A General Synopsis of The Ecomony in Spain
Spain is one of the poorer countries in the European Union (EU), with an estimated per capita gross domestic product (GDP) in 2005 of US$27,226, compared with US$33,734 in France, US$33,922 in Germany, US$36,599 in the UK and US$42,101 in the US. However, Spain’s GDP has more than doubled since 1986 and the country currently boasts the eighth-largest economy in the world, as well as the fastest growth rate among the original 15 members of the EU. Unemployment has decreased significantly and stands at around 9 per cent, although the cost of living has increased in recent years (it’s still low by EU standards), and personal debt has risen considerably.
In the last two decades, Spain has become a member of the ‘real’ world and its cost of living and taxes have increased accordingly. It’s no longer a low-tax country as many people still believe – unless, of course, you come from Belgium, the Netherlands or Scandinavia, in which case almost anywhere else is a low tax country! Nevertheless, the cost of living in Spain is still lower than in most other EU countries, inflation was 3.7 per cent in 2005 and for many the quality of life/cost of living ratio is unbeatable. Family debt is an increasing problem in Spain and in 2005 rose to a total of over €635,955m, more than twice the amount owed just five years ago and up 21 per cent on 2004. Most debt is in the form of mortgages (Spaniards owe over ten times more on their homes than ten years ago) and the Bank of Spain is seriously concerned about the effect a rise in mortgage interest rates could have on the average family’s economy. Like all western countries, Spain has extremes of wealth and poverty and there’s a vast difference in prosperity between the rich north and the poor south and west of the country (an imbalance which regional policies and vast injections of EU aid have done little to alleviate). Competition for your money (dinero) is considerable, and financial services are offered by clearing and commercial banks, savings banks, foreign banks, the post office, investment brokers and a range of other financial institutions. If you’re planning to invest in property or a business in Spain that’s financed with money earned or held in a currency other than euros, it’s important to consider present and possible future exchange rates (don’t be too optimistic!). If you plan to live permanently in Spain, you should ensure that your income is and will remain sufficient to live on, bearing in mind currency devaluations, rises in the cost of living, unforeseen expenses, such as medical bills, and anything else that may reduce your income (including stock market crashes and recessions!). In the early ’90s, many pensioners with a fixed income paid in a foreign currency saw it fall dramatically, as exchange rates worsened and the cost of living rose, although in the last few years some have made gains on the exchange rate.
If you wish to borrow money to buy property or for a business venture in Spain, you should carefully consider where and in what currency it should be raised. Note that it’s difficult for foreigners to obtain business loans in Spain, particularly for new ventures, and you shouldn’t rely on it. On the other hand, if you earn your income in euros, this may affect your financial commitments abroad, particularly if these currencies are devalued. List all your probable and possible expenses and do your homework thoroughly before moving to Spain – afterwards it may be too late!
When you arrive in Spain to take up residence or employment, ensure that you have sufficient cash, travellers’ cheques and/or credit cards to last at least until your first pay day, which may be some time after your arrival. During this period you will find that an international credit card is useful; major credit cards, e.g. MasterCard and Visa, are widely accepted in Spain. Note, however, that compared to many other western countries, particularly the UK and US, Spain isn’t a credit economy and the Spanish prefer to pay (and be paid) in cash, rather than with a credit card or cheque. Don’t assume that a business accepts credit cards, but check in advance. This is taken from an extract from David Hampshires excellent book Living and Working in Spain - A Survival Guide.