What On Earth Is Going On In Spain?

THESE are very difficult days for Spain.

Summer’s tourists have returned home from sojourning in the world’s second biggest tourist economy. And as the northern autumn descends into winter, that means that even more Spanish will now be out of work than the near one-in-three that entered the short holiday season jobless. The cold reality of its economic plight confronts Spain again.

Signs of Spain’s pain are evident across the country. Spanish nights, for example, are darker now, but it isn’t the imminent end of daylight saving and onset of winter that are causing the pall. Spain’s charming villages are less so because municipalities can no longer afford to light their streets or illuminate signature landmarks, such as a once-glowing 12th century castle. Those same streets are also less tidy, because urban services are being slashed, regarded as a luxury by penniless councils that have paid neither their teachers nor the local cops for months.

It’s a vicious circle: no jobs mean less local tax collected, and fewer administrative fees paid too, because fewer and fewer people have a job, let alone a budget to pay mortgages, improve houses, register cars or use basic services. Municipal rubbish dumps have suddenly become very popular; the usual scavenging cats are joined by foraging jobless breadwinners who gather food scraps for their families — their own leftovers remain uncollected because councils can’t pay refuse-collectors’ contracts. This is a nation reduced to its knees, fretting about what might happen next.

Spain’s regional governments, themselves hubristic victims of property’s nasty boom and bust, can’t help because they too are broke, having lavished the public purse on expensive white elephants. Regions such as Valencia, Andalucia, Murcia and Catalonia are being forced to ask Madrid for cash it doesn’t have. Foreigners are both loved and resented: in Andalucia, for example, where many foreigners own houses, these modest villas have become impromptu economic islands in otherwise becalmed neighbourhoods where the foreigner is master and diminished locals work as servants. It’s all wounding a proud nation.

Didn’t Spain recently get a lifeline from Brussels and Frankfurt?

Yes, a pledge of €100 billion in June this year, but that doesn’t seem to be enough. This week the ratings agency Moody’s said Spain’s bank bailout, which had been measured at around €60 billion, might need to be almost double what Madrid admitted to last week in its ‘stress test’. In any event, the Spanish are outraged that bankers and their political patrons will be rescued by each other, some with multi-million-euro payoffs, while their victims have to endure a generation of austerity, unemployment and poverty.

There’s little trust in the banking system. To compensate for funds that have been withdrawn from its banks, Spain has had to borrow more than €400 billion, about 40 per cent of its pre-crisis economic output, from the European Central Bank.

Hang on, weren’t we told “the worst is over” in Europe?

Yes, that’s what was said, by lots of prominent people who are paid to know better.

People like the IMF chief Christine Lagarde, who said last March that “the world economy has stepped back from the brink…we have cause to be a little bit more optimistic”. And Mario Draghi, the boss of Europe’s central bank, also this year: “The worst is over…the situation is stabilising”. And the European Commission President José Manuel Barroso: “We have not lost, we are not losing, we have resisted well.” And the German finance minister, and the new Greek prime minister and the Spanish prime minister, and, well, you get the idea…

If the worst is over for the Eurozone, desperate Madrileños and Athenians clearly didn’t get the note, as the blood spilled on their streets this past week suggests.


In Spain, Madrid’s besieged Rajoy government has begun hardening official resistance to the indignados, the ‘indignant’ protestors. Last week Spanish police bludgeoned and shot them with rubber bullets during demonstrations outside Parliament. These brutal tactics shocked many Spanish, who are usually among the first to put up their hand to serve  international peacekeeping efforts. Now there’s even murmurings of civil war — dangerous talk in a country that was defined by just such a conflict. Politically rare for him, King Juan Carlos even chimed in last week to warn against Spain’s splitting.

Polarising extremes are forming, testing a democracy that’s barely 30 years old and prompting some to portray Spain as an ‘unexploded bomb.’ To the right, veterans groups demand the army step in to enforce the unitary Spanush state, remarks which evoke modern Europe’s last attempted coup in February 1981. And on the left, Robin Hood-figures like Juan Manuel Sánchez Gordillo, an Andalucian communist mayor, have emerged as indignado heroes as they raid supermarkets for the poor and occupy banks and properties.

The Anglo-Spanish intellectual Felipe Fernández-Armesto warns that “fears of a social meltdown are excessive but not baseless”. The tension in Spain is palpable and as austerity measures are rejected across these struggling ‘Club Med’ nations from Portugal to Greece, the future of the euro may not be decided by summits populated by nameless bureaucrats spouting ‘globaloney’, but by the raw people power of the disaffected.

Wait, wasn’t Spain supposed to be the model for European unity?

Time was when Europe aficionados, many of them with their snouts in Brussels’ troughs, touted Spain as a model for the European Union. They enthused that here was a land riven by war which had made a unifying peace, a long-time dictatorship that had found prosperity in boisterous democracy — and so could their idealised wider Europe.

Though Spain encompasses distinct language groups and autonomous ethnicities — dour Basques, dogged Galicians, sophisticated Catalans and fiery Andalucians — who have historically never much liked each other, they were able to celebrate their own identities while embracing a national Castilian tongue and identifying as Spanish for a common cause. Why, Spain even resurrected a royal family of pomp and ornamental ritual — how very European.

That was pre-meltdown. How fragile the construct is proving to be.

Today, Spain has again become a symbol for Europe, but not the one imagined by the continent’s federalists. Now it’s a model for the EU’s own possible unravelling; under economic pressure, its celebrated diversity may become its undoing — revealing the weaknesses of artificial federalism.

Take wealthy Catalonia: as Germany is to Europe, so Catalonia is to Spain. It’s the country’s biggest economic contributor andhas long subsidised poorer parts of Spain through internal fiscal transfers managed via demanding Madrid bureaucrats. The industrious Catalans have always been grumpy that their taxes were badly spent by their fellow Spaniards, but while the going was good they kept their grumbles largely to themselves.

Now, they have had to ask Madrid for a bailout themselves, effectively asking for their own money back — and the feeling is they’ve had just about enough of this caper. Last month under banners proclaiming ‘Catalonia: A New European State’, 1.5 million Catalans jammed Barcelona’s avenues to demand secession from Madrid. Opinion polls show support for Catalan independence running at around 50 per cent — double the level of 2008 when the euro crisis was yet to bite.

Local economists have calculated that if Barcelona went it alone, Catalonia’s debt-to-economic-output ratio would fall by 40 per cent.

In other words, Catalonia would appear to be better off independent. On November 25, Catalans will effectively vote on secession in a regional election, on what is looming as a defining day for the Spanish state, and for Europe.

But aren’t the proud Spanish rallying, banding together to see out this national crisis? For goodness’ sake, the nation is the reigning football World Cup holder and has just taken the Euro championship.

Ask the people of Almeria in Spain’s southeast. This is where are more than 100,000 Africans slave off the official books for €25 a day, if they are lucky, picking vegetables for export in hothouses owned by billionaire Spanish food barons. They are illegal immigrants working without rights in a region where the official unemployment level is as high as 50 per cent among Spaniards under 25 years of age.

So why not diplomatically manage the flow of illegal workers from across the Med and provide jobs to the Spanish? No chance. That would mean lower profits for the billionaires if they had to pay their compatriots the minimum wage required by law, which is double what they occassionally pay their African illegals. More to the point, it would require the local mafia of cops, official and politicians – and the tycoons that back them – to apply the law, not just Spain’s but that of Europe. And that would mean the end of cheap labour – and of bigger profits. This is not a spirit-of-the-Blitz situation.

An eloquent depiction of Spanish regionalism is that when institutionalised corruption is unearthed in Spain’s districts, like it has been in the Almeria area, it tends to get shut down by Spanish federal agents from Madrid doing a job that conflicted local colleagues won’t.

As for football, well, it matters in Spain. Half the mighty La Roja, the Spanish national team, hails from or plays in Barcelona. If Catalonia went it alone, the famous Barca would be reduced to being a dominant team in an unremarkable league in a minor nation that would win internationally perhaps as often as, say, Scotland.

And as the Almerians like to say, it’s not as if the rest of Spain much likes the Catalans; they see them as arrogant and soft, entitled complainers. In a similar way, the barely concealed enmities all over Europe are resurfacing to divide it; north-south, Catholic-Calvinist, taxpaying-tax avoiding, rich-poor.

And what’s happening in that little Andalucian village that you wrote about once before?

Oh, you mean Gaucin, the tiny southern town with the shonky property development? Yes, this place crystallises much of what ails the Spanish economy, a lethal cocktail of speculation and malgovernance. That development is known locally as ‘Landslide Villas,’ because its 20-odd flats were precariously built by a mate of the then dodgy mayor on a shifting cliff that wasn’t zoned urban. The unremarkable two-to-three bedroom units that rose there were first offered at €350,000 to 400,000 through 2008, just after they were built, when times were better.

But near every time we’ve returned to Gaucin since, the advertised price has been lower. When I looked in June, they were ‘rent-to-buy’ for €399 a month, making a notional price of around €100,000, assuming the average five per cent annual return landlords aim for.

Now, a new advertisement draped over the building touts them at €299 a month to rent, 25 per cent down from June. At one level, that’s an extraordinarily cheap €9.83 a day for  a never-occupied apartment. But it also suggests that their prices are 80 per cent down on what they were first offered.

That’s a big headache for the developer, but a bigger one for his bank that collateralised the development loan against the now-stricken property, and possibly many more like it. No bank in Spain has written back 80 per cent of its property load as bad debt burdening its balance sheet. The biggest write-down is about 25 to 30 per cent.

So if this Gaucin property is taken as representative of Spain, that means there’s twice to triple the financial headache still to be endured, in a banking sector that last week admitted it needed €60 billion in emergency funding after that state-sponsored stress test,  a state that few much believe its public admissions of how profound is Spain’s crisis.