With a quarter of this year’s budget to go on servicing debt, Spain itself now needs a bailout. It looks set to test the new “soft” bailouts now on offer from eurozone partners. That will be a make-or-break moment in the euro crisis. If it works and helps set Spain on the road to recovery, the euro is safe. If it does not, there are few solutions left. A soft bailout will be less painful than those inflicted on Greece, Portugal and Ireland — because it comes with a European Central Bank (ECB) promise to buy Spanish bonds in order to keep borrowing costs down. However, it will still come with one chief condition — more austerity.
Restricted by the euro straitjacket and unable to devalue its currency, Spain is on the slow painful, path of internal devaluation. That means Spaniards must become poorer — accepting lower wages, lower pensions and worse public services. That way, they are told, their economy can become more competitive, making cheaper goods to consume itself or sell to the rest of the world.
“We can only get out of this crisis by working more and, unfortunately, earning less,” former employers’ federation leader Gerardo Diaz Ferran said two years ago.
He was not, of course, talking about himself. Diaz Ferran’s own companies have since gone bust and the workers laid off. However, prosecutors claim Diaz Ferran stole money from his companies first — ensuring himself a lifestyle that included a Rolls-Royce and two luxury apartments in New York. This year, Spaniards will undoubtedly find out more about the former leader of Spain’s most powerful business lobby — a man who allegedly paid no income tax in 2009 or 2010. However, his grim recipe for the future still holds.
Spaniards are more likely to fret about jobs, incomes and the shrinking value of what they own. Last year, some 800,000 people lost their jobs. This year, unemployment will rise further as another half a million or more jobs are lost. A new labor law offers workers in companies with falling revenues either wage cuts, redundancy or both. And house prices will continue to tumble. Prices dropped 15 percent last year — the biggest fall since a housing bubble burst in 2008. The stock of houses up for sale is growing thanks to foreclosures. A rash of suicides among those about to lose their homes saw new legislation introduced to protect the most vulnerable.
“Things are improving in Spain,” Mario Draghi, the powerful ECB president, said before Christmas — according to Spanish translations of his words. “2012 was a year of painful gains. And 2013 should also be one.”
The pain, at least, is guaranteed.