Spain's Economic Arsonists: Political Bankruptcy in Madrid Adds to Woes
Spain is an attraction, and not just as a destination for vacationers and the world's best footballers. It enjoyed a booming economy for a long time, but now the entire country seems to be in free fall. Will it have to resort to the bailout fund because of mistakes by its ruling conservatives?
Firefighters in Asturias, northern Spain, prepare to pose naked with a sign that reads, "With so many funding cuts, we are left naked."
What a week for Spain. The Madrid Stock Exchange crashed, there was bad news of growing mountains of debt from across the country and the risk premiums Spain has to pay to borrow money are rising rapidly, reaching 7.4 percent last Tuesday -- a level that already forced three other euro countries to resort to the bailout fund. Last Thursday, European Central Bank (ECB) President Mario Draghi felt compelled to restore calm by promising to do "whatever it takes" to preserve the euro, which apparently means printing as much money as possible. The euro recovered and Spain's borrowing costs fell slightly, but perhaps it's only a respite.
This behavior doesn't inspire confidence. It seems more like a declaration of political bankruptcy.
It also isn't very helpful that Economy Minister Luis de Guindos has been downplaying Spain's problems in Berlin, steadfastly claiming that Madrid will not need more from European coffers than the 100 billion ($123 billion) already promised to rescue Spanish banks. Almost in the same breath, he also admitted that his country will have to fundamentally modify its growth model to get back on its feet. Then his fellow party member Esteban González Pons, the top official of the ruling conservatives, blamed "the Northern Europeans" as a whole for leaving "the South" in the lurch out of pure egotism.
Meanwhile, the Spanish people are venting their fury at the parliament building in downtown Madrid, just a few kilometers from Moncloa Palace. For months, the Spaniards, in an admirable show of patience, endured more and more bad news in hopes that they would be rewarded after all the sacrifices they had made, from wage cuts to cancelled vacations. But now they have apparently lost their optimism. The miners from Asturias in northern Spain, who took to the streets of the capital with their miners' helmets, have now been joined by firefighters, police officers and nurses. Young people have also shed their lethargy and are now protesting in front of the banks' glass palaces.
One in four employable Spaniards is out of work (an unemployment rate almost five times as high as Germany's), while 53 percent of young people are unemployed (almost seven times the German rate). Spain is a deeply wounded and torn country. The wealthy and influential members of high society, the ones who make their daily noontime pilgrimages to the expensive restaurants where it's still difficult to get a table -- they still exist. At the same time, however, hundreds of small bars throughout the country have had to shut their doors, because most ordinary Spaniards can no longer afford ordinary prices. Many are too proud to stand in line at church soup kitchens.
Is this stable democracy, this reliable European Union partner often praised as the alliance's "southern anchor," the fourth-largest economy in the euro zone, after Germany, France and Italy, at a crossroads? And could it even see a return to authoritarian, nationalist times, 37 years after the death of former dictator Francisco Franco? Will there be a royal road for Spain, or is prayer along its famous pilgrimage route, the Way of St. James, the country's only hope?
The relationship between Spain and Europe has always been difficult and controversial on both sides. Charles V, the Holy Roman Emperor and a member of the Hapsburg family, became Charles I, King of Spain, in 1516. Ironically, he was proclaimed king in Brussels and only arrived in Spain in 1517 and assumed the throne in Madrid in 1518.
The Spanish anti-reformists opposed the religious reforms of the 16th century, sought to distance themselves from new scientific discoveries, and frowned upon work ethics and the resulting improvements in the quality of life. This attitude reached its unhappy climax in the brutal expeditions to secure the colonial realm and in the Inquisition, during which unimaginable atrocities were committed in the name of the church. They were also a deliberate rejection of Europe.
Until well into the Franco dictatorship of the 20th century, many viewed reformists and proponents of enlightened thought as "un-Spanish" and the right-wing forces in Spain as Europe's "true moral reserve." Meanwhile, some in the rest of the continent believed the saying that Africa began beyond the Pyrenees.
After Franco's death, Spain quickly managed to liberate itself from its authoritarian traditions and overcome what the author Ortega y Gasset had dubbed an era of "sleep, mental enfeeblement and egoism." The young democracy was brought into NATO and the European Community in the 1980s and proved to be eager to learn, a model European student. Soon money from Brussels' "structure and cohesion funds" began flooding into the country. A blessing at first, the money soon proved to be a curse. Instead of using it to develop industries of the future, the Spaniards promoted infrastructure projects, including roads, railways, housing and hotels.
Conservatives and EU to Blame
The conservatives became the country's biggest arsonists, heating up the real estate mania with their neoliberal land and building policies, fires they are now expected to put out too. But the EU also shares some of the blame, because it neglected to require Spain to employ targeted planning procedures and was also sloppy when it came to monitoring the funds. As a result, Spain was never able to completely shed the protectionism inherited from the Franco era and become competitive. Instead, it developed a superficial dynamism based on borrowed money. The perceived rise in the value of real estate from year to year enabled Spaniards to continue borrowing money and leading increasingly luxurious lives. Almost unavoidably, education and innovation were neglected, while the sweet, slow poison of debt led to a dependency that has now become all but inescapable.
Spain is not Greece. It has competitive products to offer, albeit relatively few in the high-technology segment, as opposed to the agricultural sector, in which it excels. Some of its agricultural products, like wine, olive oil and ham, often surpass those of EU competitors in terms of quality and value for the money. The Spanish trade balance doesn't look bad. The government debt level, currently at 75 percent of GDP, is comparable to Germany's and thus below the EU average (not to mention the United States and Japan). The high interest premiums for Spanish government bonds on international markets are not based on economic fundamentals, as German Finance Minister Wolfgang Schäuble noted last Tuesday during a meeting in Berlin with his Spanish counterpart. Spain's main problem is liquidity, specifically with its banks.
- Part 1: Political Bankruptcy in Madrid Adds to Woes
- Part 2: Unpopular Prime Minister
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