Spanish government has been announcing draconian
measures since Rajoy is in office, from last December. These measures include
strong cuts, but also rises in sales taxes (regular VAT will be increased from
18% to 21% in September), hitting consumer spending and punishing the
middle-classes (unemployment benefits will be reduced after the first six
months). Spanish people feel that these restrictive measures may have worked
for Germany back in 2002, but Germans were not in the middle of a recession
then. Spaniards are finally facing the truth, and with some reluctance are accepting that their
country’s dire state of economic affairs will take some time to overcome. After
witnessing the suffering experienced by their European neighbours, Spanish
citizens have also accepted significant tax increases and the overall
deterioration of their household economies with stoic resignation. How long
will it take?
Spaniards
have long accepted that political unpleasant measures in Spain are a direct
imposition by Brussels. On July 19th the Bundestag approved the Spanish bailout
with large majority. This bailout will help recapitalize Spanish Banks, which
are suffering the consequences of a bursting housing bubble. In the meantime,
yields on Spanish bonds are still jumping in an unsustainable manner. In spite of budget cuts, the economic slowdown has had
a negative impact in the government’s ability to finance itself. Financial markets seem not to
trust Rajoy’s government, something that has probably to do with Ecofin’s decision
on July 10th to ease Spain’s deficit target to 6.3 of GDP.
Certainly,
Spaniards in the street are not that concerned about the premium risk, but one
can easily notice there is a general feeling of disappointment, for
unemployment remains at 24% and there seems not to be any stimulus to correct
this. People ask themselves if this bailout to Spanish banks will do any good
to their economies, for the bailout money will be a restructuring fund
available for banks to alleviate their debts. Citizens are more sceptical when
it comes to the idea of banks easing access to credit and loans for families
and small companies.
The truth
is that some of the Spanish saving banks will give up control and maybe some
customers will have to suffer losses. In a context of austerity and
restrictions this may feed popular resentment against Spanish loss of
sovereignty. Rajoy says there is no quick fix for Spanish economy, so maybe
years of austerity are ahead of us. National
economic indicators continue to confirm an even more painful future with
record-high unemployment.
However, Spain’s exports have
shown positive signs, not to mention the fact there is a growing underground
economy. Ideally, the government should switch the incentives that would
promote self-employment when companies are not hiring, and make it easier for
people to take on risks. However, that would require lowering taxes, which is
the opposite to the government’s current program to decrease the deficit.
Furthermore, so far Spaniards
are not blaming Europe nor they are regretting this loss of economic autonomy,
for they are growingly convinced that Spanish situation is the consequence of an
inadequate political & banking establishment coupled with crony capitalism.
It is worth mentioning that nobody can predict what Rajoy’s plan for the
country is. If you add a certain degree of uncertainty to this general
revolting feeling against political class, people keep asking themselves: What
next?
As for the role of Germany, commonly
Spanish newspapers attribute to German voters a strong reluctance to bailout
countries in trouble. In parallel, some economists and analysts tend to blame
Germans for ECB’s monetary orthodoxy and an obsessive fear of inflation. However,
Spanish public opinion is not truly divided over Germany. The vast majority of
them think Germany has the moral and political debt to help Spain for Germans
are the most benefitted by the single currency, during the good years via
exports and now having access to easy financing. Others admit that the
reluctance of some German citizens to bailout is a logical reaction as
taxpayers.
But the truth is that people
are not really split on this matter; the idea most widely accepted in Spain is
that German people are more pro-European even that the Spaniards or anybody
else in Europe. Many people have the perception that the euro is a German
construct and in Spain, people mostly think Merkel has done a good job to keep
the euro alive in hard times, avoiding a drive into the abyss. So far, public
support for the euro has not declined in Spain.
What people dislike about EU
politics is the use of grandiloquent statements or the idea that governments do
something simply because it has to be done, without reasoning or arguments. Actually,
it is difficult to predict if commitments to the EU, the full loss of budgetary
control and so on, could foster a public reaction other than current
resignation.
Today, however, it is crucial
to understand the relevance of Spanish banking and political corruption behind
this support of Spanish people to the European project. In a certain way, Spaniards
trust (or need to trust) more in the “troika”, let’s say Brussels or Bonn than
in national banking and political authorities that were unable in the past to
predict and avoid the current situation. As for the positive vote in the
Bundestag, clearly Merkel has now the freedom to act and do what has to be done
for the sustainability of the single currency. But the most important thing is
that this vote may turn Spanish people to believe in European
solidarity again.
* My original article was published in German here.
