Posts filed under 'Politics'
A weekend in Cologne (Köln) and some bits of European construction
I’ve been this weekend in Cologne, an amazingly thriving city on the Rhine born about 50BC as a Roman outpost. A city that grew in the industrial revolution thanks to the enterprisingness of its inhabitants that strategically used their proximity to the coal of the Ruhr region.
Catholics, in 1248 they began the construction of their cathedral. It would stop in 1560 for as long as four centuries, with a crane that would be Cologne’s symbol and witnessed lots of generations live and die. Until 1848 you could have seen something like this…
This was the tallest building of the wold as well, until the Washington Monument’s capstone was set in 1884.
Let’s make another step in time to 1945 after the second World War. Cologne was obliterated with bombings. Less than 10% of its buildings survived. One of them was the Cathedral. Although hit by several bombs, maybe miraculously, the Dom still stood in the middle of a lake of rubble.
Little remains of those years. Where Adolf Hitler rallied his troops, now there’s a lake where students gather instead to have fun and drink beer. Now Cologne is a cosmopolite city, a mix of cultures and lifestyles, somewhat disordered for a German city, but very much alive and breathing. It is the broadcast centre in Germany, the fourth biggest city and see to many international art festivals. Their inhabitants celebrate the good weather sitting in the terraces at night and have one of the largest Karnevals, or Mardi Gras, in Germany. Last Saturday’s view was quite different:
Yes, I went there to study, to prepare the forthcoming exam on Strategic Direction and Corporate Finance and Governance with my German peers on the MBA. We had a great time and also worked a lot.
Now for European construction. We saw the next election’s publicity in many streets. I saw it again in Barcelona, when I came back yesterday. I read the newspapers and saw, to my amazement, how Spanish politicians are using the European elections to talk about local issues, even to try to condone some misbehavings some of their numbers have committed.
Our politicians, and I do thing that’s an European wide issue, are inadvertently but irresponsibly turning us away from democracy with their constant cynicism, hypocrisy and abuse. And our democracies, our peace, our union and our prosperity are the most valued shared good that we have. They are the only guarantee that neither Cologne nor Barcelona’s inhabitants, both cities whose civilian population have been bombed by air, each from a different political side, as if it mattered now or then to any crying child whose life had been severed, are not going to endure that cruelty anymore.
We are the ones benefiting and inadvertently collaborating to the European Union by travelling, by getting to know each other, by learning to respect our difference, by meeting to study an MBA from a British business school in a German roaring town.
I’m going to miss Cologne… it is a city I could live in!
2 comments 25 May, 2009
Green shoots, maybe, but don’t expect flowers
I’m increasingly growing wary, or even tiresome, of anyone that talks about green shoots. Yes, put a lot of fertiliser over a bed of rocks and something will grow on that. Mostly weeds. After all, weeds are green, but they don’t make nice flowers.
After pouring so many fertiliser taken from the forced lenders throughout the world (yes, we and our descendants are the forced lenders, and the fertilisers are the billions of dollars irresponsibly poured everywhere) what else is there to expect than a few green shoots?
But one thing is to have green shoots, and another one is to have a sound recovery. That needs to be sustained on healthy fundamentals, which we don’t have now.
Okay, maybe we are not falling that fast… so what? Even the most bullish markets have relevant corrections, why shouldn’t the bearish? That is some hope in midst of despair, true, but the despair still has a sound reason to be.
Hiding things in the balance sheet, having assets that don’t reflect real prices, is not the way to recovery either. First we need that atonement, that reconciliation with reality, that would be a real stress test, after a previous sanity check: let’s value things for what they’re really worth.
And in the meantime the GDP of the Euro countries has contracted more than 10%. Germany is contracting more than Spain, with an unemployment growth rate 1000% bigger. We, who were the main sinners, are weathering the storm better? Something tells me that the methodology that we are using to calculate our GDP, given the fact that we have to remove seasonal effects being a touristic country, is delaying the changes to the real data. But something also tells me that the most inflexible labour markets are exhibiting those same troubles that don’t let them flexibly grow, only applied to contraction. There’s plenty for all of us.
Hmm, I’m so sorry to be negative but… let’s prepare and get ready, because those shoots are bound to whither and the worst is yet to come.
Add comment 18 May, 2009
Crowding out time (more wood from the forced lenders)
Yes, right now the governments are pouring a lot of money into the system. Is it working? Can it work? Ain’t we trying to extinguish this fire the same way it started?
A well known effect in macroeconomics is the multiplicator accelerator model: there is a multiplicative effect when new investments are introduced in the economy and the economy grows in a higher rate. The other way can happen too, as the resources leave the economy and the slump is also accelerated. We are suffering this effect now, catalysed with instruments such as banks that are monetary multiplicators per se.
If we wanted to stop and reverse this effect, introducing new resources into the system, how can we do that?
The first temptation is, of course, to substitute this private money lenders for some other lenders that have no choice: the forced lenders. Yes, you guessed well. We are the tax payers. We are the forced lenders. Where private investors need trust to decide to participate, we simply have no choice.
Yes, you get the idea, our money, government’s money, gets poured down regardless the amount of trust present in the system. And the investors trust governments because they are backed by us: forced lenders.
But what happens when we pour all this money into the system? There’s another less known effect in macroeconomics, the crowding out effect. Government’s spending will substitute private initiative and occupy an even higher proportion of the economy. If the flow of money goes the way of the state, it won’t go the way of the private investors.
But then, being the state the lender and the backer of many securities, amidst this global scare, why should anyone not forced to invest in riskier assets? Investors will end up financing the treasury instead, and leaving the financial markets.
Where will the money come from to finance public companies? What will happen to suffering capital markets further short-circuited from the money flow? They might as well keeping go down the slope for a long time.
Yes, I am aware that to explain this crowding up effect, the IS/LM introduced by Sir John Hicks and Alvin Hansen needs higher interest rates that affect the unwillingness to invest to the private sector through an increased cost of capital. In the present situation, with lower costs of capital, the crowding out effect lacks the mechanism to happen.
But what if the present scare of capital turns into a similar mechanism to the increased cost of capital? What of the negative animal spirits? Can they make us disinvest from profitable companies and make them inviable? Couldn’t that make a crowding out effect too?
Meanwhile, but let me express my reservations about this stocking-more-wood process. More wood in the hands of the government, lower interest rates: more wood everywhere. Seems dangerous to my little me. Maybe our firemen should think of other options.
Add comment 10 December, 2008
Hallowed are the American taxpayers…
Hallowed are the American taxpayers
as they are the ones that will pay this huge bill,
Hallowed is the American Treasury
as it will acquire junk assets in the name of the Americans,
Hallowed are the international creditors
cos they will get increased risk premiums from a riskier debt,
Hallowed are the Feds
pushing forward a plan they don’t know if will suffice,
Hallowed is the growing debt
it will at least double in the forthcoming years,
Hallowed is the forgotten Laffer Curve
now supposed to work better if turned downwards,
Hallowed is the non-interventionist state
that implements socialist ideas in times of distress,
Hallowed are the big investment banks
allowed to merge to hide their shortcomings and ignominies,
Hallowed are the plunging assets
as they will be allowed to survive with their old values in the balance sheets,
Hallowed are the short sellers
sinners never repented from what they did in 1929,
no longer allowed to arbitrate or cover risks,
Hallowed are the politics
for they will still adore the taxes,
Hallowed are we all
for we will long feel the ripple effect of short-sighted politicians and unelected officials.
Sorry for the mental rambling, forgive me my rantings, but it’s been a hell of a week… time to change the subject though…
1 comment 22 September, 2008
Freddie Mac and Fannie Mae (Houston we’ve got a problem)
Even the most important (and supposedly liberal) economy in the world has its contradictions. And in this continuous deleveraging process that it’s suffering two huge pieces have fallen. Well, in fact, they have not fallen but been saved by the bell, at the last minute, by the American taxpayers. Or maybe not?
Let’s go step by step. This kind of operations are called nationalisations all over the world (and bringing them under government’s control in the US). Now the shareholders and the debtors of Freddie Mac and Fannie Mae have a problem. But the deleveraging process had to stopped somehow, somewhere. And that line was worth defending.
Avoiding the discussion about moral hazard, six months ago I was writing about the Financial weapons of mass destruction unleashed in the US (the party is over) and also about The new cycle of capital recovery (who’s financing your debt now?) Let’s use the same ideas now to seek coherence in the present situation.
Let’s summarise the whole reasoning and see where it leads to:
- Freddie Mac & Fannie Mae’s shareholders (and many other shareholders and creditors too) have lost a lot of money, true. We still haven’t seen that in the news, but a lot of sovereign funds must have lost fortunes. The time will come when they’ll have to account for them.
- Taxpayers will have to pay a lot of money now, true.
- The consequences could be worse if the taxpayers didn’t intervene, so it’s worth doing it, true. This line should not be crossed.
- So we do it, we nationalise Freddie Mac and Fannie Mae. Done. And to avoid moral hazard their shareholders must have an important loss, otherwise the system would be asymmetric. Or did any companies volunteer to share their big gains not so long ago?
- Shareholders and debt holders of those companies must be unhappy and worried about the soundness of the American economic system, reasonable. Wouldn’t you after losing that much? They’ll think twice before investing again in the US. Sensible thought, and yet that’s where our problems begin.
- Taxpayers are paying. I said that in number 2. But, can they afford the bill? The US is a country with a huge fiscal and commercial deficit, so it depends on foreign inflows of capital. Just follow the previous links to my half-year-old articles to see more.
- The taxpayers only have two ways to pay the bill: increasing taxes or further going into debt. I don’t see any of the presidential candidates advocating for higher taxes so I assume it will be the second option. The treasury will have to emit further debt, and not in small quantities. I’m approximating here but, these huge numbers are in order of the current debt volume. In other words, the US debt might be doubling because of these nationalisations.
- Doubling the debt volume means a lot about a country’s ability to repay it: it roughly halves the quality of the debt. We know that the US debt is a high quality debt, but that quality will subsequently be slashed down.
- The world has a few very important lenders, mainly Asian countries. Need I say which one? But they are not that enthusiastic with investing in the US any more. The foreign inflows into the US economy have been steadily declining in the last months.
Now for the conclusion, do we really expect the international lenders to go and help the same country that has given them important losses? Could we have an “holistic” response to keep the international lenders happy without incurring in moral hazard? Will they, after the negative experience, keep buying increasing quantities of worse quality debt?
The equation is something like this:
- ↓↓↓ availability of capital in the markets
- ↑↑↑ losses lenders and investors have suffered
- ↓↓↓ their predisposition to invest again
- ↑↑↑ increase in US debt needed
- ↓↓↓ decrease in the US debt quality
Well, there’s no easy exit to this cycle. The US will be pressured to compensate the international lenders of their loses if they want to keep capital inflows going. But isn’t that strikingly close to the definition of moral hazard? Notwithstanding, which are the other options to keep the flow going?
The deleveraging process is not quite over yet. And the US treasury is constrained between a series of conditions that cannot be all met at the same time. But worse of all, the whole country’s economy virtuous circle is broken and has turned into a vicious one. The economy is not sustainable any more. Houston we’ve got a problem.
On a positive note, there are more sides to this story. Two ideas:
- The US are the main market for those that are financing them. That means that, at least, they are financing a nation that is giving them back part of their finance and holding the activity of their industry. While this cycle exists, things won’t be so grim.
- Other economic areas don’t have this vicious circle, but are falling into stagflation instead. Even with its shortcomings, the US is still a growing economy. There are not that many around. The solvency of the US economy is still holding. And they have the resuscitated dollar.
And another Damocles sword:
- Is this the end of the intervention over Freddie Mac and Fannie Mae? Will these funds be enough? That depends on the still falling value of their assets and their growing insolvencies when people won’t be able to repay their mortgages. Who knows how much money will still have to be injected… and where else.
7 comments 9 September, 2008
Why is the cost of food skyrocketing? (think twice before assuming we’re more hungry)
I’ve been having a conversation about food prices. It’s a fact that they have skyrocketed lately, and they don’t look like they’re going to go down soon. Why is that?
The first reason is, of course, that now we are more people eating. I personally haven’t changed my eating habits, but a lot of Chinese, fortunately, have. The huge Asian country witnessed the birth and nurturing of million of “little Buddhas” that serve as a sign that a lot of Chinese don’t suffer the fate of their not-only-culturally impoverished parents. And the more people eating, the more scarce food becomes, and that drives prices up, the simple law of demand.
Prices soaring? Not guilty!
Another way of explaining why the prices raise is because of utility. Utility describes what the consumers feel about the products: the more utility, the more people are willing to pay for it. Food is not only useful but really necessary. That necessity is expressed in the price. Utility, thus, is part of the price of the product. If this was the beginning of the XXth century, Eugen von Böhm-Bawerk would say it’s not utility but marginal utility, and he’d be right. The utility depends on the eyes of the beholder. And the utility of food becomes less important as you are fed, and then focus to things like not-so-useful diamonds.
Thus the price is ultimately related to scarcity and utility. Food becoming more scarce means that we’re going to pay more for it. And don’t expect that to change.
But is it so great the difference between food consumptions? A few years ago we had all these surpluses at both sides of the Atlantic Ocean, not knowing what to do with so much cereals and milk, heavy-subsidised goods, and now we are running out of them? That surely would mean great savings for the EU and US governments and tax-payers!
So, where have all the surpluses gone? Have the “little Buddhas” eaten so much? I don’t think so.
A system is, by definition, an ordered set of elements that includes relationships between them. In a price system then, there are not only products, but also a series of relationships that link them. Those relationships are key to understanding the whole system. Some of them establish products as complementary or substitutionary. The former will need each other thus demand of fuel will raise the more vehicles exist, the latter will substitute each other thus the use for private cars will shrink in congested cities that develop efficient mass-transportation systems. In that case the perceived utility for public transportation will be greater for some people, boosting demand.
Surprisingly substitutive: guilty!
When biofuel was invented everyone hailed the newborn as a chance for sustainable energy production. Now we had something useful and expensive to convert our cereal overstocks into. Very high subsidies were required to start building alternative sources of energy like this one, but there was a case for it: less dependency from “dangerous countries” and a lot of big corporations interested in the processes (and subsidies). A great alternative to fossil fuels was being born, and also a less polluting one.
But what we didn’t anticipate was that move would tie prices of food and energy together. Thanks to the newly created market distortion (sorry, I mean subsidy) now there are new induced scarcities throughout the food chain: for example less and more expensive grain for livestock for example. Nobody anticipated either, until the Nobel laureate Paul Crutzen did, that more farming requires more nitrogen, and that nitrogen is highly polluting, especially when it gets released to the atmosphere as nitrous oxide (N2O) by means of biofuel.
There are many implications of the use of biofuels, some positive, some are not. But it’s not easy to take a look to the global picture. In between of so many interested views and sponsored applied science it will take some time and a lot of effort to get perspective on the issue. But one thing is clear: don’t blame it on the “little Buddhas”.
1 comment 14 January, 2008
Maximising shareholder value (a mantra that is half a lie)
The main goal of a company is to maximise shareholder value. If you write something like this just a few will disagree. But the fact is that this commonly accepted truth (”commonly accepted” should be disqualifying enough for something to be called truth) contains a great deal of ideology and political positioning. Should we question it then?
Chartered companies were created in Europe as regulated companies, with obligations and rights, that thrived in the 16th century. They were thought to facilitate new enterprises such as international trade and exploration in a time that the world was much bigger than it is today and, seen from the European world-view, unexplored. Usually they were awarded with monopolies resulting from the discovering of new lands. The challenge was to discover, open the new routes and make them profitable. Shareholders provided capital and benefited from profits. There were even “good government” dispositions (yes, that was prior to Enron).
They evolved. They originated the modern limited-liability companies. That was already the 19th century. They required (and still require) an official registration of a constitution document signed by its creators and first shareholders. Before they were only partnerships, some people operating together. But then they could be taxed and could own assets. They bear the consequences of their actions, not their owners. That way any loss would be limited.Those corporations would protect their shareholders, limiting their losses to the capital that had been invested. And they had rights to part of the benefits: dividends.
Corporations thus existed per se, and were accountable to different kinds of stakeholders: not only their shareholders but also their customers, their employees (and that included their managers), their suppliers, the communities where they operate, and the whole of society. The company had to think of all of them.
But in some moment, probably in the same wave of thought that I described in the previous post The darker side of economics (how well intended theories can get the worst out of MBAs) things simply changed.
Shareholder value became anything. Superinflated-ego-CEOs came into view as the media cherished and the public agreed. We became used to greed, to super-heros that, by themselves, transformed companies into successes (yes, like if CEOs did everything all alone, and the shareholders owned everything). They began earning more and more, from stock options to huge sums of money, while employees were either laid-off or with raises along with inflation levels.Somewhere along the road we assumed that the CEOs were the companies and the shareholders owned the assets. Neither is true. The CEOs just have a small share of the work, but in every company there’s much more human capital than the CEO. And it’s the company that owns the assets, shareholders just contribute with another kind of capital in return for a share of the benefits, similarly to what banks do in return for interests. But shareholders can buy and sell at any time in the capital markets. Usually shareholders have no implication at all with the company, being funds that replicate an index or people that invest their savings and have no knowledge of the business at all (neither wish to have).
Shareholders provide funds, assume risks and, of course, expect value. But they are not the only ones to assume risks and expect value: so do employees, that cannot swap jobs as easy as selling stock on the market. And so do banks, and so do countries that, in the first place, enabled their charters and their limited responsibilities.
If they were all theirs, why should the rest of us grant them limited-liabilities? If owners could do whatever they wish with the assets, they should be registered to their names, and assume the whole range of consequences. A world were a few could do anything and still be protected wouldn’t be fair. Risk must be rewarded, for sure, but not just the shareholders’ that surely deserve their retributions: customers that buy must be taken care of because customers that feel that they are only cash cows or cheated won’t be loyal, as employees that feel that loyalty has stopped being reciprocal.
Companies are more than profit machines. There are dilemmas to be solved, stakeholders to be considered and prioritise, there’s more than cost/benefit analysis. They are more than isolated units. And they don’t have to be greedy, as we don’t have to be. There’s still room for principles, for integrity, for loyalty. And that’s for employees, for shareholders, for managers and for CEOs.
3 comments 18 September, 2007
Private equity and the subprime crisis (bad news that could be good after all)
The subprime crisis has arrived. Yes, many anticipated so. That’s what happens when economy depends on expectations. They take some time to change and, when they change, they do it abruptly. Like those subprime mortgages that have transformed from “hot products” to “hot potatoes”.
Overall is not a matter of solvency but liquidity. I agree, tell that to those that will not be able to afford the mortgages, maybe up to 500.000 people in the US. But investors do not worry much about them. Investors just get scared and they stop pouring endless capital… until they start to do the same somewhere else.
Because companies still report record earnings and the price of gold has been rising non-stop. That means that the machine is still working.
But let’s not be too complacent. A wider crisis can still arise. If gold is “hot”, ABS are cooler than ever. ABS are asset-backed securities, financial products made up of mortgages and things alike that are covered by a real asset, such as your home. These are a way for banks to get cheap financing and externalise risks, because the default risk is transmitted by the ABS, while it wouldn’t be with debt, for instance.
If banks get increasingly difficult to finance, they will transmit this additional cost to companies and consumers. And that’s an entry point to generate a widespread crisis. Central banks should add additional liquidity to the system by lowering rates, but that seems unlikely given their current policies.
But, what about private equity? Now it will be more difficult for them to get cheap capital to finance, that’s for sure. But that doesn’t mean they have no future. On the contrary, they are now more needed than ever, because they are the ones to provide that leaning, that additional shakedown that companies needed in times of more expensive credit.
Remember, there’s much more to private equity than leveraged buy-outs, they have an important role in the markets, and that means they have an important role to play in this new situation.
PD: I read this morning in “The Economist” that the US were thinking of “relief measures” for the crisis. Then I changed to a Spanish newspaper and read about the Popular Party (centre-right and opposition and presumed liberal) to propose the right not to pay mortgages during a year for the unemployed. Alarmed by both news I couldn’t help the thought: regulation must ensure that the system is not abused but, let the market regulate itself. Although some regulations will be painful, it’s the most effective way we’ve come to know.
2 comments 12 September, 2007
Four ways of thinking I: utilitarianism or thinking about the consequences (Stuart Mill and Bentham)
We make decisions all the time. And when we don’t, usually, problems become graver problems.As you know, it’s better to make the wrong decision than to make no decision at all.
But, on what basis do we construct our decisions? Some people are more practical than others, some people think more on the human side, some people abide to their principles no matter what, and some worry a lot about the consequences.
In fact the most considerable bulk of humans, and that includes me, just mix different ways of thinking and making decisions. We are not pure in our decision making. And the proportions change from one person to another. They depend on the mindsets, the circumstances, temperaments or even circumstantial moods.
We always think of our decisions as the most rational ones. We tend to perceive ourselves as non-biased. But we can’t help seeing the world through our filters. We reflect what we are on the decisions we make.
In this series of four posts, that altogether configure a meme, or a basic cultural unit, I want to identify four basical thinkers that defend very specific ways to make decisions.
These four basic ways of thinking are present in each one of us. They configure an important part of our decision making process, impersonating four different perspectives to every decision.
Think about them. They will help you understand the mental process that makes you consider different options and thus four different ways to weight outcomes. And they will help you in knowing yourself better and, why not, into making better decisions or at least understanding your decisions better.
The first way of thinking is consequentialism or utilitarianism.
One of the thinkers that most effectively impersonates utilitarianism is John Stuart Mill (1806-1873). Many things can be said about him. In fact he is worth much more than one post, being his thought configured by his father James Mill and his father’s friend Jeremy Bentham.
Stuart Mill was a deep boned liberal, fending for a slimmer and democratic government limited by individual freedom.
How would he reason? He’d think of the consequences of the actions. Thus, when we impersonate Mill we think how what we are about to do will affect on others. The concepts of utility and happiness come into front view. They become important under utilitarianism.
In fact he followed the ideas of Bentham, close friend to his father and mentor to the young John.
Jeremy Bentham was also British, and lived from 1748 to 1832. He can be considered the father of utilitarianism He was a liberal, defending the most basic rights, from the right to freedom in a world that still practised slavery, to the suppression of physical punishment, widely practised not only in prisons but also in schools, and specially the right of the individual not to be limited by the state in any way short of affecting negatively his fellow citizens.
In fact he’d be happy today to see that some of the subjects that he was worried about are being considered today. He supported the equality of women in every way, animal rights, the right to divorce and even homosexual rights. And that was 200 years ago! Education was essential for Bentham too.
In the economic sphere he abhorred of monopolies and usury, free trade, inheritance taxes, pensions and insurances. Both Stuart Mill and Bentham are usually regarded as proclaimers of a minimal state, but that’s not true. The individual freedom is paramount, but the states must guarantee basic rights and a basic equality to protect those who suffer. At the same time, the states must foster economic growth so as to facilitate a minimal subsistence level and encourage wealth.
Most of all, he incised decisively in a society, the British society, so fond of its traditional approach, initiating a wave of change, a progressive change towards a new idea: the well being of the majority. Well being that could even be translated to happiness. So the decisions in Britain had to be taken thinking of the population, and those who were affected by them.
The following quote from Bentham defines good and bad, moving closer to hedonism.
“Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do as well as to determine what we shall do. On the one hand, the standard of right and wrong, on the other the chain of causes and effects, are fastened to their throne.”
Consequentialism was thus being born, shaking the foundations of the British society and starting a movement to change the laws -another sphere of decisions- to have them aligned with the majority, not with the privileged ones. That was a huge leap towards progress and a fairer society. This wish for reform would help Britain to evolve further, no longer being constrained by mediaeval concepts. And with Britain, more nations followed in the will-be-developed world. No wonder Bentham supported both the American Independence and the French Revolution.There are differences between Bentham and Mill. The first thinks of the majority fostering the critique about the majority dictatorship. The second is able to modulate all that into a more sensible and respectful approach for the minorities. Stuart Mill had more time to elaborate and adapt his thoughts, and had an increased social component in his thought.
But, back to decision making, what counts is that we make the decision thinking of the consequences, not out of principles or rules inherited over the centuries, not faith or revelation. There’s not statu quo to preserve, good intentions or psychological reasons, there’s only utility, general utility. The more useful the better.
Add comment 31 August, 2007
Airline movements in Europe: British Airways and Iberia on hold (and a remote highway too)
It’s funny that the Wall Street Journal published this week an article about the consolidation of the European airline industry. I’ve written about Iberia and it’s many contenders in two previous posts: Airlines corporate hunt: British Airways and TPG finally join forces to buy Iberia and Iberia and its brides… where’s the value?
What has happened this time about Iberia? In fact very little.
I don’t know what the WSJ article said because I’m not a subscriber. But this wave of consolidation that they talk about has come to a stall in Spain. Why?
BA and Iberia: having second thoughts?
One of my assumptions was that, where there is a flagship airline, there are also political interests. No need to prove me wrong. Politics have a lot to do with that. And it’s Iberia who has been stalling the situation.
Because Iberia’s dominant position in Spain, specially in Madrid, has a lot to do with political connections. They have been granted the best slots and the lion’s share of Madrid brand new terminal: T4.
Madrid’s brand new Terminal 4, granted to Iberia and OneWorld
The Spanish government has already required that Iberia needs to be Spanish to keep enjoying the privileges it already enjoys (exclusive routes, slot assignement, top location at Spain’s first airport).
In time this privileges will cease to exist, specially when European regulations in open skies come to be in effect. But I don’t know any single country that doesn’t -or didn’t- protect its flagship airline.
The government’s point: we’ll still protect the status quo, but only for a Spanish company. And Texas Pacific Group or British Airways are not exactly Spanish. But, how do you know if Iberia is Spanish right now? How can you know who, in fact, owns free floating shares?
Anyway, these are advantadges that no company should have, regardless of its nationality. They are just imperfections of the market that the consumer ends up, as always, paying. But that’s how it is, and that’s how I like to tell 
State Highway 121, Texas, U.S.
More noise from Texas
And right now another Spanish company, the infrastructure operator CINTRA is fighting for a highway concession in Texas: State Highway 121. The company already exploits two highways in the US: Chicago Skyway and Indiana Toll Road, and is already constructing a third one in Texas: SH 130. The concession was granted to CINTRA, but it has been recently revised. The Texas Transport Commision still has the final word but taking back a concession already granted to a Spanish company wouldn’t help politically Texas Pacific Group interests in Iberia.
Which strategy now?
Just let the time pass. Iberia has not given any of the contenders its data, and it is for a very good reason. The longer it takes, the better. Why? Spain will hold a general election in nine months. Maybe the government will change but, in any case, the government will be less pressured and open to negotiations.
3 comments 21 June, 2007
