In Spain, after two decades of dizzying growth, the party is over.
Wednesday, January 9, 2013
For most of the last decade, Spain kept its fiscal house in strict
order, running small deficits or even surpluses. The country enjoyed a
long boom after joining the euro zone, as low interest rates fueled a
surge in construction. The boom, while it lasted, gave Spain the world’s
highest rate of homeownership.
But it came to an end with the 2008 financial crisis, and the
resulting recession sent Spain’s unemployment rate soaring. Spain has
also seen its deficits swell and has been forced to pay high interest
rates as investors worried about its solvency. Fiscal woes in its
largely autonomous regions have also added to the national debt burden.
Given the size of the Spanish economy and the weakness of its banks,
Spain has become the biggest worry facing the European Union.
Since 2010, Spain has pushed through a series of austerity measures
meant to rein in its deficit. Unhappiness over the economy brought down
the center-left government of
José Luis Rodríguez Zapatero, and in November 2011, the conservative Popular Party, led by
Mariano Rajoy,
won a parliamentary majority in new elections.
Mr. Rajoy had the benefit of a freshly elected, single-party majority
behind him. But the country slid into its second recession, sending
deficits and unemployment ever higher, forcing Mr. Rajoy to admit that
his government would miss its deficit reduction targets.
In May 2012, the country faced a new crisis when Bankia, the nation’s
largest real estate lender, requested an additional 19 billion euros in
rescue funds from the country, far beyond initial government estimates.
In June, Mr. Rajoy performed an about face, and
Spain agreed to accept a bailout for its troubled banks.
The European Central Bank pledged in September to buy unlimited
amounts of bonds to lower interest rates for countries like Spain and
Italy, who were being pushed toward the fiscal edge by the markets. Yet
Mr. Rajoy, like his Italian counterpart,
appeared hesitant to take the bank up on its offer, worried both about the political fallout and over strings that might come with the aid.
In late September,
the pressures on Mr. Rajoy’s government mounted, as demonstrators besieged Parliament and the leader of
Catalonia,
Spain’s most powerful economic region, called an early election for
Nov. 25 that could turn into an unofficial referendum on whether to
split from the rest of the country.
Apparently seeking to preempt any demands from European officials for more austerity as a condition for aid, Mr. Rajoy
introduced a tough budget for 2013 that
would cut spending by government ministries by 8.9 percent. And facing
down independent-minded Catalonia, the central government warned that it
would fight any breakaway attempt by the region.
The next day an independent audit reported that the country’s ailing banking industry
could need as much as €59.3 billion in additional capital,
a number that was within the range of previous estimates and well below
the potential €100 billion, or $128.6 billion, in bailout money
approved in June.
In October, Spain’s unemployment rate
breached 25 percent for the first time in the country’s modern history.
As a signal of deepening recession, the bleak jobs data also raised the
likelihood that Spain would once again miss budget targets. The one
perversely positive element: The labor picture is so dark that it could
help Mr. Rajoy make the case that lenders cannot risk imposing further
austerity measures on Spain in exchange for rescue funding.
In November,
voters in Catalonia delivered victory to separatist parties
in a regional election, raising the likelihood that Spain’s most
powerful economic region will hold an independence referendum that
Madrid has vowed to block. But residents of Catalonia, appeared divided
over whether sovereignty demands should be limited to seeking fiscal
concessions from Madrid or stretch far beyond that.
On Nov. 28, the
European Commission approved a payment of €37 billion from the euro zone bailout fund to four Spanish banks
on the condition that they lay off thousands of employees and close
offices as part of their restructuring. The most significant cuts will
be made by Bankia, the giant lender whose collapse and request for
additional capital in May 2012 led Madrid to negotiate a banking bailout
a month later. The other three banks are Novagalicia Banco, Catalunya
Banc and Banco de Valencia.
As Spain Waits, Europe Frets
For various reasons, Prime Minister Rajoy, has deferred seeking help
from a financial assistance program that Europe has tailored to Spain’s
needs. By mid-October, many economists, analysts and business executives
said they had become increasingly worried about
the costs of further delay.
They warn that waiting to seek aid, and the uncertainty the delay
engenders, threaten to push the economy deeper into recession. And that,
they say, could increase the ultimate cost to Spain and Europe if the
aid eventually needs to be granted under crisis conditions.
As long as Spain’s borrowing costs remain below 6 percent, as they have since the
European Central Bank
said it would buy the country’s bonds if asked, the Rajoy government
might seem to have no reason to rush. But the downgrade of Spanish debt
to near junk status on Oct. 10 by Standard & Poor’s underscored the
fragility of the country’s finances. And the seeming political paralysis
in Madrid may be reinforcing a wider economic stasis.
Analysts said there was more at stake than the yield on Spain’s
government bonds. They pointed out that those lower interest rates would
lead to reduced borrowing rates across the board, providing a cheaper
source of financing for Spanish banks and corporations that could
stimulate investment.
And yet Mr. Rajoy’s reluctance to seek help has its own logic. To
begin with, German officials have urged him to wait, as they have no
desire to present yet another euro zone rescue package to their fed-up
voters.
But Mr. Rajoy, a stolid, cautious man, has plenty of domestic
reasons, too. Since coming to power in late 2011, his popularity has
plummeted in the wake of a series of wrenching austerity programs. Now,
with regional elections on Oct. 21 in his home state of Galicia that
could test the strength of his center-right Popular Party, Mr. Rajoy has
every incentive to wait a bit longer to request help from Europe, which
would bring with it further outside oversight of the Spanish budget.
But analysts said that by waiting several more months, as many here
predict will happen, Mr. Rajoy was playing a dangerous game. Not only
will the economy continue to suffer from uncertainty, but Mr. Rajoy also
runs the risk of being forced to seek help under the duress of a market
panic, if bond investors once again begin to bet against Spain.
Europe’s intervention under that circumstance could lead it to demand
even harsher policy measures — like the socially disruptive cuts in
Spanish pensions that so far Mr. Rajoy has avoided.
Background: Promise and Plunge
In May 2012, Jonathan Blitzer, a journalist and translator, wrote an essay for the International Herald Tribune headlined
“Spain’s Yearnings Are Now Its Agony’' that traced the roots of the crisis. Here is an excerpt:
Spain is stuck in a fateful holding pattern. According to a
European Commission forecast, Spain will be the only country among the
currency union’s cast of 17 to remain in recession in 2013. The
government’s plans to recapitalize Bankia, Spain’s fourth-largest bank,
have reinforced concerns about a generalized banking crisis and costly
bailouts. Spaniards, meanwhile, will have to endure the effects of $34
billion worth of cuts slated for the rest of the year.
All of this adds up to the inevitability of future hurt, and it
is embittering Spaniards’ taste for the democracy they craved just a
generation ago.
Spain’s fall from heady promise to Celtic gloom tells a story of
democratic expectation gone sour. This tale is a profound blow to the
European Union itself — a symbol of the continent’s shifting political
prospects. Spain was not only one of the chief protagonists of
20th-century Europe, it also tilled the bloody soil from which the union
later sprang. The Spanish Civil War was the staging ground for the
defining existential drama of the century: a gory crucible of democracy,
fascism and communism in conflict. Its fate entwined with Germany’s,
Spain was at the center of Europe.
Spain sat out World War II, but afterward, its Axis-addled
associations and blustering dictator sidelined it while Marshall Plan
aid and democratic reconciliation transformed the continent. Eventually
it emerged into that new Europe — only to find itself, at the cusp of a
new century, again bound to Germany, now by bankers rather than bombers.
And again, this seemed a boon at first.
When Spain joined the European Community in 1986, after nearly
four decades of dictatorship, euphoria reigned. Finally, the country was
gaining its rightful place intellectually, culturally and economically
in the social democratic mainstream of Western Europe. “For Spaniards,
Europe was the solution,” said Álvaro Soto Carmona, a history professor
at Universidad Autónoma in Madrid. “We were no longer different,” he
said; membership “opened the door to hope.”
Propping open that door was money: structural funds from the
union to finance much-needed infrastructure projects. At the heart of
the financial power was a rejuvenated and economically vibrant Germany.
The future looked secure; as had been the case in Germany, Spain’s
renewed surety was wrapped up in its sense of belonging to a free and
optimistic Europe.
Then came plans for the adoption of the euro in the late 1990s,
and again the prospect of an ascendant Europe offered a gilded
opportunity for Spain. Borders were disappearing. The euro helped
inflate a booming real estate bubble, as capital migrated south from
northern Europe. Banks lent liberally, and the construction industry
surged. As private debt mounted, homeownership soared.
Unlike some of their European counterparts, Spanish banks were
relatively well protected against the initial collapse of the American
financial sector in 2008. But the global recession that followed,
coupled with the bursting of the real estate bubble at home, soon
devastated Spain’s economy, which had longstanding vulnerabilities that
were no secret but had been overlooked in the boom years. They included
chronically high unemployment, for which economists blame unwieldy labor
laws. Those have now come in for an overhaul. But even in better times,
Spain also lagged behind the European average in spending on research
and development. Now there is talk of a worsening brain drain.
The principal remaining force driving jobs and taxable revenue is
tourism, as it was in the times of Francisco Franco. It is “uniquely
dispiriting,” lamented the novelist Ernesto Pérez Zúñiga, that so little
has changed. Spain’s economy once was consigned to depression by
Franco’s autarchic policies; now it is subjugated by the tyranny of the
markets.
These days, a raft of illicit practices, crafted from old
excesses, have become a rickety means of sliding by. In the years when
construction and real-estate markets boomed, transactions conducted
underground exceeded 20 percent of gross domestic product. Spain
acquired the dubious distinction of having the highest concentration —
nearly one-fifth — of all the 500-euro bills on the continent. Called
“Bin Ladens” — everyone knows they exist but no one has ever seen them —
they are vestiges of corruption, bribery and money laundering in the
fat years.
While that bustle has cooled, many desperate Spaniards still work
under the table — in some cases supplementing unemployment relief with
money from ad hoc jobs. This helps explain why Spain’s deep despair has
not exploded in quite the rage felt on the streets of Athens.
The Problem of Regional Debt
In January 2012, in an attempt to solve the problem of regional debt,
Spain’s central government moved to shore up the finances of its 17 regional governments — some of which were having trouble paying their bills — while taking steps to tighten control over their spending.
Budget Minister Cristóbal Montoro said that the government would
create a credit line and advance about $10 billion to the regions, money
they were not scheduled to get until later in the year.
The regions needed the cash to pay suppliers, many of them small
businesses that had not been paid in months, even years. But at the same
time, Mr. Montoro said that Madrid would also seek new legislation to
set penalties for regions that failed to comply with strict budget
targets.
In August 2012, the most economically important region of Spain,
Catalonia, asked the national government for more than €5 billion in emergency financing.
The request by Catalonia followed rescue pleas by the Valencia and
Murcia regions. Both said in July that they would need help from the €18
billion, or $23 billion, fund set up by the Spanish government.
While Catalonia, the home of Barcelona, has traditionally been among
Spain’s most prosperous and industrial regions — accounting for almost a
fifth of the country’s economic output — it had accumulated debt of €42
billion, the highest among Spanish regions. In addition, Catalonia had
suffered credit rating downgrades and had been shut out of the debt
markets.
In late September, the leader of Catalonia
called an early election
for Nov. 25 that could turn into an unofficial referendum on whether to
split from the rest of the country. And in a move that underlined its
deeping financial difficulties, Andalusia said that it was preparing to
request $6.3 billion from the fund.
Spain’s system of autonomous regions was developed in the aftermath
of the dictatorship of Francisco Franco. After years of repression,
regions pressed successfully for as much freedom as possible.
They are generally in charge of administering schools, universities,
health and social services, culture, development and, in some cases,
policing. And the central government has had little ability to
interfere.
But in recent years, the regions have been faced with some
intractable problems. Education and health care have been particularly
problematic, because those costs have been growing. At the same time,
some main sources of financing — taxes on real estate sales and building
permit fees — have dried up with the collapse of the housing boom.
The Jobless Increasingly Rely on Family
As the effects of years of recession pile up, more and more Spanish
families — with unemployment checks running out and stuck with mortgages
they cannot pay —
are leaning hard on their elderly relatives.
And there is little relief in sight — employment statistics released in
late July 2012 showed that the jobless rate had risen to a record 25
percent.
Pensions for the elderly are among the few benefits that have not
been slashed, though they have been frozen since 2011. The Spanish are
known for their strong family networks, and most grandparents are eager
to help, unwilling to admit to outsiders what is going on, experts say.
But those who work with older people say it has not been easy. Many
struggle to feed three generations now, their homes overcrowded and the
tensions of the situation sometimes turning their lives to misery.
In some cases, families are removing their relatives from nursing
homes so they can collect their pensions. It is a trend that has
advocates concerned about whether the younger generations are going too
far, even if grandparents agree to the move or are too infirm to notice.
A 2012
survey
by Simple Lógica, Gallup’s partner in Spain, found a sharp increase in
the number of older people supporting family members. In a telephone
survey conducted in February 2010, 15 percent of adults 65 and older
said they supported at least one younger relative. In the survey
conducted 2012, that number had risen to 40 percent. Data compiled by an
association of private nursing homes,
inforesidencias.com, found that in 2009, 76 percent of its member homes said they had vacancies. In 2011, 98 percent of them did.
Such numbers, experts say, reflect growing desperation in Spain,
which has the highest unemployment rate in the euro zone. According to
recent government figures, about 1 in 10 households now has no working
adults.
Some experts say they believe that retired people, sharing their
pensions and dipping into their savings, have been the silent heroes of
the economic crisis, and that without them Spain would be seeing far
more social unrest.
Accepting a European Bailout for Ailing Banks
On June 9, 2012, responding to increasingly urgent calls from across Europe and the United States,
Spain agreed to accept a bailout for
its cash-starved banks as European finance ministers offered an aid
package of up to $125 billion. The decision made Spain the fourth and
largest European country to agree to accept emergency assistance as part
of the continuing
debt crisis.
The original plan was for the European bailout fund to provide the
money to the Spanish government, which would then use it to prop up the
banks. But Spain objected after markets responded by driving up the
interest rates the government had to pay, in a reflection of the extra
debt it was taking on.
At a summit at the end of the month, European leaders agreed that the
bailout funds could recapitalize banks directly.
As a condition, though, the leaders agreed that the euro zone’s
permanent bailout fund, the 500 billion euro European Stability
Mechanism, could act only after a banking supervisory body overseen by
the European Central Bank had been set up.
In July, as the markets continued to pummel Spain, European finance
ministers announced that the first, $37 billion installment of the bank
rescue package would be
disbursed by the end of the month,
with the rest coming by the end of the year. They also agreed to ease
Spain’s deficit targets, although new cuts were needed to meet even the
adjusted goals.
In response, Mr. Rajoy released his fourth set of budget measures in seven months, a
package intended to reduce the budget deficit
by €65 billion, or $80 billion, over two and a half years. It included
an increase in the sales tax, a measure his government had previously
argued against amid concerns that it would deepen Spain’s recession by
stifling consumer spending.
In late August,
the Spanish government approved the creation of a so-called bad bank
to absorb the most troubled real estate assets of the country’s
financial institutions, helping to clear the way for Madrid to receive
European rescue money for Spain’s banking industry.
The move is meant not only to let Spanish banks eventually begin to
receive money from the €100 billion, or $126 billion, reserve that
European finance ministers have approved, but also to restore market
confidence in the country’s banking system.
The changes also give the government’s banking agency, known as the
Frob, much greater powers to revamp rescued banks, as well as to limit
the salaries of their top executives. Under the new rules, senior
management as well as board directors of rescued banks will have their
annual salaries capped at €500,000.
In the past two years, some of the directors of collapsed savings
banks have walked away with multimillion-euro compensation packages,
adding to the public’s resentment.
Spain has remained in investors’ line of fire over concerns about
whether not only the banks, but the government itself, might soon need
rescue money from Europe because of a deepening recession and the
weakening finances of the country’s 17 semiautonomous regions.
Suspected Terrorists Arrested
The Spanish government said in early August 2012 that it had
arrested three men suspected of having links to Al Qaeda and believed to have been planning attacks in Spain or elsewhere in Europe.
Two are citizens of the former Soviet Union and the third is a
Turkish citizen, according to Spain’s interior ministry. The Turkish
suspect was arrested in La Línea de la Concepción, a southern Spanish
town facing Gibraltar, in a rented house where the police also found a
sizable quantity of explosives. The other two men were arrested while
traveling by bus near Valdepeñas, in central Spain, likely on their way
to France.
The men had long been sought by intelligence services, according to
the interior minister, Jorge Fernández Díaz. He said at a news
conference that the men had undergone military-style training and
described the quantity of explosives as sufficient “to destroy a whole
bus.”
Spain had recently arrested several people believed to have links to
Islamic terrorist organizations. In July, two Spanish citizens were
arrested in Melilla, a Spanish enclave in North Africa, on suspicion of
terrorism. In March, Spanish police arrested in Valencia a Saudi citizen
described as “the librarian” of
Al Qaeda, in charge of its propaganda and recruitment activities.
![[foto de la noticia]](http://estaticos02.cache.el-mundo.net/elmundo/imagenes/2013/01/10/espana/1357819275_extras_ladillos_1_0.jpg "[foto de la noticia]")
