Via Wolf Street

Most importantly, we have our health (touch wood) and each other.

By Nick Corbishley, for WOLF STREET:

The whole of Spain, like the whole of Italy, and the whole of France, is closed for business (and just about everything else) as the government tries to bring Covid-19 under some semblance of control and keep the virus from overwhelming the healthcare system. The number of cases of the virus in Spain has reached 11,000, having shot up by over 2,000 in the past 24-hour phase (though these figures reportedly have a three or four-day lag). There has been a total of 491 fatalities.

We are now on day 3 of the lockdown and for the next eleven days (and probably some time after that), almost every type of commercial and public venue, including bars and restaurants, schools and universities, has been forced to shut and millions of people — myself and my family included — are being forced to live in curfew-like conditions that were barely imaginable just a month ago.

Freedom of movement has been put on hold, as have a host of other basic so-called “freedoms”, such as the freedom to gather. Unless you’re a police officer or municipal worker, you can only be outside if you are on your own. And even if you’re on your own, if you are found on the street without good reason, you can be fined. If you are a repeat offender, you could even face a jail sentence. In the eyes of the law, there are only nine justifiable reasons for venturing out:

  • To travel to or from work, assuming, of course, that your workplace is still open. Most of the businesses that are still open are those that do not have to deal with the public. Factories and offices are still allowed to stay open as long as they have certain health and safety regulations in place.
  • To take out the rubbish.
  • To buy food and other essential goods from the local supermarket or grocery store. Tobacconists, newspaper kiosks and electronic stores are also allowed to open.
  • To buy medical supplies from the local pharmacy.
  • To go to the local health center or hospital, but only in the case of emergency or serious chronic conditions.
  • To visit relatives in need.
  • To take the dog out for a walk.
  • To go to the bank. Most bank branches are still open though a lot of back-office staff are now working from home.
  • To get your hair cut.

No, seriously. Among the reasons accepted for being on the streets of Spain without receiving a three- or four-figure fine from one of the many patrolling police officers is going to a hairdresser. Apparently, this is to “help” people with mobility disabilities and the elderly. 

As for the hairdressers themselves, most are understandably petrified of catching the virus from one of their customers and would much prefer to be at home with their families. Industry groups have even lobbied the government to reverse the ruling.

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Most salaries workers are already safely ensconced at home where they’re supposed to be working remotely, though how many of them actually have meaningful work to do, apart from just answering the occasional email, is anyone’s guess. After all, many of the companies they work for have completely stopped producing products or providing services for at least the next two weeks and quite possibly longer.

For the time being, these workers will continually to receive their monthly salary, but that may not last long. The government has already made it easier for businesses to temporarily lay off workers, who are then able to claim unemployment benefits. This is preferable to losing their jobs for good.

For many companies, especially the small ones that form the backbone of the economy, accounting for around 70% of all jobs and over 50% of GDP, a whole month (or more) of closure, with revenues running dry, unpaid invoices piling up and costs continuing to rise, could be fatal. Such is the case for the small handmade jewelry store my wife, a jewelry designer, works for in the Born neighborhood of Barcelona.

For most self-employed and gig economy workers, the pain has been more or less instantaneous. As a freelance writer, translator and teacher, I speak from direct experience. Even before this crisis hit, things were not easy. One of my biggest clients of the last ten years — a prominent Spanish business school, for whose research magazine I ghostwrite and translate articles — suddenly stopped sending me work three months ago, due to internal issues. This has had a major impact on my earnings and cash flow.

I have tried to make up for that by finding new customers for the English finance courses I run but right now, with the virus spreading, markets collapsing, economies plunging into recession and my target market, management funds, struggling with redemptions, no one — and I mean no one — is interested in spending more money on training for employees whose future at the company is no longer certain.

One of my long-term customers, a Barcelona-based asset management fund, has already suspended classes until further notice. Others are, for now, prepared to continue doing the classes remotely. As for the business school, I received news on Thursday that it had cancelled all programs and events for the next two months and that all employees are to work from home til further notice. For at least the next two months there would be no further commissions of any work for freelancers like me.

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The business school is extremely well connected, well informed and well funded. The fact that it felt it necessary to cancel virtually all of its money-generating activities for the next two months suggests that this lock down is likely to extend well beyond the initial two-week period established by Spain’s government. But how many businesses can survive that long?

To give SME’s a little extra breathing room, Spain’s government, like Italy’s before it, has launched tax-relief measures that will allow businesses with sales below €6 million to delay paying up to €30,000 worth of taxes by up to six months. The government is also considering exempting the self-employed from paying the monthly social security contributions (minimum amount: €290) for the duration of the crisis.

As in Italy, debt repayments may also end up being postponed for businesses, but only if the state serves as ultimate guarantor for those debts, said the Bank of Spain. Otherwise, banks will not lend money or extend maturities to any companies (apart from the biggest debtors, of course). If that happens, the central bank warned, a credit crunch or crisis could ensue as delinquencies skyrocket and financial stability crumbles.

In other words, the banks are unable or unwilling (or both) to lend a helping hand in this crisis unless the government underwrites the debt, as it has been underwriting so much banking debt since the last crisis. The problem is that the government itself is not exactly rolling in money. Its public debt to GDP ratio, while not nearly as bad as Italy’s (135%), is still high, at 95.5%.

But that hasn’t stopped it from unveiling plans to mobilize a whopping €200 billion — the equivalent of around 20% of GDP — to address the virus crisis.

If the plan is signed off by the European Commission, much of that money will be used to save perfectly viable companies from a wholly unavoidable external crisis. But no doubt some of it will also be used to bail out hordes of heavily indebted zombie companies that should have hit the wall yonks ago, and would have done if it weren’t for the ECB’s monetary largesse.

Pressure is also mounting on the government to suspend mortgage payments, rents and utility bills for the next month, as has already happened in France. To prevent the virus crisis from “triggering a new housing crisis”, the government needs to implement broad social and economic measures, said a joint statement by the country’s two largest tenants unions, whose membership has soared in recent days

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Even before this crisis hit, many tenants in cities like Barcelona, Madrid, Palma de Mallorca and Malaga were already struggling to pay their astronomical rents. Even if landlords demand full payment this month, in many cases they won’t get it. Then, what will they do? Throw out the tenants, knowing full well that the same thing is happening in buildings across the city? Who will they rent out the newly vacated apartments to? Tourists? Ha!

Finally, this crisis can also hit in another more subtle way, as my Mexican mother-in-law has learned. And that is through currency depreciation. A month and a half ago, she sold her apartment in Mexico City with a view to using the money to live in a rented apartment in Barcelona, where her only daughter lives. But since she had no bank account in Spain she could not transfer the funds (in pesos) straight away and had to wait until she got here. By the time she arrived the already weak peso had lost roughly 20% of its value against the euro.

Now, my mother-in-law is on lock down in her daughter and son-in-law’s apartment. In euro-terms, she’s 20% poorer than she was a month ago. For the moment, the three of us are living in relative harmony. We do not want for anything, apart from job security and the occasional evening stroll together. We have enough food (having stocked up in the preceding weeks), some toilet paper (but not too much), lots of books to read (and reread), films to watch (and re-watch), card games to learn, friends to speak to, the Mediterranean sun shining on the balcony and through the windows, and even the sound of birdsong, a weird but welcome element of our new reality. Most importantly, we have our health (touch wood) and each other. By Nick Corbishley, for WOLF STREET.

Local governments end up buying dying malls to keep them from becoming dead zones. Read… Mall Giant Intu Warns of Bankruptcy: First, the Meltdown of Brick & Mortar Retail, Now COVID-19

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