Juan-Miguel Villar Mir, at Club Siglo XXI, “The Way Out of the Crisis” series
January 29, 2010
- The Chairman of the Villar Mir Group stated that there are two basic reasons why we should all be fully confident of finding the way out of the current crisis: globalisation and the international leadership of some of Spain’s major companies
- “The difficult situation that we are experiencing now should spark a reaction so that Spanish society overall will become aware of the need to act and to undertake the necessary Structural Reforms”
- “To emerge from the crisis, immediate measures must be adopted: action plan for infrastructures, adjustment of the property sector and support to SMEs”
- “The necessary improvement of competitiveness calls for support to R&D&I actions and to the internationalisation of Spanish companies”
- “We must base our economy on a more solid and sustainable foundation in the long term by means of achieving a competitive, export-oriented industry”
- “The need to stimulate exports, currently one-third less than what they should be in relation to the size of our economy”
- “An action plan for infrastructures is necessary, assigning a fundamental role to the private management of concessions”
- “In order to encourage the private financing of infrastructures, it would be advisable to introduce tax rebates of 95% on the returns from the long-term debt financial instruments”
- “The current situation of the property market is an opportunity for creating a genuine housing rental market”
- “The property crisis has destroyed one million jobs in the construction industry which will have disappeared forever”
- “We have been living a long time beyond our means, consuming and investing more than what we were producing”
Madrid, 28 January 2010.- “Our economy is endowed with the strength necessary in order to confront this and future crises. However, this will not be possible without the effort and commitment of all of Spanish society and without the involvement of all players -business and workers and political parties- in a major pact, without excluding any form of political agreement”, Juan-Miguel Villar Mir said during the talk entitled “The Way Out of the Crisis and the Construction Sector”, which he gave at the Club Siglo XXI within the series “The Way Out of the Crisis”.
Juan-Miguel Villar Mir was introduced by Antonio Garrigues Walker, president of Garrigues, the largest legal firm in Spain, whom the speaker described as a learned scholar and excellent entrepreneur, and one of the most international of contemporary Spaniards.
The Chairman of the Villar Mir Group underlined in his talk that “the difficult situation which we are experiencing now should spark a reaction so that Spanish society overall will become aware of the need to act and to undertake the long-term reforms necessary, some of which are difficult, in order to place our economy on a pathway of modernity, growth and creation of employment”.
Nevertheless and despite the fact that this is one of the worst crises ever faced by the Spanish economy, Villar Mir emphasised that there are two basic reasons for full confidence in finding the way out of the current crisis: globalisation, which has given such impetus to world growth, and the international leadership of some of Spain’s major companies.
Now, after two years of crisis, the world economy has begun to show symptoms of improvement starting in the second half of 2009. Germany, Japan, France, the United States and Italy have already presented positive growth rates. However, “in Spain, recovery is moving more slowly”, Villar Mir stressed. The strong imbalances to be resolved by both the private sector as well as the public sector, the latter with respect to the adjustment of the public finances and the reduction of the high public deficit, which estimates place at a possible 10% of GDP in 2009, are holding back the much-desired recovery of the Spanish economy.
Measures for emerging from the crisis Following these considerations on the crisis and the current situation of the Spanish economy, Villar Mir addressed the immediate and long-term measures to be adopted in order to emerge from the crisis. Among the first mentioned, he focused on the implementation of an action plan for infrastructures, the adjustment of the property sector and the financing of SMEs.
With respect to long-term measures for achieving the necessary improvement of the competitiveness of Spain’s industry, he proposed providing a stimulus to R&D&I and the new technologies; support to the internationalisation of Spanish companies and six in-depth structural reforms: education, tax, labour market, the Public Administration, energy policy and market unity.
“The major challenge facing our economy when looking towards the future is to make our production system increasingly more competitive, and in order to do so, we must give impetus to the development of technologically advanced sectors, where competition is not based solely on the price and which contribute more added value and, therefore, higher returns and wealth”, Villar Mir affirmed.
Urgent action plan for infrastructures In his reflections on these measures, Juan-Miguel Villar Mir devoted particular attention to an action plan for investment in infrastructures, based on the observation that “nothing has contributed as much to the progress of Spain and to its territorial cohesion as has the improvement of its infrastructures, always a determining factor for the economic development of a country, by facilitating access to markets, reducing transport costs, giving impetus to the exchange of goods and services and increasing productivity”.
For Villar Mir, the action plan necessary in order to enable Spain to get growth back on track “must take a firm stand in favour of intermodal transport”, and “assign a fundamental role to the private management of the concessions for those infrastructures, because such private management contributes added efficiency in the management of the projects awarded under concession and optimises the timeframes and resources used”.
From this point of view and as a true reflection of the determined wager on cooperation between the public sector and private initiative, Villar Mir highlighted the Extraordinary Infrastructures Investment Plan designed by the Ministry of Development, allocated an ambitious budget of 15,000 million euros, with an expected 30% of its financing to be provided by constructions firms and banks.
With respect to this new stage in the development of infrastructures, Villar Mir said that “it is essential to address a qualitative change in the financing of public-private partnerships”, which, given the current situation of the scarcity of credit and the tightening of credit conditions, would facilitate the adoption of methods already used previously in Spain, such as the placement of securities and bonds on the long-term debt financial markets.
Juan-Miguel Villar Mir recalled that the Spanish Government, through the Draft Law for Capturing Sources of Financing in the Markets by Public Works Concessionaires, has already taken the first step forward in that direction, in order to establish a regulatory framework in which the State -replacing instruments which previously provided this cover, such as the monoline insurers- will provide the guarantees of solvency necessary to enable private promoters to have recourse to the financial markets.
Nevertheless, in order to round off this outstanding support by the Administration, Villar Mir considers it advisable to take yet another step from a tax perspective, “by introducing tax rebates of 95% for the returns from the long-term debt financial instruments, an aspect which has already been considered in the United States and which has precedents in Spain, with a rebate of 95% of the interest from the bond issues which financed the first toll roads in our country”.
In his opinion, “for a more effective operation of public-private partnerships, there is a need to revise the range of tax regimes affecting them, where the possibilities of the system have deteriorated over time, by taxing both the investment as well as the returns derived from this public service, with tax requirements which certainly exceed those applied under other legislations both within Europe as well as in other parts of the world”.
With respect to the adjustment of the property sector, Villar Mir indicated that fresh plans for building subsidised housing should eventually consider the existence of the stock of unsubsidised housing, noting that the current situation of the market is “an opportunity for creating a genuine housing rental market”.
The necessary improvement of competitiveness With respect to the long-term measures, for Villar Mir, the key objective is the necessary improvement of the competitiveness of Spain’s industry. He said that “we must base our economy on a more solid and sustainable foundation in the long term by means of achieving a competitive, export-oriented industry” and underlined that “Spain exports one-third less than what it should in relation to the size of its economy”.
This serious loss of competitiveness is due, as indicated by Villar Mir, to Spain’s persistent inflation differential with respect to the countries of the Monetary Union and to the greater real growth of the labour costs per unit produced. Thus, since the adoption of the euro (1999) and up to the onset of the crisis (2008), prices have risen in Spain 12% more than in the rest of the eurozone, which means that in a matter of only nine years, we have become 12% more expensive. In addition, during the same period, labour costs per unit -also affected by lower productivity- have risen 33% in Spain, in comparison to rises of 15% in the European Union and 2.5% in the case of Germany.
In the face of this situation, Villar Mir said that “we need to pursue a sustainable growth in wages in order to move ahead on the path of competitiveness, necessary in order to position our economy in its proper place in the international sphere”.
Reasons for confidence Juan-Miguel Villar Mir expressed in his talk his full confidence in that “Spain will be able to meet the challenge confronting it and recover its proper place among the most developed countries”.
He also emphasised that “this will not be possible without the effort and commitment of all of Spanish society and without the involvement of all players -business and workers and political parties- in a major pact, without excluding any form of political agreement. We all need to lend a hand, by working more and better, with a constant spirit of overcoming the odds, with each and every one of us putting forth the effort necessary in order to help ourselves and to help our country in these difficult times”.
In this regard he noted that “as so often occurs in history, things have to take a bad turn in order for the players to react”.
He then concluded his talk by stressing that “all of us together, all working towards a common goal, all of us placing the interest of Spanish citizens above any other kinds of concerns, of political parties or of social classes. We are facing an important challenge. And we will succeed in overcoming it. Thanks to the support of Spanish society overall, committed to the future of its country”.