Spain’s ‘painful gains’ could break the nation

Unemployment in Spain already stands at 26 percent. Crowds scavenge the streets at night for food. And things are about to get worse

By Giles Tremlett  /  The Guardian

Fri, Jan 04, 2013 - Page 9

Forget, for a moment, the Greek tragedy. The tale of social woe set to play out in Spain this year is both bigger and more important to the world. For the drama of rescuing the euro, or letting it sink, will be played out on Spanish soil.

That is not to say Spaniards will have it worse than Greeks, though Eurostat figures show only Bulgaria and Romania now have a higher percentage of people deemed at risk of poverty. Spain’s economy will shrink, once more, by 1.5 percent — a dramatic enough figure, though one most Greeks would happily settle for. However, Spain represents a quantitative leap in Europe’s ongoing tale of misery. Its economy is five times bigger than Greece’s — accounting for 12 percent of the eurozone — and there are almost twice as many Spaniards as there are people in bailed-out Portugal, Ireland and Greece combined.

As Spain enters another year of recession, Europe’s politicians offer only one remedy. It must swallow more of the harsh medicine of austerity. But will it survive the cure? And will the spiral of decline really come to a halt toward the end of the year, as Spanish Prime Minister Mariano Rajoy promises?

Already the country’s social fabric is tearing. Family networks keep the working class going as unemployment hits 26 percent. Fewer than half of those aged under 25 find work. Anecdotes of misery abound. Grandmothers with memories of the “hungry” 1950s cook up large pots of lentils to feed unemployed grandchildren. At night, small crowds gather outside supermarkets in poorer neighborhoods of Madrid, seeking thrown-out produce. In middle-class neighborhoods ghostly figures wander the streets rummaging through bins by night.

Friends face new dilemmas. How do you look after a terminally ill 90-year-old aunt and her son with mental health problems, asks one, when both have lived off her 600 euro (US$791) monthly pension? Another has given her spare room to a 57-year-old graphic designer friend who cannot find work and does not qualify for unemployment benefit. How long will he stay? A doctor — and single mother — admits that she worked before Christmas with flu because she could not afford to take (unpaid) sick days.

“I tried not to breathe over my patients,” she says.

Anecdotal evidence of Spaniards’ suffering is backed by hard figures. When crisis struck in 2008, families began to save madly. Four years later savings rates are tumbling again — too many families are having trouble getting to the end of the month. Average household disposable income has already dropped, in real terms, by almost 10 percent since 2008. In poorer regions such as the Canary Islands, Andalucia and Extremadura, almost a third of the population is below the at-risk-of-poverty line, according to the National Statistics Institute. In a damning report, Oxfam says that previous crises in Latin America and Asia point to serious long-term damage if austerity measures remain in place.

“Poverty and social exclusion may increase drastically,” it says. “By 2022, some 18 million Spaniards, or 38 percent of the population, could be in poverty.”

Rajoy’s year-old conservative government no longer calls the shots. Last year it tried to obey Brussels and Berlin, raising taxes and chopping spending on health, education, social services and almost everything else. Pensioners and civil servants became poorer. Yet early figures suggest that, by the time money borrowed to bail-out banks is included, the deficit remained above 8 percent. Rajoy promises to do better. And that means even more cuts.

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.