. If they keep doing this, eventually they’ve lent €10,000 euros to the homeowners and are collecting €200 euros a year of interest, paying you €75 euros and paying the ECB €125 in interest, for a profit of €0.

Now, suppose instead that La Caixa buys some 1 year Spanish government bonds with the money instead:

Instead of a 10% haircut, they can now get a 0.5% haircut, and get paid 6% instead of 2%. Holy wheelbarrows of money batman! They could leverage this almost 200X and buy €200,000 worth of government bonds paying 6% per year interest. Now they would get €12,000 in interest from the Spanish government, pay the ECB €2500 and pay you €75, for a profit of €9,425.

So yeah, businesses and consumers can just piss off if they want to borrow money because the banks are busy lending free ECB money to the government.

So really, the situation is identical to the ECB just buying the government bonds directly, except that in theory the bank that fobbed off the bond is responsible for any losses. BUT the bank itself would go under if the government were to default, so the guarantee from the bank is worth zero, but the bank is effectively being given a huge subsidy for providing this worthless guarantee.

Zuka: sushi at the monastery square

2011-11-13T22:37:00.001+01:00

We were very eager to try out the new sushi place that opened recently at Plaça Octavia. This weekend we managed to escape from the kids for a couple hours and boy was it good!

The fish was very good quality, the preparation was beautiful, the service was prompt, and even the delicious mochi ice cream desert looked home-made.

For me, it was as good as some of the better up-scale sushi restaurants in the US, with the prices being not cheap, but not in the rip-off range.

I think we’ve been doing too many MBAish courses… we spent much of the dinner trying to estimate how many staff they had and how much they’d have to make to break even.

The address is:

Plaça Octavià, 3,
08172 Sant Cugat

935 140 394 (you will need reservations on the weekends unless you show up super early)

Living abroad and getting money from the IRS

2011-11-08T10:30:00.001+01:00

Many Americans complain that they have to file US taxes, even though they live abroad, and may have little connection with the US.

However, if you don’t make too much money and you work in a high tax country like Spain, and have kids, the IRS may actually owe YOU money!

How does this work? It’s pretty simple: suppose you make $50,000 a year and have two kids. Normally you would owe around $4,500 in taxes in the US. However, since Spain generally has higher taxes and has a double-taxation treaty with the US, you can use the “foreign tax credit” and wipe that out so your taxes payable in the US are zero.

Now comes the wonders of the “additional child tax credit”, which is around $1,000 per kid. This gets added to the $0 you owe, meaning that you actually get a refund from the IRS for $2,000!

Bonus note: if you are married to a Spaniard with no US Greencard or passport (technically called a non-resident alien), you can consider yourself “single”, or even “single head-of-household” for US tax purposes.

Perhaps there’s hope for Germany after all

2011-11-07T20:46:00.001+01:00

Finally, a German politician gets it. Granted, it’s the leader of the opposition, rather than Merkel’s team, but perhaps things are finally changing.

From A fistful of Euros:

THE AUSTERITY measures being imposed on Greece are “mad”, and indicate that Europe learned no lesson from the rise of the Nazi Party, Germany’s main opposition leader said yesterday. Sigmar Gabriel, the chairman of the Social Democratic Party and potential future chancellor, said the measures were “mad” and amounted to an “evil circle”….At a seminar organised by the Institute of International and European Affairs in Dublin yesterday, Mr Gabriel cited the example of Weimar Republic chancellor Heinrich Brüning, who cut successive budgets during the Great Depression. Germany ended up with six million people unemployed. Brüning’s cutbacks contributed to a rise in support for the Nazi Party, which grabbed power in 1933.

He went there. Wham.

Finally someone German is talking about the real history of the rise of the Nazi party in Germany, which really had nothing to do with massive inflation of the Weimar Republic (that was done with ten years earlier).

Germany really needs to understand that the Euro is it’s golden goose, and much of the economic growth of the last ten years has been due to the Euro currencies being misaligned from the beginning, giving Germany a huge competitive advantage. In fact, if you look at the ten years prior to the introduction of the Euro around 2000, it’s quite amazing how “spend thrift” countries such as Italy were running surpluses, and supposedly thrifty Germany was running big current account deficits:

Form 8938 Draft Instructions released

2011-10-10T12:59:00.000+02:00

The son-of-FBAR 8938 now finally has some instructions. A couple quick points that might be of interest to Americans living abroad:

Filing jointly means you get double the limits before you need file.
There are much higher limits for Americans that live abroad: the threshold is $200,000 of foreign assets on the last day of the year and no more than $400,000 during the time of the year.
Accounts held by “US payer” are exempt, which includes foreign branches of a US financial institution. (Citi is the only US bank that I know of in Spain)
Accounts maintained by dealers or traders in securities or commodities if all holdings are subject to mark-to-market accounting rules. Being considered a trader is very tough, and you pretty much have to a full-time daytrader in order to qualify (otherwise you are an investor, not a trader).