The International Writers Magazine: From Our Spanish Correspondent
Spain - Rescued At Last?
It’s very hard for the outside world to understand the deep rooted economic woes of Spain. My theory has always been that the whole mess started thanks to the 1978 Constitution when the country was broken up into 17 autonomous regions with their own budgetary control and the 8000 odd town councils were given similar power. Hence overall control of tax payer’s money was out of the hands of the central government.
What has happened? When the crisis hit about 3 years ago, there was no real knowledge of how public money was being managed and therefore successive visits to Brussels to explain Spain’s breakdown was almost impossible. The crunch has come and all the ‘hidden’ debt is slowly coming to the surface.
I’ll come to the title ‘Rescue at last’ later, but first, an appetizer; a brief follow on from last month’s news.
At the end of June I brought to light the belt tightening pains that the citizens of this country were now enduring because of the harsh measures introduced by the new government that has been in office for just over 6 months. There has certainly been an incredible turnaround in practically every chapter of the administration of the country as most of the mess left over by the previous lot had been unraveled, brought to light and spelled out in clear language for most intelligent citizens to understand.
The best way to describe how all this has come about is to compare it to a scene from one of Dr. House’s soap opera. Just think of a patient that turns up at ‘Emergency’ with a broken leg, has a burst appendix, suffered a mild stroke, is diabetic and overweight and to top it all has an itchy skin rash all over his body that is driving him mad. The country’s ills at this moment in time as reported in so many of my previous essays could be represented metaphorically speaking to the sick patient I’ve just described. How or where would Dr. House’s team start to treat the ailments? Well, what Rajoy and his government have done is literally tackle the whole lot at once. They’ve pulled out the scalpel, the injections, the drills, the chain saw and whilst every part of the body has been pulled apart the ‘doctors’ up in the gallery, IMF, European Central Bank, Angela Merkel and every other international economic forum are applauding the operation. The relatives in the waiting room, on the other hand are screaming blue murder.
Let’s start with the cutbacks that are affecting every sector of the population regardless of name, rank or serial number. No one is immune. Naturally the backlash has begun, kicked off by the coal miners from the North that not only caused havoc in their home territory but marched upon Madrid to state their claim for continued subsides despite the fact that the EU had been advising Spain for years to abolish coal mining altogether. The reasons were obvious. Next we have the whole of the public sector that include doctors, teachers, police, firemen and administrative workers. We now have constant demonstrations, sit-ins, road blocks, mini strikes all backed by the communist trade unions, the hard left wing and nationalist political parties. The main opposition lot, PSOE (socialists) lead by ‘Freddy’ Rubalcaba does not stop lambasting the government on every move it makes in trying to sort out the country. So far the street and other violence have been minimal but as the economic forecast for the next couple of years is bleak, the real sparks will start flying sooner or later as even the police and other security forces are against all the measures.
Then we have the medical sector. The new measures are not only cutting deeply into the Social Security funds but are also causing havoc in each autonomy due to the peculiar geo-political system allowing them control over their own medical system. Not all are adapting to the cutbacks in the same way especially as far as medicines are concerned. Some have automated patient and distribution control, others do not. Result? We are beginning to see mayhem creeping in as some pharmacists fight to balance their stocks and their budgets. Because the autonomies are also responsible for their own budgets (more later) some are cutting back more severely on hospital services than others with the overall national effect, that, depending on where one lives one could have a better or worse public medical service. This whole issue would require a separate paper. Suffice to say that medical attention in Spain is not what it used to be.
Next we’ve got the banking sector and believe me it’s a real beehive at the moment. Because of the whole of the Savings Bank fiascos (reported in many of my essays) over the past few years that have caused a big black hole in their balance sheets (just check out Bankia’s history on the Internet) the ex-Directors including the Governor of the Bank of Spain have appeared before the Spanish Parliament to ‘explain’ the past scandals that range from the mishandling of funds to investments of millions of Euros in dubious pension funds causing thousands of ordinary people to lose their life’s savings. They’ve naturally passed the buck! Hundreds of individual court cases are now in process and one of the country’s political parties, the social democrats (UPyD) has taken the whole lot to court. To add fuel to the mess, capital is beginning to flee the country. Undisclosed sources place the figures between 5 and 7 billion Euros per month. To cap it all, thousands of small savers are transferring their accounts into the major banks like the Santander and some experts are warning that the whole situation could turn into an Argentine ‘Corralito’ type drama whereby the banks could restrict the amount of money withdrawn at any given time. Any account above a hundred thousand Euros could be at risk.
A repeating issue is the never ending rise in unemployment. Ms. Legarde from the IMF has warned Spain yet again that the situation cannot continue. The problem is that the new labour reforms to create new jobs are designed to have a medium to long term effect and because of the cut backs and the increase in taxes, especially VAT it is obvious that more and more workers are and will be laid off. The younger generation is being hit the hardest to the extent that more than fifty thousand well educated youngsters have already fled the country.
Corruption continues to surface as more cases are brought before the judges. The government is really going to town in smoking out the tax evaders despite moonlighting on the rise. A curious addition to this saga is that tobacco smuggling, rampant during the Franco era has reappeared after all these years. Apparently part of the sabre rattling between Britain and Spain over Gibraltar has boiled down to this illegal trade across the border.
Mustn’t forget ETA, the Basque terrorists group! I’ve stated many times that this group of assassins no longer practice extortion, or abduct, or murder anyone, but like Poltergeist, ‘they’re here’ in the form of legal political parties. Sooner or later they’ll be running the autonomous Basque region and like Catalonia asking for independence. No use harping on about this issue as the whole affair has been going on for decades and is going to continue so.
But now to the main issue; an international rescue package.
Brussels or Berlin, not quite sure which is in the driving seat has agreed to a bailout of one hundred thousand million Euros to ‘aid’ Spain in its recovery. I mentioned this last month. As is normal of any entity or person, be it a bank or your brother-in-law, the loan will obviously come with strings attached. No need to be a financial expert to figure this out. Trouble is defining the small print in the contract and what is even more intriguing is who is going to control and keep a watchful eye on the compliance of the ‘terms of agreement’. Put another way, how is Rajoy’s government going to administrate the money based on the demands, whatever they are, from the creditors, whoever they are? By the way, other sources from the ‘international’ money gurus have already hinted that Spain will need at least three times the bailout amount already agreed.
Let’s sidetrack slightly.
It is now obvious, and has been discussed openly, that Spain’s autonomous regional system is not working and needs reorganizing. This means a huge cutback in political entities, parties, members of parliament, town council representatives and a host of other public sectors dependent on tax payer’s money. Add to this equation the dozens of Deputations and Government representations and the overall top heavy picture of political animals is revealed. Apart from all the thousands of politicians all these sectors have offices and employees. The figures that are bounced about are five hundred thousand politicians and three and a half million civil servants.
A second point is going to be the need for a real study of Spain’s present and future budgets based on its public sector demands. To quote one single example, the trillions of Euros that have been invested in humongous infrastructure alone; such as airports, roads and high speed trains, require maintenance. This is still a big question mark as to how much money needs to be allotted to keep the whole system going. Then there’s the eventual closure of all the non-profit phantom investment such as museums, Olympic size swimming pools, auditoriums to give a few examples.
The massive task ahead to save this country and Europe for that matter can only be achieved through strict financial control. With Spain’s present social and political situation this is impossible as it would need a total review of the Spanish Constitution yet it will eventually have to happen.
My future prediction is that a strong outside force known as the ‘Troika’ (IMF and Co) will turn up on Madrid’s doorstep sooner or later and an army of ‘Men in Black’ will lay down the guide rules to be carried out or else.
With a bit of luck the common sense will prevail and the country will fall in line with the rest of the PIGS (Portugal, Ireland, Greece and Spain) on a severe rescue path. The alternative to all this would be...’
August 8th Update:
Here’s a new twist in Spain’s woes. The communist (IU) mayor of Marinaleda in Andalucía, Juan Manuel Sanchez Gordillo stormed two supermarkets of the large ‘Mercadona’ chain in Ecija and another in Arcos de la Frontera together with 200 militants (he also belongs to an Andalucía trade union) to, in his words ‘rob from the rich to give to the poor’.
Gaspar Llamazares, IU’s MP, has praised the move. The weird twist is that, according to LLamazares the Penal Code justifies such action in ‘dramatic situations’.
Will this be the norm as more Spaniards drop below the poverty line and hunger begins to take over?
© James Skinner August 8th 2012
Readers Responses: Aug 1st
I cannot argue for one moment with anything that you have said. Neither did anything come as a surprise. The Spanish model appears to have been largely based on the Greek practice with additional spending speed added. In fact it is the model that appears to underpin the EU with no valid audits for 14 or is it now more years?
I have noticed from some recent press coverage that some of the spanish white elephants have started to be shot. Sadly such action will be painful but the scope of required action is so huge that the present token actions will achieve nothing of value.
Politicians know the facts, but above all they know they must make money, i.e. be on the take for as much as they can for as long as they can. Sure there are some mainly the communists who believe in some weird illogical way that God will always provide, it is now time that they learned there is no
such communist God. The way that things are breaking up is not good. Spending targets need to be
selected with great care, the details of what you said speak of how such targeting can never be achieved with the present pork barrel set up.
Bosque for President – Spain
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