A thousand days of austerity


It is now three years since Europe-imposed cutbacks were first imposed on Spain

With rampant unemployment, the country’s suffering has never been more acute

Rereading John Williams’ novel Stoner recently, I was struck by the author’s description of the years between the end of World War I and the start of World War II. Williams describes the widespread feeling of desperation that he had seen as a child, before the Great Depression hit in 1929: the men and women whose lives had been destroyed, walking the streets aimlessly, reduced to begging for a crust of bread.

Williams’ description of the years leading up to the Great Depression will be increasingly familiar to many Spaniards. This week, in the early hours of Thursday to be exact, marks the third anniversary of the beginning of what might be called Spain’s age of austerity, the moment when European economy and finance ministers pressured the Socialist Party administration of José Luis Rodríguez Zapatero to change its economic policies: from the combination of growth and fiscal consolidation that Zapatero had been trying to apply to a policy of rigor mortis and constant sacrifice that continues to this day and shows no sign of abating. More than 1,000 days of worsening unemployment, reduced spending power and social protection, and a weakened democracy.

Three years ago, Spain’s public deficit was 11.2 percent of GDP, and unemployment was 20 percent of the workforce, or 4.6 million people. The EU communiqué outlined an agreement to create a European Financial Stability Mechanism to help countries in difficulty, in exchange for which, Spain and Portugal would intensify their fiscal consolidation and structural reforms. Three days later, a bruised and battered Zapatero appeared before Congress and left deputies speechless by announcing a series of unprecedented spending cuts: public sector workers’ salaries would be reduced and pensions frozen; the 2,500-euro payment to new parents aimed at increasing the birth rate would be stopped; state investment slashed, some of the payments to families caring for dependents ended; and huge savings imposed on regional governments, among other measures.

Zapatero was desperately trying to save Spain from the fate of the PIG nations of Portugal, Ireland and Greece, where the EU had sent in the men in black from the so-called troika of the IMF, the European Central Bank (ECB), and the European Commission to run things, or would soon do so. These states would be subject to deep-rooted adjustment programs in return for money to keep their near-bankrupt economies functioning. Spain’s economy would be spared this indignity, but only at the cost of Zapatero having to apply the same policies. It would cost him the leadership, and his party the next election in a defeat from which it is still struggling to recover.

A battered Zapatero appeared before Congress and left deputies speechless

More important for millions of Spaniards is that on May 9, 2010, an age of austerity was ushered in that has changed the way that most people live and see the world: an economy based on fear (on uncertainty, economic insecurity, being left behind in an increasingly unequal distribution of wealth, of being made permanently unemployed…) has morphed into one based on suffering (unemployment, impoverishment, no social protection and the demise of countless businesses…).

The nearest thing to the constraints imposed on Zapatero three years ago this week took place 19 years before, when French President François Mitterrand, after winning elections amid a kind of collective ecstasy during the high point of Socialist Party hegemony, was obliged by the markets to change his leftwing policies based on increasing demand and forced to backtrack on minimum wage promises, an increase in the deficit to pay for more public investment, a shorter working week, the nationalization of 36 banks and other reforms. Mariano Rajoy would sum up his country’s position in 2012, shortly after winning the general election, by telling Congress: “Spaniards cannot choose; we do not enjoy that freedom.”

The second stop in the “authoritarian austerity” program (so called because it has been imposed) took place one year later. The summer of 2011 was a time of speculative attacks on the Spanish economy, sending borrowing rates to dizzying heights. The volatility of the international markets made the cost of financing Spanish debt ever more expensive, and made life harder for businesses and households denied credit by the banks.

Three important events took place during this long, hot summer. First of all, Zapatero would call elections for November that year. The idea was that the winner (which from the outset was clearly going to be Rajoy’s Popular Party (PP), and by a landslide, giving it an absolute majority) would have the parliamentary and moral authority to continue the austerity program. Next, the ECB would send a still largely secret letter to Zapatero and another to Silvio Berlusconi, then prime minister of Italy (who made no bones about revealing its contents), obliging them to take bolder steps toward adjusting their respective economies and implement further reforms. In Spain’s case, this would be the second turn of the screw in as many months. In its missive, the ECB, an institution that has always defended its independence, told the Spanish government that it would have to implement a root-and-branch reform of the labor market, eliminate wage increases in line with inflation, impose further fiscal restrictions, and reform the energy, property, and professional services markets.

Rajoy: “Spaniards cannot choose; we do not enjoy that freedom”

What makes the letter particularly special is that it is signed by Miguel Ángel Fernández Ordóñez, then governor of the Bank of Spain and a member of the board of the ECB. The next signature is that of ECB President Jean-Claude Trichet. Fernández Ordóñez, obsessed with labor reform, was writing to Zapatero from Frankfurt to demand of him what he could not in his capacity as governor of the Bank of Spain. In exchange for the cuts and reforms, Spain would receive the ECB’s help in resisting the international markets’ repeated attacks, which Zapatero had described thus: “The speculative bombardment that Spain is suffering is comparable to that suffered by the Americans at Pearl Harbor.”

Zapatero’s third measure aimed at calming the markets was the most controversial: the reform of the Constitution. In a country like Spain, where two main political parties have been unable or unwilling to reach agreement on updating constitutional issues, the Socialist Party and the Popular Party did just that, and with little fuss, limiting the structural deficit, putting a ceiling on public debt, and above all, prioritizing the payment of loans to meet interest on government borrowing above any other obligation, whether that be health, education, pensions, unemployment or other welfare spending. This had long been a demand of Europe’s rightwing parties: handing over the weapon of fiscal policy, and was undertaken by Spain’s Socialist government without any debate.

The most recent austerity measure has been with us without interruption since 2012. One might say that the first 18 months of PP government in Spain has been a kind of permanent May 9, 2010. When Rajoy took up residence in the Moncloa Palace, he threw out the electoral program that had won him an absolute majority, and began applying the policies dictated by Brussels. He abandoned each and every one of the six pillars of his “Join the change” platform: economic growth and employment creation; education; protecting the welfare state; modernizing the public sector; strengthening the country’s institutions and re-establishing Spain’s international credibility. From December 31, 2011, when Rajoy approved the biggest spending cuts in the country’s history along with a major tax hike, the country has been headed in the same direction. Rajoy’s goals are the same as Zapatero’s: to prevent the troika from sending in the men in black.

We have now seen two Spanish governments unable to apply their own policies to deal with the crisis, and who are subject to outside pressure – governments that, de facto, are not governing on the basis of the programs they were elected on. Spain’s membership of the European Union and the single currency means that whoever is in power is obliged to ignore the wishes of the people. As EL PAÍS columnist José Ignacio Torreblanca notes in a survey on Spain’s democracy commissioned by the Fundación Alternativas think-tank, there is a widespread perception that national governments’ room for maneuver has now been reduced beyond the point where it is democratically acceptable. Voters throughout the EU feel that the policies and decisions that affect their lives are no longer subject to the democratic process. Institutions such as the ECB, which are not elected, are imposing harsh conditions in order to keep the markets happy, while democratic national governments have no alternative but to apply the technocratic policies cooked up in Brussels, Frankfurt or Washington.

If all parties apply the same recipes, the electorate can vote, but not choose”

This has led to unprecedented levels of disaffection among the electorate. At the start of the crisis, in 2007, some 65 percent of Spaniards said they trusted the EU, with just 23 percent unhappy with it. At the end of 2012, that figure had grown to 72 percent, with barely 20 percent of those surveyed saying they still had faith in the EU. In December 2012, the Organization for Economic Cooperation and Development (OECD), a non-elected multilateral body, suggested that Spain increase sales tax, make it cheaper to sack workers, limit tax breaks for home buyers, and make it harder to claim unemployment benefit. If any government, regardless of its political affiliation, has to apply such measures, even if it does not agree with them, the main political parties supporting it will end up like Tweedledee and Tweedledum: arguing with each other over trivialities; they will be seen like Pepsi and Coke, or Tintin’s Thomson and Thompson.

In his book Las promesas políticas (or, Political promises), sociologist José María Maravall notes: “Representative democracy requires that the electorate be able to decide between two genuinely different alternatives and that parties with different proposals on important issues compete with each other. If the differences between the parties were to disappear, if they promise different things, but can only apply the same recipes, the electorate can vote, but not choose.”

The street protests organized by the myriad organizations and associations that make up the so-called Indignant Movement are an expression of the former. Slogans such as “they don’t represent us,” or “they call it democracy but it isn’t” reflect a widespread feeling among the electorate that their vote no longer counts for anything and that economic power (which cannot be punished through the ballot box because it is not democratic) will always prevail over political decisions. In the book Democracy’s Intimate Enemies, Bulgarian writer and thinker Tzvetan Todorov argues that the main threats to democracy today do not come from without, from those who openly declare themselves as its enemies, but from within, from ideologies, movements and acts that are supposed to defend those values: “In the fight against totalitarianism, democracy faced forces that impeded the individual’s freedom. This was a kind of hypertrophy of the collective to the detriment of the individual, and the collective itself was subject to a small core of tyrannical leaders. But in the present-day West, one of the main threats to democracy does not come from the uncontrolled expansion of the collective, but has to do with the unprecedented rise of certain individuals who suddenly endanger the wellbeing of the whole of society.”

While some talk about a three-year “dictatorship of austerity,” Pierre Moscovici, the French Minister of Economy and Finance, had redefined the concept: “Austerity is when they kill the patient.” The outcome so far of these 1,000 days of cuts, adjustments and sacrifices is one of increased poverty and inequality: Spain’s per capita income is around the same as it was in 2002: based on that piece of data alone it is now possible to talk in terms of a lost decade. According to Eurostat, the European Commission’s statistics office, Spanish society is now the most unequal in the EU, alongside Portugal, Bulgaria and Latvia. The fall in living standards has been far more extreme than in most other EU member states; poverty is more widespread and deeper. People’s expectations have fallen, hit hard by the lack of any hope that these reforms will have any impact in the short or medium term. Much of the country seems in the grip of a collective psychological malaise, and which has reduced spending on consumer goods; the negative impact on salaries and labor conditions (spurious objectives within an aggressive labor reform) is hard to overestimate.

Beyond a certain point, there is no return. One day the ruin will collapse

Novelist and essayist Antonio Muñoz Molina warns in a recent piece entitled Todo lo que era sólido (or, All that once was solid) that it is not possible to reduce spending on education and health, legal aid and emergency services indefinitely without destroying society as we know it. Beyond a certain point, there is no return. Things deteriorate little by little, and then suddenly, one day, instead of continuing along lines that we have grown used to, the whole thing collapses, without transition, in the same way that a house that seemed to be an eternal ruin collapses overnight.

Long-term austerity programs imposed on societies with growing needs due to their economic difficulties do not reduce poverty, and instead generate further inequality. The way out of the crisis imposed on Europe until now has meant a hugely regressive distribution of income, wealth and power: from below upwards, a kind of Robin Hood in reverse.

The economist Joseph Stiglitz’s explanation of the widespread rejection of such policies is hardly surprising: most people see that the markets are not working, and particularly the labor market; they see that the political system we have created (democracy) does not correct the market’s faults; and as a result, there is growing disaffection with democracy and the market economy, something that sadly reminds us of less happier times.

No end in sight: a timeline of Spain’s crisis

  • 02-05-2010. Greece accepts an EU/IMF bailout, followed in July by a second. In November, Ireland asks for help, and in April of the next year, Portugal’s economy is put under Brussels’ control. In March 2013, Cyprus requests a bailout.
  • 12-05-2010. Prime Minister Zapatero announces spending cuts of 15 billion euros.
  • 15-05-2011. The 15-M “Indignant” movement is born.
  • 25-08-2011. The PP and the Socialist Party agree on changes to the Constitution limiting the public deficit to 0.4 percent of GDP from 2020. In August the European Central Bank (ECB) decides to buy Italian and Spanish debt, and sends a letter to both countries listing reforms they must implement.
  • 20-11-2011. Rajoy wins a landslide election victory.
  • 30-12-2011. The new government announces cuts of 8.9 billion euros, saying that the previous administration had under-calculated the true size of the public deficit.
  • 10-02-2012. Labor reforms pushed through by decree.
  • 29-03-2012. First general strike against Rajoy’s policies.
  • 09-04-2012. The government announces further cuts of 10 billion euros to education and health.
  • 09-05-2012. Failed lender Bankia is nationalized.
  • 10-06-2012. The government asks Brussels for up to 100 billion to bail out Spain’s banks.
  • 24-07-2012. The risk premium on borrowing reaches an unprecedented 638 basis points.
  • 26-07-2012. ECB president Mario Draghi says he will take all necessary measures to save the euro. Spain’s risk premium falls 50 basis points in response.
  • 11-07-2012. The PP imposes unprecedented spending cuts of 65 billion euros over two years.
  • 29-09-2012. The government brings forward the 2013 budget, with yet more cuts.
  • 14-11-2012. Second one-day general strike against the government’s economic policies.
  • 30-11-2012. Government says it will not increase pensions in line with inflation.
  • 25-04-2013. Unemployment hits 27.2 percent. There are 6.2 million people officially registered as being without work, and 1.9 million homes have only one wage earner. More than 52 percent of unemployed are aged under 25. The government admits that there will be 1.3 million fewer jobs when its term finishes in 2015 than when it took office.
  • April 2013. The government says that there will be no economic growth until at least 2016, two years later than it had previously forecast. It maintains income tax hikes, and says that public debt will be around 100 percent of GDP in 2016. GDP for 2013 will fall by 1.3 percent, three times the figure previously forecast.

via A thousand days of austerity | In English | EL PAÍS.

via A thousand days of austerity | In English | EL PAÍS.

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About Old Boy

Love the past and the future but live in the present

Posted on May 16, 2013, in activism, buisiness, EU, Government, Human rights and Liberties, IMF/ECB, International affairs, politics, Protest, Wealth and tagged , , , , , , , . Bookmark the permalink. Leave a comment.

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