Spain has recently passed its five-year anniversary of job destruction, and yet there are more job losses still to come. Spaniards are getting poorer, and it will get worse before it gets better. Old-age pensions have just been cut for the first time, which is just the latest in a long line of broken electoral promises on the part of the Rajoy government. Economic depression is depressing.
There is currently no expiry date on austerity; still, we are told that soon things will get better. According to the Spanish Ministry of the Economy, unemployment will fall in 2013. The European Commission is more prudent, projecting a return to growth in 2014, at which point the unemployment rate will top 26% and public debt 97% of GDP. Too bad that, as Andrew Watt notes, they are “overoptimistic and in denial”. The Commission has doubled-down on the narrative that austerity will bear fruit, and so in the midst of a very deep hole their prescription is to keep digging.
Spain appears stuck between two bad options. The first option is to carry on with austerity in the public sector and excessive leverage in the private sector. This road leads to Greece.
Maybe the ECB will change tack. Maybe the SPD will win in 2013 and change policies (a stretch, writes Wolfgang Münchau). Maybe the Greek emergency will force everyone’s hand. Or maybe self-defeating austerity will end up defeating itself. The problem with the wait-and-see approach is that prudence risks being confused with inhumane passivity in the face of untold suffering.
Spanish social democracy has been found wanting in its timidity. Waiting for the situation to improve means running the risk of fading into political oblivion when it does not. As Keynes put it, “the long run is a misleading guide to current affairs”. Citizens do not want austerity and they do not want austerity with a human face either. No amount of sugar will conceal the bitter taste of the medicine the citizens of Spain (and by extension the periphery) are being forced to swallow, and especially not when the cure has become worse than disease.
We have seen where the politics of responsibility and of adopting the lesser evil has led. A fiscal adjustment in May was less painful than enacting structural reforms. The structural reforms were then less painful than bailing out the banks. The bank rescue is less painful than a rescue of the public sector, and a rescue of the public sector would be less painful than a default and euro exit. But the logic of the crisis is such that if you accept the lesser evil, you will be left with less and less until you are left with nothing.
The second option would be to let the Spanish financial sector fail, default, leave the euro, and devalue the currency. The Argentine and Icelandic examples are compelling, but no one (to the best of my knowledge) has been able to point out how to do this without a corralito. A huge increase in inequality and poverty would follow, but then again this is already taking place. This alternative becomes more attractive as the crisis deepens, diminishing the costs of a radical break.
Meanwhile, the institutional underpinnings of democratic Spain are rapidly being drained of legitimacy. Neither the government, the congress of deputies, the political parties, the trade unions, the monarchy, nor the judiciary is immune. That support for the European Union is falling in a country that identified the EU with modernity and democracy is telling.
Austerity has been grafted onto the law of the land in the form of a constitutional debt brake. The post-1978 democratic consensus, previously sacred, was profaned when the demands of the ECB were permitted to trump the demands of the citizenry. The gains of the Spanish transition are coming undone and all signs point to the situation on the ground continuing to worsen. The sense of decay is palpable. What’s ultimately at stake is whether or not Spain will remain recognizable as a developed country or not.
The PP’s style of government has consisted of combining austerity with authoritarianism, and to excuse themselves by lying pathologically. They are the logical candidate to force-march the country back into its grey past.
The status quo is once more untenable. The evolution of the crisis should make it clear that defiance is the most plausible alternative. As in the 1970s, Spain faces a profound crisis that calls out for deep institutional renewal and a new economic, political and constitutional settlement. Back then, the PSOE was up to the task of modernizing Spain. Now, the party’s pride in its leading role during the Spanish transition threatens its ability to grasp the need for a second transition.
If it wishes to be the party of the future, the PSOE cannot continue to prop up the ancien regime in Spain.
Peter Gibbons: So I was sitting in my cubicle today, and I realized, ever since I started working, every single day of my life has been worse than the day before it. So that means that every single day that you see me, that’s on the worst day of my life.
Dr. Swanson: What about today? Is today the worst day of your life?
Peter Gibbons: Yeah.
Dr. Swanson: Wow, that’s messed up.