0.- INTRODUCTION

Good Morning and welcome to Majorca.

I’m Miquel A. Mas one of the cofounders and lawyer of the firm DMS-Consulting. I’m very grateful to have the opportunity to host all of you here in our country.

I am currently responsible of the area of Property Law, Commercial Law and Civil Law.

We are a multidisciplinary law firm, which was set up twenty-four years ago. We have a team of 8 specialised lawyers (civil law, commercial law, property law, tax-advising, administrative law, employment law…) 2 economists, 2 labour adviser, 3 company advisers and seven highly qualified administrative professionals.

Due to the international environment of the Balearic Islands, and as a consequence of our focus on international clients we are glad to have a multilingual team with an international responsible who speaks three languages, Sandra Krupp.

On the other hand, and lately we have introduced the firm in the internet business with a powerful legal blog and a website in five languages, which has very interesting tools.

The speech: An approach to the economic, social and political situation of the Balearic Islands and Spain.

The main note of the current economic, social and political situation is of course the unemployment rate of 26.3%, only second to Greece as the highest in the EU, and the youth unemployment with more than 56% of Spain’s 15-24 year-olds out of work.

A shame, a true shame.

But despite this figure, there is a country, a society and economy that works and we are trying to introduce you to this reality today, in this speech.

I.- THE BALEARIC ISLANDS Let me begin with this building, and this city. We are in Ca La Torre, a building from the XVII century that limits firstly with the Muslim wall and secondly with well-preserved remains of the old Renaissance wall that protected the old town, the fifth enclosure Palma has had throughout history, built as a consequence of the frequent Turkish incursions from the sea.

The Balearic Islands (Catalan and official name Illes Balears, Spanish name Islas Baleares) are an archipelago in the western Mediterranean Sea, which forms an autonomous community of Spain. The capital is Palma.

The autonomous community consists of one Province. The catalan is the Balearic own and oficial language, the Spanish is also official. The main islands are Majorca, Menorca, Ibiza and Formentera.

Historically, the islands were invaded by the Romans, became a Roman province with the Latin name of Baleares, the Vandals, Byzantines, Arabs, and the Catalano-Aragonese. The Catalano-Aragonese initially ruled the Balearics by a vassal kingdom, the Kingdom of Mallorca. Later incorporated directly in the United Aragonese, in 1344, the latter kingdom was later absorbed by Spain. Minorca was a British dependency in the eighteenth century.

Some figures about the Balearic Islands: .- The population of the Balearic Islands is estimated in about 1.100.000 inhabitants, many of them foreigners (22%), only in Majorca reside more or less 45.000 Germans and 30.000 British. There has been a significant increase in population in recent years, due to a heavy flow of immigration, from both peninsular Spain and abroad

.- With 22.7 million passengers in 2012, Palma de Mallorca’s Son Sant Joan Airport is Europe´s 12th airport regarding passengers (there are 50 different countries and only today there were not less than 24 flights between Palma and London). Moreover, the Islands are home to some of the most important freight and passenger ports in the Mediterranean and Southern Europe, and they are one of the top cruise destinations in the region.

.- An open and dynamic economy The Gross Domestic Product of the Islands has been constantly growing the last years and despite the crisis, this year we expect to exit the crisis (in fact the last 3 months we have had a growing of 0,3%). The Islands have an income per capita that exceeds the average of the European Union and that has a development pattern similar to that of the most consolidated economies.

.- Hub of Tourism and Leisure The Balearic Islands are the second most popular tourism destination in Spain just behind Catalonia, with over 10.4 million international tourists in 2012. The current tourism season is just spectacular, the hotels are full. Roughly speaking the hotelier sector outstands in the local economy. Companies such as Sol Meliá, Iberostar, Barceló and Riu are clear examples of the Balearic work model in the tourism sector: multinational corporations that have been successful in exporting a distinct system of management internationally. With more than 600 hotels around the world, they have left the mark of their enterprising spirit in America, Asia, Europe and Africa.

.- An enterprising and innovative spirit The Balearic people have initiative. The Balearic Islands are the third autonomous region in Spain with the largest number of businesses per 1,000 inhabitants. The business fabric is diffused, as 96.0% of the companies are microenterprises with less than 10 workers. Most of those businesses fall within the services sector, with a particular prevalence of activities such as retail trade, hotel, catering and real estate services, due to the heavy influence of tourism in the region.

.- Incorporation of New Technologies The Balearic Islands have an enhanced ability to innovate, and they are attractive for the new technologies sector. The core of the Islands’ outreach toward the knowledge society is the Balearic Islands Technological Innovation Park (ParcBIT).

.- The real estate market is absolutely relevant in Majorca. The statistics of the most important real estate agencies show excellent results on completed sales in the high market, due to the important number of non-resident foreigners (British and Germans, but Scandinavian too), who are taking advantage of the big opportunities that the real estate crisis provides in the Balearic Islands, with valuable properties at bargain prices.

Thanks to their geographical location, the Balearic Islands are an ideal business platform to access both the European markets and the rest of the world’s growing markets. The Islands boast a strategic position in Spain’s most dynamic area.

So for this reason, and mainly for the tourism activity and the real estate market, the crisis in the Balearic Island is softer than in the mainland.

II.- SPAIN

II.1.- INTRODUCTION

After a tough civil war and a long dictatorship of 40 years, Spain became a western democracy in 1978 and a member of the EU from 1986 and to the Eurozone from the beginning, but now we are in a big economic crisis.

The Spanish population is estimated in 47.000.000 inhabitants, many of which foreigners. On average, 12.2% of the Spanish residents are foreignborn, a figure that rises to 16-17% in regions like Madrid, Catalonia or the Balearic Islands (20% at least). Life expectancy is 81 years.

II.2.- FIGURES Let’s go to the main Spanish figures

.- Spain are at a GDP per capita level just below the EU-27 average

.- Spain is the world’s 13th largest economy and the 5th largest economy in the EU

.- Spain is the 8th largest exporter of commercial services worldwide, 4th in the EU, and the 20th-ranked exporter of merchandise trade

.- Spain is the 2nd country worldwide in revenues and the 1st in Europe and ranks 4th in arrivals worldwide

.- USA, UK, Germany, France and Italy Companies are the largest investors in Spain.

.- Spain is the world´s 2nd largest investor in Latin America, ( 2nd only to the USA and the 1st among European countries), due to their especial cultural links with Latin America – it is the perfect hub for doing business there.

.- During 2012 the Spanish economy underwent a significant adjustment and is in process of correcting accumulated imbalances

.- During 2012, Spain’s productivity/cost ratio became the second-best in the entire EU

II.3.- PROBLEMS From our point of view the main problems Spain is facing are: economic, territorial and political.

II.2.A.- ECONOMIC CRISIS .- Spain has been hit by a double-dip recession since the collapse of the property market during the financial crisis in 2008. It was estimated that the economy shrank again in the last quarter, but by only 0.1%. Nevertheless, American multinational financial services corporation, Morgan Stanley, said they believe that the Spanish economy is at a turning point and could return to the path of positive growth in the third quarter of this year, allowing it to beat growth expectations for next year, which they forecast to expand by 0.8%, three tenths above the government’s forecast. However in any case we have a long way to go in order to reform our economy and our political system. The country is still implementing austerity measures required by an EU-IMF bailout agreement, and the banking sector is still undergoing restructuring. In this section, we should mention:

II.2.A.a.- FYNANCIAL SYSTEM In New York, September 24th 2008, at a ceremony organized by the American Chamber in Spain, the Spanish Prime Minister, José Luis Rodríguez Zapatero, accompanied by the executives of American multinationals and investment banks, declared that “the Spanish financial system was perhaps the strongest in the international community”.

4 years later the Spanish government asked the European Union for a bank Bail-out

That explains the lightness with which the economic crisis has been handled in Spain.

The Spanish financial sector has been seriously damaged by the real estate bubble and the recession that followed.

Especially the local saving banks – Cajas de Ahorros- have shown big structural vulnerabilities and the highest exposure to real estate. The total number of entities in the financial sector, excluding credit cooperatives and foreign branches, has decreased from 50 in 2009 to 12 in 2012

II.2.A.b.- UNEMPLOYEMENT Nevertheless, as we can say at the beginning the more notable figure is the unemployment. Nowadays, being the main Spanish problem. The unemployment rate of 26.3% comes only second to Greece as the highest in the EU. Youth unemployment also remains extremely, high, with more than 56% of Spain’s 15-24 year-olds being out of work. Spain’s unemployment rate has fallen this summer for the first time in two years, according to official figures. The rate stood at 26.3% in the second quarter of the year, down from a record 27.2% in the first quarter. A strong tourist season was credited with boosting employment. Tourism accounts for about 10% of Spanish GDP. Some economists question whether seasonal factors such as tourism can have a significant impact on unemployment, which they say is becoming a long-term problem. Around half of those unemployed have been out of work for more than one year, and there are now 1.8 million households where none of the occupants are working.

II.2.A.c.- STRUCTURAL All the same, the deep problem is that Spain has a weak industry. Our main economic activities are the tourism that works in a good way, and the construction, boomed thanks to lows banks rates from Europe. It’s absolutely necessary to change the economic policy in order to implement research and high-technology companies and modern industry.

II.2.B.- TERRITORIAL Of course, the economical problem is linked to the territorial problem, I mean the autonomy power and especially Catalonia. However, the economical explanation it isn’t enough to understand the deep of the territorial crisis. There are cultural and linguistic reasons that can help to asset the real situation. It’s a big problem that needs a lot of wisdom and prudence.

II.2.C.- POLITICAL Related to the first problem and maybe one of the causes of its depth is the political problem, mainly the corruption. Spain ranks 30th in the scale of corruption, just behind Bostwana, Cyprus and the Arab Emirates. There are currently over 1600 cases of political corruption in the courts of Spain and only about 10 politicians have been in prison (here in the Balearic Islands there is one sentenced Balearic president and another in prison). In Madrid the treasurer of the last 20 years of the government party is in provisional prison accused to receive bribes, and he’s stating that he has given black money inside envelopes to the main members of the Spanish Government party, and anybody has resigned still. Consequently it is even logical that the submerged economy is really enormous in order to avoid the high taxes. The last reports inform that 20% of the economy and more than 1 million people work in the black market, not paying taxes or anything.

Reliance on public fundings to finance political parties with 90% (by law), which would be 30% if we considered the huge amounts of ”donations” they receive from private companies. It is needless to say that once these parties reach the power, these companies are widely benefited, and politicians are well responded once their political career has come to an end with a comfortable arm-chair in one of these companies (especially from the EXISTING energetic lobby).

Politicised supervising authorities such as the Central Bank of Spain have willingly failed to fulfil their duty, public banks with inept politicians on their boards have shaken the Spanish financial system and inflated a property bubble which has enriched executive chairmen with huge bonuses and politicians with illegal commissions, both of whom are now sitting in the dock and presumably won’t assume any responsibility. Therefore, it is quite evident that this is one of the biggest problems which Spain needs to improve.

What is advised:

• ·Stronger political financing regulations and more resources for monitoring mechanisms are needed.
• ·The electoral system needs to be modified. Reforms should include unlocking the closed voting lists and improving proportionality. Neutralizing political party internal control, and stimulating its internal democracy is also needed. For example, the primaries should be open to the people.
• ·To improve integrity in the judiciary, de-politicisation of the supreme bodies of the judicial power and the Constitutional Court are needed.
• ·Access to information reforms are needed to ensure the transparency of public institutions. The government should also adopt a strategic plan to improve responses, accessibility, as well as citizen participation and collaboration in public affairs.
• ·It is necessary to pass a law protecting whistleblowers in both the public and private sector