The Evil rotting Europe

The European Union is very badly built and everybody knows but there’s an immediate threat that is not monetary, it’s not the migrant crisis and it’s not the power grab in Brussels. It’s the Spanish System.

The particular evil of Spain is the appearance of being a normal country. The expanding European Union was eager to gobble up as much territory, people and GDP as possible. This is an error in itself but probably the worst was incorporating Spain.

One would say Greece is worst. It’s economy and tax collecting is a nightmare. Yes but no. Greece is basket-case but Spain a source of evil now being unveiled. At the time of joining, both Catalans and Basques were eager to join with the hope that some sort of civilization would come down by magic from Europe. The Spanish ruling class was eager to join in order to steal.

Spain –Basques and Catalans aside- is an authoritarian society. It has no democratic or liberal tradition and the small history it has of it was  just mimicking what the others did. The ruling class is authoritarian. The populace accepts authoritarianism. The frosting on the cake is a reverse moral meritocracy by which the worst people end up at the top.

By appearing as a normal country Spain has managed to syphon off humongous amounts of money from the Union which have been mostly going to the astonishingly corrupt ruling class. A ruling class that controls all media, major labour unions and power bases and that has always had the same path to riches:

Control the state, get the state in debt, plunder the state funds left right and centre and then default. As Carmen Reinhart noticed, Spain is the state with the most defaults in its history. First they robbed the moors, then the Jews, then the colonies, then the church and now the civilized peoples of Europe.

But it gets worst. The economy is just a tool and a material condition. Spain is spreading its rot at the heart of Europe compromising its democratic values and providing the final kiss of death. With the Catalan independence push and following crackdown we have seen not only the dictatorship underneath the skin but the influence of a big country using all its diplomatic, political and economic blackmailing powers to make the union go with it. Rotting its soul.

If they get away with it, I would compel all small democratic countries of Europe (Belgium, The Netherlands, Ireland, Finland, Denmark and so on) to leave the union or at least starve it from funds. With the Selmayr scandal and the way Brussels work that would be the end of a EU based on human rights and democracy. I hope that countries that value their freedom above EU funds such as Poland leave also.

It’s time for Germany to decide what it wants to do.

Vueling, a raison d’etat

The airline industry didn’t start as a free market. It became so overtime due to its liberalisation. Thus the industry carries a legacy from the past which is now slowly correcting by the crumbling of old structures and a rebirth. New business models substitute the hitherto established. New companies challenge and surpass old ones. New route maps are being drawn more accordingly to what the market desires. And eventually, new connection hubs will replace the old ones.

In Spain a particular tale of two cities lingers throughout time like a soap opera with Iberia, the former flagship carrier, as the main villain. With the announced restructuring of the company, there will be cuts in the loss-making routes. Let’s retain that concept: loss-making routes, lots of them. Iberia does lose money in some routes. And it does so in order to support its long haul connectivity and further does so with the help of the Spanish state which helps the connectivity of Iberia via the subsidy of AirNostrum, its regional partner.

Let’s go back in time and let’s imagine the airline industry sprung as a totally free market industry. With the manipulative hands of the state out of the picture one would imagine a growing number of flights drawing lines upon the globe. Drawn by the market. Driven by demand. Pretty much as the low-cost carriers today operate.

If one observe the maps created by those non-connecting airlines one can observe the crowding of lines in few particular nodes of the network. Those are what I call natural hubs. Those the market would choose. Those hubs backpackers choose using two low cost flights and a couple of idle hours on the terminal.

The longer the airline industry stands as free market the more the route maps will move and reshape themselves towards that abstract ideal market-designed route map. The trouble of Iberia is that its unique and main operating hub of Barajas is not a natural hub. Barcelona’s El Prat is.

Iberia makes money on its long-haul operations out of which it subsidizes its short-haul operations after the market destroyed its profitability progressively since the monopoly was gone. The pyramid is upside down. Not ideal.

In 2004 a new airline, Vueling, tapped that unexploited natural hub of Barcelona. Aware of the danger and after a huge expansion of Vueling Iberia created Clickair in order to co-opt Vueling’s growth replicating its route map and eventually achieving the surrender of the former Vueling shareholders and forcing the merger of both companies into a new Vueling of which Iberia owned 45%.

But alas! Due to the original merger agreement Vueling kept some autonomy and despite rendering some suspiciously non-interesting and odd short haul services for Iberia in Madrid, Vueling kept growing. And growing. And being profitable. And started connecting travellers.

In the mean time Iberia finds itself in IAG. With its core shareholders group broke. With a broke state which if it’s finally rescued we’ll have to see if it can keep subsidising AirNostrum and hence Iberia’s connectivity. With Madrid’s passenger volume descending at double digits rate.

Amidst the turmoil in Madrid Willie Walsh announces the intended takeover of Vueling at the outrageously low price of seven euro per share. A day later a huge cut in Iberia in order to rationalize its numbers which also mean a huge redundancy numbers for its privileged staff.

Madrid goes nuts. Talks of national interest and perfidious albion re-emerge from history shattering the liberal make up of a very reactionary face.

If Walsh achieves the takeover (We’ll see at what price) it can go two ways. Either Vueling is merged with Iberia Express cancelling its expansion plans and blocking its potential, taking over the Madrid redistribution routes and sinking its results into mediocrity subsidizing the current model or Iberia Express might run a much smaller profitable-routes-only operation in Madrid and Iberia starts to service the huge potential in long haul there is between El Prat and Africa and El Prat and South America.

If it’s the second, we’ll find an IAG with a BA which has dusted itself off, turned profitable and located in the natural hub of London and an unleashed Vueling which can continue growing at double-digit rates, profitably, during years to come and located in another natural hub.

We’ll have to see the first moves of Walsh. If we see an inclination towards the second, buy IAG shares. Lots of them.