“An unforeseen crisis.” Other headwinds intensify too.
By Nick Corbishley, for WOLF STREET:
Less than a month after the collapse of Thomas Cook, the global travel & vacation-giant and airline operator, the Spanish government has unveiled an €800 million taxpayer-funded bailout of its all-important tourism industry. During the presentation of the new 13-point royal decree, Spain’s vice-president Carmen Calvo described the measures as a “reasonable response to an unforeseen crisis” — though the term “unforeseen” is ironic because in February we warned about the precarious condition of Thomas Cook and in May we warned that it “verges on collapse.”
Initially, the rescue package was worth €300 million. It included €200 million of cheap credit lines and was intended to help the two regions most affected by Thomas Cook’s demise, the Canary Islands and the Balearic Islands. But as soon as it was announced, accusations of preferential treatment came flooding in from hoteliers and other tourism-related businesses in other parts of the country. Within a week the government had almost tripled the package, throwing in an additional €500 million of cheap loans to help boost “competitiveness in the sector”, which could cover just about anything.
Following years of robust year-on-year growth, tourism has played a central role in Spain’s economic recovery, accounting for around a quarter of the new jobs created since 2013. The industry has also played a big part in the resurgence of the housing and construction industry. Popular tourist destinations like Barcelona, Palma de Mallorca, Ibiza and Malaga are also among the hottest property markets, where prices have rebounded the most since the collapse of the last bubble.
A recent report in the financial daily Cinco Dias suggested there are now more than a million tourist apartments and homes in Spain, most of them operated by Airbnb, Booking and Vrbo. The breakneck growth of this market has sharply reduced local housing stocks, leading to a surge in property prices and rents, much to the delight of local landlords and the consternation of local tenants. These sky high rents are one of the many externalities of mass tourism (overcrowding, noise, environmental degradation, overstretched public services and infrastructure, etc.) that have fulled the growth of so-called “tourism phobia” in recent years.
Yet the industry continues to bring in buckets of money. In 2018, international tourists alone spent €90 billion in Spain. According to a recent study jointly published by American Express and the World Travel & Tourism Council (WTTC), the tourist industry, both international and domestic, directly and indirectly contributed €190 billion to the economy — the equivalent of 15% of GDP, more than any other sector and three times more than the automotive industry.
It also provides more than 2.5 million jobs, though many of them are of the casual, low-paid variety. Some of those jobs were with Thomas Cook-affiliated hotels or hotels that depended on the tour operator for most of their reservations. Many are now closed. In the Balearic Islands alone, 3,400 direct staff have lost their jobs.
The economic destruction does not end there. Before its collapse, Thomas Cook had arranged some 700,000 hotel reservations in Spain for the winter months, none of which will now take place. It also left a vast trail of unpaid invoices, not only to hoteliers but also to the bus companies, car rental firms, and tour guides that delivered many of the services Thomas Cook offered.
The Canary Islands alone was scheduled to receive almost four million tourists this year via Thomas Cook. Many of those trips have already taken place. Some haven’t and now won’t. For the islands’ tourist industry, the timing of the vacation giant’s demise could not have been worse, coming just before high season (winter) kicks off and just after suffering its worst summer in years, due in large part to the arrival of fewer Scandinavian and German visitors.
In August, the month before Thomas Cook’s collapse, 1.03 million tourists visited the islands, 7.2% fewer than in the same month of 2018. In the first eight months of 2019, the total number of foreign tourists visiting the archipelago fell by close to 4%. And now, to top it off, one of the biggest providers of visitors to the islands collapsed.
Across Spain as a whole, the total number of foreign visitors was up by 1.5% in the first eight months of 2019. But in the two biggest months, July and August, the number fell by 1.3% and 0.5% respectively.
The number of visitors from the two most important countries, the UK and Germany, which between them account for 35% of Spain’s total influx of foreign tourists, declined in both months. In August, the number of Germans visiting Spain plunged 10.7% year-on-year to 1.12 million, after a prior drop of 3.3% in July, stoking fears that the inhabitants of Europe’s biggest (but struggling) economy may be opting to travel less or to visit cheaper destinations like Turkey, Tunisia and Egypt.
In the case of British visitors, many of whose pockets are feeling the pinch of the devalued pound, their numbers fell 2.2% in July and 3.1% in August. And that was before the impact of Thomas Cook’s demise, whose effects will begin to show in the data for September and October. And then there’s the possibility of a no-deal Brexit, which could decimate visitor numbers from the UK.
It is against this backdrop and almost exactly a month before a new general election that the Spanish government has decided to launch its first bailout of the country’s tourism industry. The amount of the bailout is still relatively small, compared to the bailouts the banks received, but the precedent it sets is huge. When it comes to using public funds to help out non-financial companies in distress, such as well-connected ones in the construction industry, the Spanish government has plenty of form. If the recent downturn in the tourism industry deepens, the amount of funds used to support companies in the tourism industry could mushroom very quickly. By Nick Corbishley, for WOLF STREET.
The rescue deal fell through at the last moment. China’s Fosun and other shareholders are toast. Creditors get to fight over the debris. Read… Thomas Cook Collapses, up to 600,000 Travelers Stranded in Hotel & Airline Chaos, Triggers “Biggest Peacetime Repatriation in UK History”
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It just means the more money dumped in, the greater the government debt.
Politicians don’t care, they constantly giving away vast sums already.
When it comes to debt Spain and Itally are basically third world countries. Just ask Argentina were it learned how to handle debt from.
Correct, the US with 1200 billion new debt annually is world leader…
Evidently you don’t know what you are talking about. The $1.2 trillion that you write so awkwardly is just a one year’s deficit in the US. The total Federal debt is more than $22 trillion. You accused us of messing around with small numbers. No way!
Alright… it’s time for PIGS 2.0. (No, I didn’t forget the extra I, but Ireland seem to be in better shape this time… and whatever the heck happened to Greece, it’s not in the news any more,)
Guess Greece will be taking hardest hits due to corruption/taxes killed business for years. Immigration stress adding fuel to fire, unemployment etc etc.
PIGS 2.0 will be total chaos….as riots restarts.
Greece is in debt bondage until 2062, unless it incurs more debt when that date will have to extended, thanks to Germany’s reckless bank lending in the first place and the gross interference of the IMF. That is the reason for no mention of |Greece; it’s all old news.
Spain has a corruption problem but not a debt problem. Nor would i call it a third world country
And it wasn’t that long ago that Spain has had enough of tourists and wanted to limited them…
Not Spain, Barcelona and the Balearic islands. And i think they haven’t changed their mind.
That’s pretty much anyone worldwide who has to live next to an AirBnB flat.
Oh, there are plenty of people in Barcelona, Florence, Palma, Venice etc who have had about enough of tourists. They haven’t changed their opinion one tiny bit.
What changed is these exasperated people have first been sold down the river by their own elected officials and then made non-entities by the media, as it always happens these days to those who threaten not to bow down to that ill-defined deity called “the economy”.
Both Barcelona and Florence promised to “come down hard” on Air BnB, and local laws would allow them to do so, or at very least to make a well advertised example of a few property owners both to show voters something is being done and to signal the Air BnB crowd the party must be dialed back a notch or two. Nothing of substance has been done: too many risks for overheated real estate markets apparently.
Venice promised to put a limit on the number of tourists entering at least some parts of the city. Nothing was done. Following a serious accident involving a cruise ship earlier this year it was again promised to “do something about this serious problem” and again nothing was done: apparently the high priests of the God GDP warned such a course of action would have caused all sorts of catastrophes by angering the deity.
As everywhere the bagholders are getting tired of being sacrificed again and again for the “common good” and are getting especially tired of being betrayed by their own elected officials at the very first occasion. So far this has only caused sporadic episodes of exasperation, such as pouring icy water out of a window and onto the heads of a drunken crowd and slashing the tyres of tour buses, but the longer problems remain unaddressed, the bigger the explosion that is bound to follow.
It would be ok if it was earmarked for
a specific market.May I suggest free flights
for anyone in North America to say
Free flights to Spain wouldn’t solve anything because flying is already cheap. In contrast, food and shelter (hotels + restaurants) is quite expensive. Car rentals + insurance + taxes are highway robbery.
And the cottage industry of speeding cameras in Spain. No cops required, you get the speeding tix in the mail from teh rental car company.
Sounds like a GOOD SCAM – FREE FLIGHTS AND THEN GET THE MONEY TO PAY FOR IT ALL BY EXORBITANT HOTEL RATES ,CAR HIRE RATES, VERY EXPENSIVE MEALS AT RESTAURANTS AND OF COURSE A TOURIST TAX AND ANYTHING ELSE YOUCAN THINK OF TO GET MONEY OUT OF THE UNWITTING TOURIST.
Lets overheat the planet to save the Spanish tourism industry. Brilliant!
As I recall Cook collapsed because the proposed re-fi that included a big Chinese contribution suddenly needed 200 million more. Looks like they should have asked Spain to kick in.
It collapsed because they didn’t keep up with the times and because they bought a company that had cement shoes. Ask anyone who know about the tourism industry and they will tell you the company had not been making profit for over a decade.
Eurozone Q2 GDP Growth was 0.2%. There are 19 countries in the Eurozone.
Central banking in England rose out of the British government’s demand for funds to continue King William’s War in the 1690s, on the heels of the Glorious Revolution.
Private creditors became hesitant to loan money to the government in this time when revenue ran desperately low.
In 1694, the British government accepted the proposal from William Paterson to establish the Bank of England; the government received its badly needed loans in return for granting special privileges to the Bank.
The Bank of England was thus created as a way to serve the military interests of the British Empire.
Central banking has been a corrupt, mercantilist scheme and an engine of corporate welfare from its very beginning.
slowly moral hazard spread and now everybody wants to get one
The small banks of late medieval Europe used to buy up mass-produced arms and armour and then rent it out when kings and warlords started wars.
Where there is blood – and dirt – there is money…..
Gee, a Spanish election and a $900M government buyout…WHAT A COINCIDENCE!!
Oh yea, and they’re using the taxpayers money to buy off taxpayers for the election…WHAT AN AMAZING DEAL!!
Wonder how long it’ll be before the Spanish banks need another top-off?
The EU is very strict about state aid. When UK govt. gave help to 2 of its biggest banks the EU made Lloyds sell off some of its banks,although it paid back what had been loaned.
Spanish banks will need a top off once Housing Bubble 2.0 blows in their collective face… unless they have learned their lessons, packaged all that toxic waste into MBS and ABS and made it somebody else’s problem.
Honestly: real estate prices in Spain have become so detached from reality I keep on being reminded of Smeagol/Gollum from The Lord of the Rings cherishing as “The Precious” the accursed ring that cost him his sanity and very nature.
I like to have a good laugh by looking at real estate agencies’ windows in Spain to see the tugurios in the middle of nowhere on sale for hundreds of thousand of euro. Even at half the price they are impossibly priced and they would still need major work, including a ton of structural strengthening, to be considered a step above a derelict abode for owls and other wild animals.
Think this insanity has lasted long enough? Smeagol sat in that cave for 500 years while “The Precious” poisoned his mind until Bilbo Baggins came along and the true fun started. ;-)
The Spaniards should send an Armada to the UK. That’ll teach those heretics and pirates. :)
They already tried that once before and the British kicked their arse, aided by the weather, back to Spain. Only 2 ships arrived back after hundreds had set sail. Mind you I don’t think the British could kick anybodies arse right now cause they are to busy kicking their own with the Brexit debacle.
This whole Thomas Cook debacle turned into a nightmare for many vacation-goers, but may turn into an even worse one for taxpayers.
Everybody is clamoring for a bailout: I’ve just read hotels near the Lake of Garda in Italy started the crybullying routine, no doubt after reading of the Spanish bailout. They want €20 million “quickly” otherwise “many may not survive”. These folks are so predictable, as are our political systems: milking them is not even funny anymore.
Pope Innocent XI earned the sobriquet “Papa Minga” (in his native dialect minga = nothing, no way) due to his thick accent and usual reply to people pestering him for money. We need more people like him, and need them right now. ;-)
I’m watching for cheap last minutes next summer.;-)
So apparently EU rules allow this bailout of Spanish tourism but not of British Steel.
Good one. This IS illegal.
I just returned from a cruise along the Spanish coast. Spain was pretty awesome and my timing was epic. In Cartagena the streets were full of Romans and Carthaginians. Nothing quite like seeing a large tugboat full of Romans landing in the harbor to conquer the city. Maybe since I flew Lufthansa, one more German can now visit Spain;-)
The spike in world tourism this decade is getting annoying. In small cities, like Amsterdam, they are rammed to the gills with tourists blocking the streets and taking selfies. Tourism now feels like a *bubble*. Spain is one sign it may be deflating.
I wouldn’t call million plus small, but it is true that the tourist are concentrated in the old part.
It should not be possible for the Spanish government to bail out tourist companies because it is against EC regulations and needs permission from the EC.
Proper regulation, generally speaking, greatly reduces the need for corporate bailouts, and usually eliminates any such need almost entirely.
Naturally, corporations prefer no regulations and the consequent massive bailouts. It gives them two ways to cash in, on the front end and on the back end. It doesn’t work for anybody else, but it certainly does work for them.
Modern practice of corporate governance prescribes taking over a going concern, like Sears or Toys-R-Us or Thomas Cook, bleeding it for personal profit, running it into the ground, grabbing the pension fund, and getting the government to shovel money at rapacious corporate officers to keep the company corpse zombified so the workers don’t riot.
It’s not taught in the textbooks but the financial predators have figured out how to do it anyway. It’s simply more profitable to liquidate a company by screwing workers, investors, the public, and the government as much as possible than to go through all the trouble of trying to run a viable company according to long-established best practices. That way takes too long, and it’s better to just grab and go on to the next pidgeon.
If everybody did it you wouldn’t have much of an economy left, but the rules and the incentives have been deliberately and systematically distorted to produce this result. Several countries provide numerous examples, and more are on the way.
You are absolutely correct.
Before they went bankrupt in 2019, years Thomas Cook & Son had been in business since 1841. Starting with one man arranging a day-trip by train for Temperance campaigners, by the year of its fiftieth Jubilee, the company had opened an office on Broadway, invented Telecommuting (with real Telegraphs), started their own international bank, gained the monopoly for travel on the River Nile, provided logistical support to the British Empire in their fight against Muslim counter-revolutionaries, made Cockneys a common sight in Paris, dramatically improved conditions for Muslims undertaking their pilgrimage to Mecca, and maybe they even gave a well-known French writer the inspiration to write about a man travelling around the world in eighty days. (Mr Thomas Cook took 222 days when he performed the feat).
I think it all started going down hill in the twenties when they switched from a partnership to a limited company.