Spain: Deepening crisis makes 'hot autumn' a scorcher
Two recent events dramatised the state of economy and politics in the Spanish state: the Red Cross announced that this year the takings of its annual Flag Day would go to fight poverty and social exclusion in Spain, and education minister Jose Ignacio Wert told the national parliament that changes to the national education syllabus were aimed at “Spanishing” students in Catalonia.
The Red Cross decision came as a shock across the country. People knew things were bad, but that bad?
The country has a strong tradition of giving generously in solidarity with those suffering beyond Spanish borders ― for example, for the Western Sahara or Somalia. The Red Cross decision to dedicate Flag Day funds to those battling to survive inside Spain underscored the depth of its own pain.
All the indicators are that a dreadful state of affairs will get worse. The national Popular Party (PP) government, now at under 30% support according to the latest Metroscopia poll, sweats daily to create the sensation that grinding sacrifice is bringing some light at the end of the tunnel.
People’s own experience and the economic data say the exact opposite.
A September 12 report by the relief agency Caritas put numbers to the social catastrophe ― more than 1 million people given emergency help last year, 3.5 times more than in 2007. The growth rate of help has slowed in recent years, but only because the agency is overwhelmed ― the number of requests for help increased 2.7 times last year alone and 56% of all requests were for food.
The report said “poverty is now widespread, intense and chronic”. Official unemployment of over 25% has created a situation where 1.7 million families have no breadwinner and over 2 million children live in poverty.
Unemployment is now threatening core parts of the working class that might previously have felt spared by the 2008-2011 jobs holocaust, centred on construction and manufacturing.
Older workers in apparently stable jobs in public administration and bigger, still profitable, private firms are now marked for the chop.
One example: the main national daily, El Pais, is to cut 34% of staff and reduce the wages of the rest by 15%.
In tourism, where casual employment usually leaps during summer months, job numbers have fallen even as tourist numbers have boomed. The recession, backed by the Rajoy government’s “labour reform”, has been doing its job ― making intimidated workers work harder for less.
The struggle to find work intensifies. When one firm recently advertised that it had 300 jobs, 15,000 queued to be interviewed.
The impact of many cuts by the regional governments (“autonomous communities”) is still to be felt, with wages cut by 8% on average and slashed infrastructure spending decimating jobs among traditional suppliers to government.
Yet, despite such big gains for capital (within the eurozone Spanish labour costs since 2008 have fallen the most of any economy except Ireland), the elusive “business confidence” that economic austerity was supposed to conjure up refuses to make an appearance. The country’s index of business confidence is at its lowest point since 2009.
The decline in the key indicator of business investment ― gross fixed capital formation ― is speeding up (down 9.4% from mid-2011 to mid-2012), as is the fall in household consumption (down 2.2%) and that of government (down 3%). The Spanish economy is set to shrink by at least 1.3% in 2012.
No surprise then that the International Monetary Fund has revised it forecast of Spanish growth down to -1.5% for next year. Private forecasters predict the economy will shrink by up to 3%.
Meanwhile the government of Mariano Rajoy hangs onto a ridiculous forecast of -0.5% growth next year, based on a super-optimistic prediction of rapidly rising exports at a time when growth is falling across the European and world economies.
Finance minister Luis de Guindos is making much of the prospect that the Spanish banking mess might soon start to be cleaned up, given that the European Union has set aside 100 billion euros for the recapitalisation of the system when the highest figure for funds needed is 60 billion euros.
However, avoidance of a full-scale banking collapse falls far short of achieving the conditions needed to increase credit to business. Moreover, even if these conditions are met, it’s still very unclear how great the rise in credit demanded will actually be ― given the collapse in consumer demand.
The system as a whole is operating in an iron lung: while Spain’s banks can keep themselves afloat with low-interest loans from the European Central Bank (ECB), the deepening depression means that defaulting loans from unemployed homeowners and bankrupt small business just keep rising, to a historical record of just under 10% of all loans.
At the same time, the stock of empty housing that has ended up on the banks books because of the collapse of real estate promoters, continues to fall in value, further eroding the banks’ asset base.
That stock also continues to rise, with housing evictions running at 500 a day, the Platform of the Mortgage-Affected said.
There is also the complete distrust of potential foreign investors with the Spanish economic scenario and the flood of deposits out of Spain (330 billion euros over the past year) to deal with. It is clear the country’s financial system, while able to survive on life support funded by the European taxpayer, will remain a near shell while the problem of accumulated debt remains untreated.
This is the context in which the IMF has come to the conclusion (in its latest World Economic Outlook) that the austerity medicine it has applied, as part of the “troika” with the European Union and the ECB, has been counterproductive.
It has so undermined growth that tax revenue has collapsed: not even the most draconian cuts can then allow governments to meet public sector deficit reduction targets.
The IMF conclusion is based on a detailed study of the effects of “troika” policy in Greece and, most of all, Portugal, where the conservative government has applied the medicine to the letter.
The upshot is that Portugal has been given an extra year to reach its deficit reduction targets. After careful review the victim is to be given 90 lashes instead of 100.
The IMF recipe for Spain is that it needs to immediately apply for a troika bailout package to restore “investor confidence” in its future and avoid scary prospects such as a 750 point public debt premium. This is being fiercely resisted by the Rajoy government.
The government is not only afraid for its own fate if it follows the Greek, Portuguese and Irish administrations in yielding to the troika, it also lives in fear of the impact of direct, Brussels-imposed, austerity on the volatile political situation in the Spanish state.
Over the past month, the country has witnessed the huge protests in Portugal (which forced the Passos government to withdraw a big wage cut) and a 1.5 million strong Barcelona demonstration for Catalan independence. It has seen a 500,000-strong September 15 Madrid demonstration against austerity and the September 26-29 siege of the national parliament by “25S”, a spin-off of the 15M movement “for real democracy” that broke out last year.
The government now faces the call from the trade-union-led Social Summit for a referendum on its austerity programs and latest draconian national budget. A general strike will almost certainly follow its inevitable refusal.
Of these, what most immediately concerns Rajoy and company is the huge outburst of independence sentiment in Catalonia, which has seemed to come out of the blue. It was not included in Madrid’s political calculations, and has turned the expected “hot autumn” into a scorcher.
The conservative Convergence and Union (CiU) government of Catalonia, whose request for a new “fiscal pact” was predictably rejected by Rajoy on September 20, has decided to call early elections for November 25.
It has also indicated that if Rajoy continues to refuse to allow Catalonia to hold a referendum on independence it will go ahead with its own “consultation” on the issue.
The reaction from the institutions of the Spanish State has been extreme, beginning with a “personal thought” of King Juan Carlos on his website to the effect that the present crisis was not the time for casing “chimeras”.
The catholic bishops declared that the Spanish state was inviolable, while a PP member of the European parliament, a retired army officer, said the armed forces might have to be called upon to defend the integrity of the Kingdom of Spain.
Rajoy pronounced that “to talk about separation and remaining outside everything, of Spain, of Europe and in the void, isn’t even an ideological choice, it’s a stupidity of colossal proportions.”
Such was the context in which education minister Wert had his outburst about “spainising” Catalan students.
The phrase, which reproduced the terminology of the Franco dictatorship, has shot the Rajoy government in the foot, with one Republic Left of Catalonia MP thanking Wert for his contribution to the Catalan independence cause.
The next hurdles for Rajoy are the October 21 elections in the Basque Country and Galicia. In Galicia, where thousands of retirees have been the victims of scams that destroyed their life savings, there is no guarantee that the ruling PP administration will be returned.
In the Basque Country, the ruling Socialist Party administration seems certain to be defeated. The fight for first place is being hotly contested between the conservative Basque National Party and the left-nationalist EH Bildu.
The ongoing destabilisation of the Rajoy government, which only 11 months ago won an absolute majority in the national parliament, looks certain.