jueves, 16 de agosto de 2012

Amid EU crisis, public support for the euro has not declined in Spain

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