viernes, 15 de abril de 2011

Finance&Economics: Complacent Europe must realise Spain will be next

Complacent Europe must realise Spain will be next




The Financial Times
By Wolfgang Münchau
April 10 2011

European politicians have every incentive to postpone crisis resolution indefinitely, as I argued last week. In the meantime, the debt of several peripheral eurozone countries continues to build up. On Wednesday, Portugal finally accepted the inevitable and applied for a financial rescue. European officials quickly pronounced that this would be the last rescue ever. Everyone in Brussels fell over themselves to argue Spain would be safe.

On Thursday, the European Central Bank raised its main refinance rate by a quarter point to 1.25 per cent. This was a well-flagged move, but more are likely to follow. I expect the ECB’s main policy interest rate to rise to 2 per cent by the end of this year and to 3 per cent in 2013. This trajectory, while consistent with the ECB’s inflation target, will have negative consequences for Spain in particular. Apart from the direct impact on economic growth, higher interest rates will hit the Spanish real estate market. Almost all Spanish mortgages are based on the one-year Euribor money market rate, which is now close to 2 per cent, and rising.

Spain had an extreme property bubble before the crisis, and unlike in the US and Ireland, prices have so far fallen only moderately. According to data from Bank of International Settlements, real house prices in Spain – price per square metre adjusted by the personal consumption deflators – rose by 106 per cent from the beginning of monetary union and to the peak in June 2007. They have since come off by 18 per cent as of end-2010. Calculations such as these are sensitive to the starting date, but Spanish real prices were relatively flat throughout the 1990s, so this is a relatively safe starting point.

Where will it stop? I would expect all of that increase to be reversed. The total peak-to-trough fall would be more than 50 per cent, and prices would have to fall by another 40 per cent fall from today’s level. Is that a reasonable assumption? In the US, real house prices stagnated for most of the 20th century. Increased demand, through immigration for example, should not affect the price level, as long as supply can adjust.

The situation is different in countries with natural or artificial supply constraints, like the UK. But in terms of supply conditions Spain is more similar to the US. I have yet to hear an intelligent reason why Spanish real house prices should be any higher today that they were 10 years ago, and indeed why they should keep on rising.

The most important housing market statistic in Spain is the number of vacant properties, about 1m, which means that the market will suffer from oversupply for several years. This will be the driver of further price declines. Given the stress in the system – recession, high unemployment, a weak financial sector, higher oil prices and rising interest rates – one might even expect house prices to overshoot below the horizontal trend line.

Falling house prices and rising mortgage payments are bound to push up the still moderate delinquency rates and the number of foreclosures. This will affect the balance sheet of the cajas, the Spanish savings banks. The balance sheets carry all property loans and mortgages at cost. As default rates rise, the savings bank system will need to be recapitalised to cover the losses. The Spanish government implausibly estimates the recapitalisation need to be below €20bn, while other estimates put the number at between €50bn and €100bn. The assets most at risk are loans to the construction and real estate sector – €439bn as of end-2010. Spanish banks also have about €100bn in exposures to Portugal, a further source of risk.

The good news is that even under a worst-case scenario, Spain would still be solvent. The Spanish public sector debt-to-GDP ratio was 62 per cent as of end-2010. Ernst & Young, in its latest eurozone forecast, projects the debt-to-GDP ratio to increase to 72 per cent by 2015 – still below the levels of both Germany and France.

But the Spanish private sector debt-to-GDP ratio is 170 per cent. The current account deficit peaked at 10 per cent of GDP in 2008, but remains unsustainably high, with projected rates of more than 3 per cent until 2015. This means that Spain will continue to accumulate net foreign debt. The country’s net international investment position – the difference between external financial assets and external liabilities – was minus €926bn at the end of 2010, according to the Bank of Spain, or almost 90 per cent of GDP.

If my hunch on the Spanish property market proves correct, I would expect the Spanish banking sector to need more capital than is currently estimated. It is hard to say how much because we are well outside the scope of forecasting models. When prices drop so fast, there will be much endogenous pressure that no stress test could ever capture.

The mix of high external indebtedness, the fragility of the financial sector and the probability of further declines in asset prices increase the probability of a funding squeeze at some point. And that means that Spain will be the next country to seek financial assistance from the EU and the International Monetary Fund. As for the large number of official statements that Spain is safe, I think they are merely a metric of the complacency that has characterised the European crisis from the start.

viernes, 8 de abril de 2011

Current Affairs: Swedish couple have honeymoon from hell

Swedish couple have honeymoon from hell

A newly-wed couple on a four-month honeymoon were hit by six natural disasters, including the Australian floods, Christchurch earthquake and Japanese tsunami.



The Telegraph

Stefan and Erika Svanstrom left Stockholm, Sweden, on December 6 and were immediately stranded in Munich, Germany, due to one of Europe's worst snowstorms.

Travelling with their baby daughter, they flew on to Cairns in Australia which was then struck by one of the most ferocious cyclones in the nation's history.

From there, the couple, in their 20s, were forced to shelter for 24 hours on the cement floor of a shopping centre with 2500 others.

"Trees were being knocked over and big branches were scattered across the streets," Mr Svanstrom told Sweden's Expressen newspaper. "We escaped by the skin of our teeth."

They then headed south to Brisbane but the city was experiencing massive flooding, so they crossed the country to Perth where they narrowly escaped raging bush fires.

The couple then flew to Christchurch, New Zealand, arriving just after a massive magnitude 6.3 earthquake devastated the city on February 22.

Mrs Svanstrom said: "When we got there the whole town was a war zone.

"We could not visit the city since it was completely blocked off, so instead we travelled around before going to Japan."

But days after the Svanstroms arrived, Tokyo was rocked by Japan's largest earthquake since records began.

"The trembling was horrible and we saw roof tiles fly off the buildings," Mr Svantrom said. "It was like the buildings were swaying back and forth."

The family returned to Stockholm on March 29 after a much calmer visit to their last destination China.

But Mr Svanstrom – who also survived the devastating Boxing Day tsunami that hit southeast Asia in 2004 – said the marriage was still going strong.

He added: "I know marriages have to endure some trials, but I think we have been through most of them.

"We've certainly experienced more than our fair share of catastrophes, but the most important thing is that we're together and happy.

Mrs Svanstrom added: "To say we were unlucky with the weather doesn't really cover it! It's so absurd that now we can only laugh."

martes, 5 de abril de 2011

Finance&Economics: Spain on track as Zapatero bows out

Spain on track as Zapatero bows out



The Financial Times - April 2011

As dark clouds reappear over the eurozone in the form of a likely financial rescue of Portugal, one bright spot is the improving condition of Spain’s economy and public finances. Thanks to courageous deficit-cutting and structural reforms, Spain is no longer perceived in financial markets as a hapless domino doomed to follow Greece, Ireland and Portugal into the arms of the International Monetary Fund and the European Union. The lion’s share of the credit goes to José Luis Rodríguez Zapatero, Spain’s socialist premier, who disclosed last weekend that he would not seek a third term in next March’s general elections.

Far from injecting uncertainty into Spain’s political outlook, with the risk that the nation might be sucked more deeply into the eurozone’s debt crisis, Mr Zapatero’s announcement looks like a wise move. With nothing to lose except his historical reputation, he has every incentive to continue the reforms he started – admittedly, in the nick of time – after the Greek debacle erupted last year.

Even so, his socialist comrades and the opposition conservative Popular party will both need to show responsibility for Spain’s future over coming months. The socialists must resist the temptation to seek electoral advantage by distancing themselves from Mr Zapatero’s fiscal austerity and labour market reforms. For its part, the opposition should not try to force him from office prematurely by toppling his minority government in a parliamentary vote. Such actions could revive market anxieties and jeopardise Spain’s hard-earned successes.

For Spain is not entirely out of the woods. Unemployment stands at 20.5 per cent of the workforce, the highest in the EU; the jobless rate among youths under 25 is a shocking 43.5 per cent. The central government’s fiscal retrenchment efforts are undermined by indiscipline in autonomous Spanish regions such as Catalonia and Valencia. Spain’s public sector banks require extensive recapitalisation and restructuring, but it is no easy process: last week, an important merger of four savings banks fell apart. Finally, Spain’s banks have a large exposure to Portuguese debt, amounting to $108.6bn last September.

Having suffered the nation’s worst economic crisis since the end of Francoism in the 1970s, Spaniards appear disinclined to re-elect the socialist party. With the passage of time, however, they may come to appreciate the services Mr Zapatero performed for his country in its hour of need

viernes, 1 de abril de 2011

Current Affairs: New Europe: The life of a Spanish family

New Europe: The life of a Spanish family

For the Vega Méndez family in Barcelona, it is strong family ties that will see Spain through its severe recession



The Guardian

At 9.30pm on a Friday, Miguel and Purita's home in central Barcelona has all the bustle and hum of a hot summer fairground. Their children – Antón, 10, and Martiño, seven – are off to bed, having spent the past few hours in a tumult of cooking, drawing, TV-watching and playing Nintendo and the piano. Antón is the quieter of the two; he comes to ask Purita what the word "diagram" means (he's reading a Spanish translation of Harry Potter) and when she says the boys can eat dinner in front of the TV, he asks if he can read instead. His mother blushes with pride.

Martiño is cheekier, more assertive. He doesn't speak much English, but communicates well, bringing me a liquid-filled bouncing ball in which floats an eerie, bloodshot eyeball, and playing for laughs in a pair of sunglasses with flashing frames. He also hangs from the gymnastic rings that swing back and forth in the front room, in a vivid impression of a vampire bat.

As the boys head off, the visitors start arriving. Earlier in the day, Purita had read me the text message she'd sent some friends – inviting them for dinner with "a typical Spanish family". She then fell about laughing. Her friends seem to agree that Purita Méndez Suárez and Miguel Vega Lorenzo, both 43, are atypical, non-average Spaniards; Ines, an interpreter, originally from Uruguay, chuckles at the notion; Eva, a well-travelled Catalonian business consultant, seems equally amused. Nonetheless they're people from whom I can learn a lot about Spanish life, it's agreed, during my three-day stay in their home.

We settle down to a dinner prepared by Miguel, who does most of the cooking. When I ask Purita if the traditional idea of Spanish machismo persists, she immediately answers yes. (Miguel, from another room, yells: "No!")

"Couples still don't share the chores at home," says Purita. "I only know three or four couples who really share taking the kids to school, while he cooks and she does the laundry, or whatever." That's the system in their home, and when I first arrive Purita is instructing Antón and Martiño on how to fold their clothes and sort their socks. "But the rest of the people I know, no, they don't share the work. I remember a friend telling me: 'My husband expects me to bring him clean towels while he's taking a shower,' you know?" Her eyes roll enthusiastically.

We start with a small dish (tapa) known as fideua, which consists of short noodles, fried by Martiño (he's a keen cook and takes a regular class on a Saturday morning). These are then boiled in a fish broth, and baked in the oven, where they pop up like fresh blades of grass. To follow is a delicious black-ink paella, and then the traditional Catalonian dessert brought by Eva – almonds, hazelnuts, sultanas and dried figs. Miguel's best friend, Leo, a German writer and teacher, arrives as midnight approaches, and the group keep Spanish hours, drinking sweet wine and whisky into the night, and arguing over politics, in anticipation of a relaxed nine o'clock start the next morning.

The international spread of Miguel and Purita's friends is at least partly a result of their working lives. Both teach English. Miguel works at the University of Barcelona, at a centre where people can study languages, including Japanese and Swedish, alongside their degree. He was studying for his PhD at the university in 1994 when he was first employed by a director who was keen to take on young, innovative staff.

Purita teaches at a high school in a working-class suburb of Barcelona; she shows me a project her 11-year-olds have just completed, page upon page of beautifully illustrated family trees. She started working as a substitute teacher nine years ago, after Antón was born, and four years ago she passed the tough exam that established her as a permanent teacher and funcionario del estado (civil servant). "Passing the exam means you are in for ever," she says, "which is wonderful. The salary is not wonderful, but you have a job."

This is no small miracle. Last year it was reported that Spain may be facing the same financial devastation as Ireland and Greece, after the property bubble that had made it an economic marvel suddenly, catastrophically burst, and the banks were left with billions of euros in bad property loans. This crisis sparked genuine fear across Europe. The bailout of the Irish Republic had cost the EU, the IMF and the country itself €85bn (£74bn); to put the cost of a potential Spanish bailout in perspective, their economy is twice as large as those of Ireland, Greece and Portugal, combined.

Purita says there were rumours that the frantic international coverage of the situation was trumped up slightly, "especially in England. Talking about us meant that people weren't talking about the crisis in England or France, you see?"

But no one disputes the unemployment figures. Spain now has the highest rate of unemployment in the eurozone, with 20.2% of the population out of work, rising to 42.8% among people under 25. A guaranteed job is therefore highly prized. "Everybody knows a person who has lost their job," says Purita, "and of course it affects the whole family. You hear about it all the time, non-stop, on television, the radio, newspapers."

"It must be difficult for you guys to understand how Spain can have a 20% unemployment rate and not have rioting," says Miguel. (He spent some time working and squatting in London as a young man, so has a good understanding of the anarchic side of British culture. He uses the word "Bollocks!" accurately.)

"To understand why we can sustain the situation a bit longer than many other northern European countries," he continues, "you have to understand the concept of family support and solidarity, the idea that no matter how much you suffer, your extended family will be there for you, which creates this safety network, this idea of protection, which is important not only practically but psychologically, you know? The government has been using that quite cleverly, to pass the responsibility on to families."

Their family hasn't been untouched by the crisis; last year, civil servants across the country, including Purita, took a pay cut of 5%. At around the same time, Purita went on a number of protests, focusing on the conditions in high schools – the increasing class sizes and extra responsibilities for teachers, for instance – but became disillusioned. Each time she and the other teachers went on strike, all that seemed to happen was that their pay was docked, benefiting the government by hundreds of thousands of euros. There was also scant support from the private sector. "They just felt we should feel lucky to have a job," says Purita.

At the end of last September there was a general strike in which workers protested against austerity measures, including raised taxes, reduced welfare benefits and frozen pensions, but Purita had tired of the demonstrations, and sat it out. She wasn't alone. Although the unions described the demonstration as an "unquestionable success", a poll in the left-leaning newspaper El Pais (which Miguel and Purita buy every day) showed only 9% of the population planned to support the strike, down from 15% a few months before.

The couple both come from Galicia, in Spain's north-west corner, and have a strong sense of regional identity; living in Barcelona, which is part of Catalonia, they refer to themselves as immigrants. There are 17 distinct regions in Spain (15 on the mainland, plus the Balearic and Canary Islands), and these include "three old communities", Purita explains, "which each have their own languages. One is Catalonia, the other is the Basque Country, and the other is Galicia."

Under Francisco Franco's rule, regional identities were suppressed, but since his death in 1975, they've risen to the fore again. "It's quite natural," says Miguel, "that now, in a young democracy, regions would be searching for their identities, and expressing them. Politically it's obviously important that we learn to live with one another." The militant Basque separatist group, ETA, announced a ceasefire last year, which they all hope will prove permanent.

Miguel and Purita met while studying on the same English course in Santiago de Compostela, the Galician capital, and when they finished Miguel was offered a year's scholarship to study linguistics in the US. He wasn't keen on leaving Purita, but "he only had half a point more than I did," she says. "So when he said: 'I'm not going', I said: 'I'm next in line, and if you don't, I will.'" He made a list of 19 universities with top linguistics departments, before adding the University of Mississippi on a whim, because he loved the writing of William Faulkner, who had studied there for a year. Inevitably, that was where he was sent.

Purita moved to Barcelona to study linguistics, and found it hard at first, because life in the north-east corner of Spain is so different, culturally, to Galicia. "The people in Catalonia are, in general, extremely nice," she says, "but they are very closed, so it's hard to make friends. I arrived in September and at Christmas I said to my Mum: 'I'm coming home, I feel so lonely.'"

But she stuck it out. Miguel returned from Mississippi, and in 1994, after living together for two years, they were married in a civil ceremony in Barcelona. They were both brought up in the Catholic church, but they're "not practising Catholics", says Miguel, "and we never go to Mass or to church unless it's for a funeral or a wedding – and even at a wedding we tend to stay outside and go to the bar. In fact, more and more people of our generation are losing contact with the church. The church here is perceived as something obsolete, you know? The younger generation don't go to church, or if they do it's often because they're very radical rightwing people."

That same year they bought the first floor of the apartment they still live in, with help from their families. The place was an empty shell – Purita shows me photographs of bare brick walls – and the pair worked to make it habitable together.

Four years later, in 1998, they bought the floor above, and saved the money to knock through and combine the two into a four-bedroom apartment, with a roof terrace. They're not sure what the apartment would be worth now, but house prices in Spanish cities have fallen by up to 25% in the past three years. When we walk past an estate agent, Miguel points out a very grand three-bedroom apartment that he guesses would have been worth €600,000 a few years ago and is now on sale for around €430,000.

They seem very content in their day-to-day lives. In the morning Purita cycles half an hour to work, arriving at 8am, and teaching until 5pm most days – between 1.30pm and 3pm the kids at her school have a break, and the teachers often sneak away to the nearest, most comfortable cubby hole for a 20-minute siesta. Miguel takes Antón and Martiño to school for 9am, and then spends the morning preparing his lessons and marking, before teaching through the afternoon, finishing at 6pm on some days, 9.30pm on others.

The boys finish school at 5pm, but "they never come home then", says Purita. Antón has music lessons three days a week; Martiño sings in a prestigious local choir. Both are learning taekwondo, and also play basketball, the country's second most popular sport. Football is the most popular, and they would play that too, "but we don't have a pitch around the corner," says Purita, "so I would have to take them there and stay for an hour, and I said: 'No, I'm not that kind of mother. I'm not that wonderful.' I think for them to be happy, I have to be happy."

The children also attend a weekly art class, and the flat is filled with their drawings, most of them by Antón. An intricate line drawing of a ferocious tiger is dedicated to Miguel and Martiño; a beautifully shaded picture of a rhino chomping on leaves is dedicated to Purita.

"Children mean happiness, plus worry, for ever," says Purita, and there's no doubting how central they are to the family's life, and also to the life of the community. When I visit them, Purita and the boys are on a week-long break from school, and she has been sharing childcare duties with Eva, who has two boys of the same age – each mother has one day with the kids, the next for themselves. Purita says that while she doesn't have family in Catalonia, "we have friends, and the link with them is so strong that some of them are like brothers or sisters. If I'm ill, I know they're going to pick up my kids and take them to their houses." As we walk to an Italian restaurant 10 minutes from their flat, we bump into person after person that they know.

I ask what they think of José Luis Rodríguez Zapatero, the prime minister and leader of the Socialist government, who was elected in 2004, just days after the 11 March Madrid bombings, which killed 191 people. He immediately pledged to bring Spanish troops home from Iraq. "That shocked the right completely," says Miguel, "and it was a mistake to do it so quickly, because George Bush wouldn't speak to him." "But he didn't care! It was wonderful!" says Purita. "I was actually quite proud," says Miguel.

Zapatero went on to champion gay marriage rights and women's rights, appointing eight men and eight women to his first government; the country's defence minister, Carme Chacon, had a baby while in post. Purita says the way he's opened up the debate surrounding an issue such as domestic violence has been brilliant. "Until now, people didn't talk about it, because who wants to say: 'My father hits me, or my father rapes me'? No one. But he's focused on addressing it through education, which I think is absolutely the point."

The overall impression seems to be that he's well meaning, but weak. Miguel says that while he likes Zapatero personally, "because he conveys this image of being an honest politician, and he tries his best, I also think he's pretty useless. He's a bit mediocre, not very charismatic."

Earlier this year it was announced that Spain was planning to partially nationalise its weakest savings banks, those buried by bad property loans, but Purita isn't impressed by the way Zapatero has handled the crisis. "He hasn't really confronted the banks," she says. "He hasn't confronted the very rich, you know? He doesn't have the balls. He's tried to introduce good social measures, but a lot of those have then had to go because of the recession."

With unemployment rates so high among the nation's young, I wonder whether they worry for Antón and Martiño? "I cross my fingers," says Purita. "I do the best I can at home to get them motivated." She says she recently had a devastating discussion with the father of a student who she'd been encouraging to work harder. "The father said: 'But what for? Doctors, architects, they don't have a job now, so why's it so important?' I didn't know what to say."

Along with the social safety net of the family, the other factor that keeps Spanish people relatively buoyant, they say, is its sporting success. "Our kids can't conceive of any Spanish team or player losing," says Miguel, "because over the last four years they've seen the national basketball team win the European Cup, and the football team win the European and the World Cup. Then there's Rafael Nadal, who's the No1 tennis player in the world, and Fernando Alonso in Formula One – he lost last year, but we always expect him to win. So our kids have started to like sports in this winning environment, which is funny, because we've never experienced that before in our lives, with sport.

"It's good that we're doing so well on that front, but it's also a kind of drug for people," he continues. "It means they can forget their daily lives, which means they don't really respond to the government in the way they should – demonstrating and putting pressure on them."

Current Affairs. The drain in Spain: the country's arts crisis

The drain in Spain: the country's arts crisis



The country spent a fortune trying to place itself at the centre of the art world. So why do its best artists all leave? Adrian Searle travels to a nation in the grip of a cultural crisis

The Guardian

'Spain is different," the tourist board once touted. It is also complicated. Although a lot of energy, confidence and black money swirled around the Spanish art world over the past quarter of a century, today something is wrong. However lively Madrid or Barcelona might look, and a visit to any regional city greets you with a spanking new public art gallery, something is missing. For all the late dinners and cocaine nights, gleaming museums and prestigious international shows, there is an air of crisis.

"The party's over," Manuel Borja-Villel, director of the Reina Sofía museum in Madrid told me. Previously director of Macba (Museu d'Art Contemporani de Barcelona), Borja-Villel is Spain's most influential museum director. He sees the current economic crisis as an opportunity, even if it is an unwelcome one. There is talk of cuts of up to 50% in the arts. How can art institutions compete with hospitals and education, whatever the talk of the necessity of culture?

From the 1980s until recently, new museums by big-name architects opened all over Spain. Private foundations opened their doors and savings banks formed international art collections, setting up cultural centres as part of their social remit. As I write, I am installing a show for a cultural centre run by the Caja Madrid bank. Around the corner, queues line up for the Prado museum, for the Thyssen-Bornemisza Collection and for the Reina Sofía, Spain's largest and liveliest museum of contemporary art, which opened in 1990. Private galleries flourish – and sometimes struggle – in the small streets behind the museums.

Spanish institutions have always been prey to changes in government, with money and museum directors coming and going whenever political change happens at national, regional and even municipal levels. By achieving greater autonomy, the Prado has extricated itself from this damaging cycle, and the Reina Sofía is set to follow. The two museums now have a far more fruitful collaborative dialogue than the Tate and National galleries in London have ever had, co-ordinating exhibitions and lending works to each other. Regional and smaller Spanish institutions are less protected.

In the early 1980s, the Iberian peninsula felt far from the centre of the arts world, and both Spain and Portugal put a great deal of effort into building new artistic institutions. "We used to think that media attention and crowds coming through the doors was the signal to success and social usefulness," says Borja-Villel. "We mistook our place in the world. We imagined we had centrality. But we were never the centre. Spanish art institutions and artists were like good, diligent students. We didn't realise that there is no centre any more."

But the real problem is a deeper one. Art itself, the only real indicator of cultural vitality, has somehow lagged behind. Going round shows here for over a quarter of a century, I keep thinking it should be better. Why is painting so lousy here? Why is so much meek and secondhand? Of course there are always exceptions, but you often have to leave Spain to find them.

Which partly explains why so many of the best Spanish artists have always left – not just to escape the former dictatorship. Ambitious artists of the post-Franco period, such as Juan Muñoz and Pepe Espaliú, moved to London, Paris, New York. Turner prize contender Angela de la Cruz took off in the mid-1990s. Ambitious young artists still leave. "Everyone should, at some point," said Borja-Villel.

Paloma Polo, still in her 20s, escaped a conservative, moribund university art school in Madrid as soon as she could. "It was like a handicrafts school," she told me from Amsterdam, where she now lives. "There is no real scene of young artists in Madrid," she added, paradoxically putting part of the blame on the grants and prizes young artists have been given. "They get big-headed, even though in the end they're unambitious to be anything more than local artists. No one outside Spain knows or cares about them. I knew from day one I had to leave."

A mountain range of the mind

Unlike the UK, there are few alternative spaces, warehouse shows or ad hoc events in Spain. Those that take place are treated with suspicion. The sense of collaboration, which had certainly existed in the heady days of the 1980s, when I started coming here, did not last long. The sense of being part of a larger art world is somehow still stalled by the Pyrenees, though it is a mountain range of the mind.

Spain has few serious collectors, and those who only began collecting a few years ago are giving up. They're broke, Catalan artist Ignasi Aballí told me. Aballí is surviving the downturn. He's showing everywhere from São Paulo to Ikon in Birmingham. "The only way to survive is to show outside Spain," he said. This was true of artists like Muñoz, too, who died in 2001. He lived and worked near Madrid, but developed his career outside Spain.

The economic downturn is making everyone reassess the place of visual art in Spanish culture. Projects both modest and grandiose are floundering. La Caixa, a Catalan savings bank, has recently donated its collection to Macba. The future of another new project, the Canòdrom contemporary arts centre, still being built on a neighbourhood dog track in Barcelona, is stalled. An overblown new "city of culture", designed by architect Peter Eisenman on the outskirts of Santiago de Compostela in Galicia, eats millions of regional euros and looks unlikely to be completed anytime soon. Cities and regions look for the miraculous "Bilbao effect", the kind of urban and regional regeneration bought about by Frank Gehry's Guggenheim museum in that city, but it is an elusive panacea.

Elsewhere in Galicia, Marco (Museo de Arte Contemporáneo), housed in Vigo's old panopticon prison, is having problems. They're soon mounting Spain's first show of Scottish artist Martin Creed, but the programme is slowing down. "[To us], 100,000 fewer euros is the same as a €1m cut for a bigger institution," Marco's director Iñaki Martinez, told me.

Martinez was also recently appointed president of Spain's Association of Directors of Contemporary Art. "Artists are the ones who are suffering most," he said. "The first thing that is revised is the acquisitions policy. Many public Spanish collections have been blocked, others have reduced their capacity to develop and build their collections. No one knows for certain what is going to happen next with regards to the cultural activity of the savings banks. There are a number of foundations dedicated to the work of single artists that are questioning their continuity." Chillida-leku, the foundation dedicated to the legacy of Basque sculptor Eduardo Chillida, in the Basque region, has recently closed.

"Spain has rushed to create a cultural infrastructure which previously did not exist," says Martinez. "In many cases it was carried out without planning, giving priority to the container, not the content, and now we do not know what to do with all these buildings. The current situation simply demonstrates the result of the politics of waste and showbusiness."

Borja-Villel remains optimistic. "Smaller institutions need to find their own identity," he says. He sees the development of a sense of real communality as a solution. "The question is how to use these spaces in a different way. We cannot be alone any more, we are living through a change in history, and must not be afraid to make mistakes." Better questions and better mistakes would seem to be the answer.

Spain's five hottest artists

Ignasi Aballí (Barcelona, 1958) is an heir to the spirit of conceptualism. Signature works include listings made up of newspaper cuttings and his explorations around colour.

Dora García (Valladolid, 1966) will represent Spain in the Venice Bienniale. Her work has a complex performative dimension originating in her interests in literature and the conflict between reality and fiction

Lara Almarcegui (Zaragoza, 1972, pictured) investigates the relation between nature and urban landscape. She recently weighed and recorded the open spaces of different cities.

David Bestué (Barcelona, 1980) and Marc Vives (Barcelona, 1978) are a good example of how the young generations look at the art of the 60s and 70s from an ironic perspective. Their sardonic approach has strong echoes of Dada.

Paloma Polo (Madrid, 1983) has a profound interest in the cinematic. Her latest work evolves around the subject of light as a metaphor for the emergence of knowledge in the modern era.