Spain’s Economy: It’s A Crisis, Stupid!
Spain is basking in football glory after winning the European Championship on June 29. But now that the euphoria is over, Spaniards are waking up to discover that their economy is in a free-fall without a parachute. Indeed, the country is being buried daily by an avalanche of depressing economic news, with jobless numbers spiraling upwards, and growth projections being revised downwards, faster than most Spaniards can say ¡Viva España!.
Spain has been reeling from the collapse of a housing bubble that for the last 15 years has enabled the notoriously uncompetitive economy to post some of the highest growth rates in the European Union. The Spanish Banking Association says that Spanish growth will probably be negative in 2008. By comparison, the Spanish economy grew by 3.8 percent in 2007.
Spaniards are suddenly realizing that Socialist Prime Minister José Luis Rodríguez Zapatero has spent the better part of the last four years peddling economic snake oil. Economists both at home and abroad have warned for many years that Spanish prosperity was based on the shaky foundations of a highly speculative construction sector, and that Spain was especially exposed to global financial turbulence due to its high level of private sector debt, poor competitiveness and dependence on foreign financing. But Zapatero convinced a willingly gullible electorate that they could defy economic reality through the power of positive thinking.
Now even the most hapless among the socialist masses are beginning to have second thoughts about Zapatero’s postmodern feel-good approach to economic policymaking. After all, even the “Champions of Europe” have mouths to feed and bills to pay. According to an opinion poll published by the leftwing Cadena Ser radio station, nearly two-thirds of all Spaniards (64 percent) say the measures adopted by the government to deal with the slowing economy are “insufficient.”
In fact, Spaniards of all political stripes are increasingly annoyed with Zapatero’s now-legendary refusal to acknowledge that Spain is facing an economic crisis. The Socialist government, which likes to make-believe that all problems are imaginary, recently provoked uproar by downplaying the scale of Spain’s economic troubles. In an interview with the Socialist mouthpiece El País, Zapatero asserted that the idea that Spain was actually in trouble was “opinionable.” He said that “it all depends upon what we mean by crisis.”
Considering that millions of once-prosperous Spaniards are suddenly struggling to make ends meet (more than 100,000 Spanish homeowners are expected to default on their house payments in 2008), such neo-linguistic gymnastics are not as amusing as they once were: Zapatero’s approval ratings are now on a downward trajectory for the first time since he was re-elected 100 days ago.
Even the London-based Economist Magazine, which has spent the last four years uncritically singing Zapatero’s praises, appears finally to be parting ways with the beleaguered prime minister. On July 3 it reported that Zapatero’s “popularity is now tumbling, in line with the economy. The litany of bad news has become interminable. Growth is slowing sharply and unemployment is rising. The housing bubble has burst and residential construction has seized up. Prices of petrol, electricity, food and a host of other things Spaniards buy have all gone up sharply, as (on July 3rd) did euro-area interest rates.” Ouch!
The move by the European Central Bank on July 3 to raise benchmark interest rates to 4.25 percent in the 15-nation eurozone is almost certain to push Spain closer to recession. Spain is particularly vulnerable to higher lending costs because the housing industry accounts for about 10 percent of GDP, or twice the EU average. It will make new mortgages more expensive and will make existing ones costlier as 98 percent of Spanish home loans are on a variable rate. The rate hike caused the Spanish Bourse to plummet to its lowest level in two years.
The ECB rate hike came in the wake of a (un)diplomatic dispute between Zapatero and German Chancellor Angela Merkel, which only served to highlight how little influence Spain actually has in European politics. Zapatero, who wanted interest rates lowered, not raised, urged the ECB to show “a bit more prudence. We all respect the independence of the European Central Bank but we all expect the European Central Bank to behave responsibly.” Zapatero said an increase in interest rates was “surely excessive.”
Zapatero’s comments drew an unusually swift and sharp public rebuke from Germany. “We have no criticism to make of the ECB or Mr Trichet. If Mr Zapatero sees this differently, he must explain that,” said Thomas Steg, spokesman for Merkel. ECB President Jean Claude Trichet said the ECB would not be pressured by politicians. “Everybody knows that we are independent,” he declared.
Crisis or Accelerated Deceleration?
The Zapatero government has established a four-year track record of using an arsenal of postmodern euphemisms to avoid unpleasantries and to create a virtual Spanish reality. In this context, the word “crisis” (as in economic) has now superseded “Bush” (as in George W) as the most hated utterance among Spanish socialists.
The following is a brief selection of comments by Zapatero and his chief economic advisors on Spain’s economic non-crisis and their artful semantic dodging of that hated word “crisis.” It sheds some light on the postmodern approach to economic policymaking in the land of today’s “European Champions.”
• On September 11, Zapatero said: “We are in the Champion’s League of the world economy.”
• On October 16, Zapatero said: “Every day that passes, the situation is more relaxed.”
• On November 22, Zapatero said monthly inflation figures [4.1 percent jump] “would not be good.”
• On December 14, Spanish Agriculture Minister Josep Puxeu advised consumers to counteract spiraling inflation by “eating rabbit meat” for Christmas dinner, which at 5 euros per kilo is far cheaper than the traditional pork or lamb.
• On December 15, Spanish Economics Minister Pedro Solbes told Spaniards that they were to blame for rising consumer price inflation because they had failed to “internalize the euro” and thus were leaving inappropriately large tips for waiters at restaurants.
• On January 6, Zapatero said the outlook for the Spanish economy was “positive.” The problems in the construction sector will “normalize.” He said: “We have governed very well and have known how to save [money] like no other government since the transition to democracy.”
• On January 9, Zapatero said that those warning about an impending economic crisis were being “antipatriotic.”
• On January 14, Zapatero said that talk about an impending economic crisis was a “fallacy, pure catastrophism.” One of his objectives: that “Spain achieves a higher per capita GDP than France.”
• On February 7, Zapatero admitted that the Spanish economy is facing “some difficulty ahead.”
• On March 14, Zapatero said that “Spain needs a new sustainable growth model.”
• On April 8, Zapatero said Spain faced “less favorable” economic conditions, but not for a “prolonged horizon, just transitory.”
• On April 28, Zapatero said: “Criticizing the economy is unpatriotic.” He accused those who are worried about the economy of “demagoguery” and “exaggeration.”
• On April 28, Zapatero said: There exists “a minor turn in unemployment within a reasonable situation.”
• On April 29, Zapatero said: “Let’s not turn economic forecasting into a fetish.”
• On May 9, Zapatero called the economic crisis “a transitory deceleration, now more intense.”
• On June 4, Industry Minister Miguel Sebastián said Spain was facing an “imported problem.”
• On June 5, Zapatero said the Spanish economy had “lost the capacity” to create jobs.
• On June 8, Spanish Deputy Prime Minister María Teresa Fernández de la Vega said Spain’s economic slowdown is due to “radical neoliberalism,” by which she meant the free market.
• On June 11, Zapatero said the Spanish economy is facing a “period of objective difficulties.”
• On June 11, Solbes said “Yesterday, the only thing I said was that we need to prepare for a crisis, but I never talked about the crisis.” Solbes was referring to his use of the word “crisis” during a closed-door session of Congress. The parliamentary spokesman for the Socialist Party, José Antonio Alonso, said Solbes had suffered from a “slip of the tongue [lapsus].”
• On June 12, Zapatero said: “Every person should call the economic situation what he or she wants.”
• On June 13, Solbes said the Spanish economy was experiencing an “abrupt adjustment” and not a “crisis.” Using the word “crisis” is “abusing a false affirmation. Crisis means that everything is going badly and that every other thing is going well, neither one thing nor the other,” he explained.
• On June 15, Solbes said that “all citizens need to tighten their belts.”
• On June 16, Labor and Immigration Minister Celestino Corbacho announced measures to pay unemployed immigrants to leave Spain for at least three years.
• On June 19, Zapatero justified his government’s approval of an 8.0 percent increase in the cost of electricity by saying that Spanish “families should use less” energy.
• On June 22, Zapatero said the Spanish economy was going through “a moment of uncertainty with serious difficulties that directly affect the citizens.”
• On June 23, Zapatero said the Spanish economy would “overcome serious difficulties.” He then announced that he would freeze his annual wage at 92,000 euros.
• On June 24, Solbes said Spaniards “should not be afraid and should go on [summer] holidays.”
• On June 26, Zapatero blamed “the neo-conservative model based on capitalism without borders nor limits nor ethics.”
• On June 29, Zapatero said: “To say that we are in a crisis is a matter of opinion. It all depends on what we mean by crisis.” He added: “Talk about concepts like crisis belongs in the field of academia.”
• On June 30, Sebastián told a gathering at the Expo 2008 in Zaragoza that a “Made in Spain” campaign could improve Spain’s image abroad and thereby increase exports, which he said could be the motor that drives the economic recovery.
• On July 2, Zapatero told a special session of Congress that “the situation we are passing through is clearly difficult and complicated” but on the bright side “we have never been in better shape to confront a situation like this one.”
• On July 2, Sebastián attended a session of Congress without wearing a tie. He said going tie-less is his way of saving energy on air conditioning. Sebastián has ordered the temperature at the ministry set to 24 degrees until October, after which he will resume wearing a tie. Labor and Immigration Minister Celestino Corbacho has also stopped wearing a tie, to show “solidarity” with Sebastián.
• On July 3, Zapatero said things are now “going less well.”
• On July 4, ex-Labor Minister Jesús Caldera addressed the Socialist Party national congress in Madrid, saying the current economic situation “has a lot to do with the neo-conservative thinking preached by US President George W Bush, which has resulted in capitalism without ethical limits.”
• On July 4, Zapatero said: “To be optimistic is something more than a rational act, it is a moral requirement, an act of decency and, if I may say so, elegance.”
Soeren Kern is Senior Analyst for Transatlantic Relations at the Madrid-based Grupo de Estudios Estratégicos / Strategic Studies Group
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