I'm subcontracted, so even if my salary is half what it would be in UK, Germany, the cost for the company I work in is not so different. Their fault anyway, why don't they contract me directly?
Add to that that rotation is wild. They hire the cheapest people: those who are unemployed and would take any offer. As soon as you're employed, it's orders of magnitude easier to get a job, so hasta luego, Lucas!
Companies also have a huge burden treating with other companies or government that work terribly and terribly slow, pay when they will and often simply don't answer the phone.
There is little competitive spirit. Virtually all the big companies are there because some concession or "too big to fail" (utilities, banks) so their way to raise profit is to exploit customers and employees.
Beware! There are exceptions to all of these traits! There are good innovative companies, competitive people and internationally successful ventures. But not enough to sustain a disgruntled IT workforce that are treated as spoiled clerks.
Why don't foreign companies go there and hire people, though? They can hire people cheaper than having them move to the UK/Germany/US even if they pay above average local rates, they can hire people who otherwise wouldn't move (and even some of the movers will be happier closer to home), and since they're hiring them as part of a large, or at least multinational company, they don't necessarily need those people to have much at all to do with other Spanish/Italian/whatever companies or government.
I think that's precisely the point the author was making. Google could set up shop there and build a massive development centre that would make it easier for them to do stuff for Latin America and Africa - and yet they don't, other than a dinky office selling AdWords.
That's the takehome pay - there are pretty high taxes, so the total that the company is paying might be much higher, and the labor market is very rigid: at least in Italy, it's very difficult to fire someone once they have obtained a 'permanent position'. Still though, I think there are opportunities to be had; things like what Fabrizio Capobianco did with Funambol. I can only find stories in Italian that focus more on the Italian aspect of their operations:
Well, both taxes and salaries are higher in Northern Europe and our companies are still competitive so that is not the reason why the Spanish IT companies are not competitive.
And you get a lot more of them back in various ways in northern Europe.
I think it's a fairly complex question, and that's part of it. Maybe there's actually an opportunity, because I know a bunch of smart developers in Italy who work for less than they would get elsewhere. I know Italy very well, and still wonder what I'm missing, because like you say, there are taxes elsewhere too.
