Every now and then the Philadelphia Inquirer publishes an article on Spain. In today's paper there's an article on what they call Dinero B, but I've always heard it refered to as dinero negro. It's somewhat interesting - it's about how people are using up the pesetas they've hidden to avoid paying taxes before they need to change it all into euros. It was fascinating to me when I lived in Spain how much of this money circulates, how easily it's done, and how almost everyone accepts it as the way things work, especially when buying and selling property. You can read the article at http://inq.philly.com/content/inquirer/2001/06/10/national/PESETA10.htm

[ 09-10-2001: Message edited by: MadridMan ]

Dinero B is commonly used. I guess it's a kind of euphemism. Instead of saying "dinero negro" they say "dinero b (black)".

From March 1st 2001 the pesetas won't be valid anymore and everybody will have to change them into Euros from January 1st to February 28th.

The problem is that if you have lots of "dinero b" to change, they'll ask you to declare where they come and you'll have to justify why it doesn't agree with your tax statements.

By the way, the government do know how much "dinero b" there is in Spain. They know how much they put in circulation and they know how much people is "supposed" to have according to taxes. So, the difference between those figures is the "black money".

Is that why so much construction is going on in Madrid and many people are buying up property there?

laduque- Thanks for opening this topic...

Back in 1999 I was visiting friends in Bilbao, and remarked to him about all the construction going on there (as well as everywhere else). He's a small business owner, and told me that the impetus behind all the economic inversion was this so-called "dinero b".

Back then he was talking about people "cleaning out the colchones" and "laundering" their money so that they wouldn't get stung during the 2002 conversion.

I think the answer to your question is a qualified "Sí".

I agree with Calibasco. People who didn't pay taxes or had some money hidden, have to launder it before the Euro comes. It's a pity because real estate prices have risen up a lot because of these "black money movements".

Please don't forget that in the housing booming there were other factors too. Such as the economical crisis ending, or the mortgage rate going from 14% to 4,5% from 1985 to 1998....

I think Nativo is right. The housing boom started before the euro came into the picture. We were among the lucky ones, a young couple buying that first apartment just before prices skyrocketed in the mid 80s. Our friends who were considering marriage a few years later were hesitant because by that time an apartment had become way too expensive. We were also able to take advantage, sell at almost double the buying price, and move into something even nicer -twice. The prices for real estate have been much more stable (around Madrid, at least) in the past 8-9 years. I do believe, however, that a lot of people involved in building, investing, and selling were using that dinero negro to make even more dinero negro!

But here's another question for ya'll ;
What do you think is going to happen to real estate prices next year, when, I assume, this dinero b will not flow so freely? Will prices come down?

Of course dinero b is not the only factor for the prices going up but in Madrid real estate prices have gone up 16% in the last two years (and that's too much). I think the prices will stabilize in 2002.

As long as the building land is regulated as it now, there will not be property price crashes in Madrid. The best we have seen is prices growth slower than inflation. To my knowledge, they never decreased since the civil war.

Well, I think they can crash, and they will probably do.

As soon as the growth rate slowers, the unemployment rate gives off reducing, and the euro is in the streets there may be some interesting episodes that can remind us of Japan and New York, where, by the way, it had also been a long time since they had experienced something siomilar.

Maybe Madrid did never suffer it (though I think I heard it has, like 20/30 years ago), but by that time many spanish cities did. Nobody is safe nowadays.