The International Writers Magazine: Spain 2012 - A Country in Chaos
As unemployment in Spain rises above 25% - James Skinner continues his forensic examination of a country that could bring down the Euro
May 19th Update: It gets worse
Intervention is Inevitable in Spain
I went to the Galician Social Security Health Service building in my home town Vigo the other day to ask for my initial registration date. The large main hall was empty except for several civil servants working away on their computers. I approached one of them with my question only to be told that I had to go to the building across the road which was the Main Social Security HQ. This is Spain’s problem, incredible duplication of Civil Service.
We’re talking about a city of less the half a million of inhabitants and yet the number of regional and other government offices around the town are out of synch with reality.
I went to the town council to re-register my property. I approached the ‘Property’ window only to be told to take out a number and go to the ‘Register’ window. The first window had two women sitting about doing nothing. I had to wait 20 minutes at the other one. Another great problem is overburden of bureaucracy. This is just a minor example. By the way, I had to take photocopies of every personal document in my possession apart from the actual deeds.
Only two blocks down the road we enter the banking sector. My local bank is the Pastor, HQ in Corunna, housed in a magnificent XIX century building on the corner of one of the main Vigo streets. This bank has just been bought out by the Popular, HQ in Madrid. This latter bank’s Vigo office is on the other corner of the same block, fully equipped with the same number of staff as my own. This is Spain’s other problem, a gigantic number of banks, especially Savings Banks that are overburdened with toxic assets, over staffed are being eaten up by others and many are literally about to go bankrupt.
All the European press at this moment in time is focused on Spain’s woes from an economic point of view. Bankia (absorbed up to seven savings banks including the major Madrid one) is the present bank victim that is in the limelight and about to explode. It’s top of the pops on the journalists list. No need to expand as anyone can read the woes in the European press.
There is talk about a bailout, about intervention, about leaving the Euro and a long list of etceteras. Again it’s all in the opinion columns of the European newspaper editorials.
I’ve reported on all the above for more than two years and the outcome is just as I had predicted. Spain is bankrupt and whether they manage to cut back on expenses as the present government has been reporting to Brussels, is a big ‘if’, but the people (and the plethora of left wing political parties on the other side) may not buy it.
This is short and brief. My honest opinion at this point is that anything could happen. Greece is a mess, this country is a mess, I’ve stopped worrying about Portugal and Ireland, but between all of them it is anybody’s guess what’s next in store. Just think about Europe as one big monopoly game and you’ll probably understand the picture better than all the big shot gurus that are playing economic dominoes.’
Meanwhile here is a historical perspective on how we got here:
April 2012 went by with a bang, literally. Rajoy has stated publicly, ‘there is no money!’
I wish to remind readers of a basic prediction I made after the results of the General Election that took place last year. After the conservative party of Mariano Rajoy, the PP won with an overall majority I said that the future recovery of Spain was not in his hands but in In my opinion it was up to their new leader ‘Freddy’ Rubalcaba to lick their wounds, accept the fact that the existing economic disaster was their own fault, and that a new approach with a possible ‘state pact’ was the way to go for Spain to have a chance to recover. Well not only has the opposite occurred but ‘Freddy’ and his gang have kicked off with a vicious campaign to boycott in every possible way any reforms or changes that the new government wish to make to save this country. Add the rest of the ragtag number of political parties - nationalists, republicans, communists, atheists, greens – that have joined the party and well…read on!
Rayjoy has introduced so many austerity measures that whatever bubble was left to burst of the whole socio-political spectrum has been blown to pieces. Europe and the rest of the financial world are applauding his People’s Party’s government for being so brave and bold. Back home on the ranch there will be a completely different reaction. This means that as soon as the rest of the mob I’ve mentioned above recover they will come out in brute force.
In brief bullet form the main hits are:
- Health services. The totally free medical service is no longer available. A sleuth of fees both in services as well as pharmaceuticals that affect everyone will take effect within the next few months. Illegal emigrants will not be given a health card although they will still receive emergency treatment. This will also affect the ‘swallow’ population of the EU (the illegal Europeans that live here but are tax resident in their home country). Even the pensioners are being hit (10% on prescriptions and no longer free wheelchairs or crutches as example).
- Banking. The banks, especially the savings banks are up for sale. Their balance sheets still include toxic assets especially the construction and building ones. Default on mortgages continues to rise. It’s only a matter of time before they are nationalised.
- Infrastructure. A review and possible cutback of unnecessary construction programs is under way. Example: Spain has 47 airports (Germany only 18) and 41 are of international status. The one in Ciudad Real for example has no flights or passengers yet is fully equipped including a coffee shop.
- Education: A massive reduction in grants and an increase in teachers output, i.e. extra working hours, are under way.
- Tax: Income tax and other hidden ones are increased. Vat next year.
- Public institutions: Total cutback on all ‘handouts’ to unnecessary public expenditure from ‘ghost’ associations to non-productive public companies.
- Trade unions. Freebees have been cut. These received several million Euros in subsidies for ‘educative purposes’. No longer.
- Town councils. Study under way to reduce the number (8000) over the next couple of years.
- Duplication. This reads bureaucracy in all the public sector (central government, autonomous regions, town councils, deputations and central government regional representation) is under review for simplification and cutback in services.
- Labour laws. Now in effect that allows companies a freer hand in hiring and firing. No longer will trade union general labour agreements affect the medium and smaller companies that will be allowed to negotiate their own terms with their work force. At least that is the theory.
- Moonlighting. Crackdown on the ‘submerged’ economy as it is known in Spain. Example: all bills over Euros 2500 will have to be paid by bank transfer or other financial method. No more cash payments above this amount. A sleuth of disguised inspectors will meander amongst the population. Back to the Franco days?
- Television. All public televisions including regional ones will have to be self sufficient. In not, they will be sold off or closed.
- Armed forces. This is a difficult one due to international commitments. However there will be cuts this way in the future.
- Budgets. Apart from the austerity measures all autonomous regions will be penalised in the future if they do not comply with their own agreed budgets.
The trouble is it is unlikley going to work!
Again in condensed form these are the reasons why, most of them are more political than economical as I have been harping on all the time:
- The autonomous regions, especially Catalonia and the Basque country and now Andalucia will not buy it. They plan to boycott any hint at ‘interference’ in their own affairs. It would take a constitutional change to force them into acceptance and this is impossible without a national referendum.
- The two former regions will be well on the road to seeking independence keeping a sharp eye on Scotland’s referendum in 2014.
- The trade unions in cahoots with ‘Freddy’s’ lot will be taking to the streets in constant demonstrations causing havoc. They will be joined by hundreds of other associations that are against the government.
- Iberia has started the trend for isolated strikes opening up the season.
- The King of Spain stuck his foot in it, literally by going on an elephant hunt with his mistress and hence the republicans will be seeking an end to the Monarchy. Banners with the republican flag are appearing everywhere including football matches.
- Should Hollande win in France (which seems very likely), Rajoy will be politically isolated from his northern partner. The left wing sector of Spain knows it.
- Unemployment will continue to rise. Although the government warned about this the citizens of Spain can take it no longer.
- Time is against the government. They reckon that recovery will begin in two years time. Again the citizens of Spain will not wait.
Despite the international politicians clapping their hands, the stock markets reaction so far has been negative. The rating agency Standard & Poors has downgraded Spain by two points to BBB+ meaning that they don’t buy it either. This only confirms my previous essays. Unless Spain as a whole returns to the drawing board and adopts an attitude as per Jesus Christ Super Star song, ‘Couldn’t we start again please?’ and restructures the whole central, regional and town council political mess it is in to get the economy going again there will be no other choice but to accept intervention by the outside world. The IMF must be dreading this.
It’s no different to Greece, Portugal or Ireland except that the eventual violence may be greater than just youths burning rubbish containers and throwing Molotov cocktails at police.
Let’s hope and pray that it may never come to that as it did back in the 1930’s.
© James G. Skinner. May 19th 2012
Back to 1934 (10.04.12 Update)
The Spectre of Civil War
James Skinner on Modern Spain
1934 was the year Spain went completely berserk and divided the country into dozens if not hundreds of political factions of all sorts that eventually led Generalissimo Franco to come back from Morocco a beat the hell out of all of them