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Europe is no longer Spain’s solution

Sunday 12 May 2013

By Gideon Rachman

The people are losing faith in national and EU institutions

Travelling between Madrid and Barcelona on a recent weekday afternoon, I wandered into the first-class section of the train. There was only one passenger, snoozing on the black leather seats – and he turned out to be the conductor, who looked up startled at the sound of an intruder.

Spain’s magnificent high-speed rail network testifies to the dramatic modernisation of the country in recent decades. But the empty trains speeding between the country’s two leading cities are evidence of a deep economic malaise. Trouble in Spain is trouble for Europe. All the euro rescues so far have been for relatively small countries: Greece, Portugal, Ireland and Cyprus. But Spain is one of Europe’s largest economies and talk of an eventual bailout is once again commonplace.

The statistics are frightening. Unemployment is about 26 per cent; youth unemployment is more than 50 per cent. The economy is forecast to contract again this year, by about 1.5 per cent. The banks have had to be bailed out – but there is a fear that if the economy keeps sliding, they will be hit by a second wave of bad debts. The government has cut spending sharply and loosened labour-market regulations. But the fiscal deficit this year remains on track to be about 6.6 per cent of gross domestic product – and the national debt is heading up to 90 per cent, often regarded as the danger level.

The economic crisis is a particular shock for Spain because – since the coming of democracy at the end of the 1970s – the country has been Europe’s most optimistic and exciting. While the French, British and Italians struggled with a sense of national decline, Spain powered forward. Prosperity was soaring and Spain became a global leader in football, fashion, food and cinema.

Spain has suffered deep recessions before, even in the 1990s. But in previous eras, the sacrifices had a purpose, linked to joining first the EU and then the euro. The difference this time is that the Spanish no longer seem sure that there is light at the end of the tunnel. Instead, the economic tunnel keeps growing darker and longer. As a result, Spaniards are losing faith in national and European institutions.

Popular rage against the banks that lent so recklessly is rampant. It has focused in particular on the mis-selling of preference shares in banks to unsophisticated savers – who thought they were buying a safe product, only to be wiped out when banks restructured. As elsewhere, many of the bankers responsible still seem to be doing mysteriously well.

Politicians are also deeply unpopular. A recent poll found that 96 per cent of Spaniards believe that political corruption is “very high”. The ruling centre-right Popular party faces accusations that it ran a secret slush fund. Mariano Rajoy, the prime minister, is entirely lacking in charisma – his idea of a press conference is to summon journalists and then read a statement from another room while reporters watch him mutely on a video screen. The Socialist opposition is ineffective and trailing in the polls. The rise of the indignados, a popular protest movement, led some to think that new political energy would come from the streets. But the indignados peaked over a year ago and have largely dispersed. The main protest movement is now more narrowly focused on mortgage repossessions.

It is not just banks and politicians that are held in contempt. Even the monarchy is under fire. King Juan Carlos, once revered for his role in the transition to democracy, had to apologise for going on an elephant-shooting holiday at the height of the crisis in 2012. His personal life is coming under harsh scrutiny; and his daughter, Cristina, has been formally named as a suspect in a corruption case.

The biggest loss of faith of all, however, may be in the “European project”. In recent decades, the EU seemed to offer a way out of a labyrinth of relative poverty, isolation and authoritarianism. The country’s faith in Europe was reflected in the famous saying of the writer, José Ortega y Gasset: “Spain is the problem and Europe is the solution.”

For many Spaniards, however, Europe looks like a large part of the problem. Economists wonder whether Spain’s plight is closely linked to its membership of the euro, which first stoked a credit boom and now prevents the restoration of competitiveness through a currency devaluation. Germany is widely blamed for insisting on unremitting austerity to balance the Spanish budget – policies that risk creating an ever-deeper recession. The “European dream” that Spaniards embraced promised a middle-class lifestyle for most people. But with little prospect of secure jobs for the young and a threat to the future of the welfare state, the fear now is that the Spain of the future will look more like Argentina than Germany. An Argentine future would involve the constant fear of financial crises – and a widening gap between the social classes, as many continue to enjoy a first-world lifestyle, while a growing underclass becomes detached from prosperity. Above all, Argentine public life is characterised by deep cynicism about national institutions and leaders.

Spain is not there yet. But the country urgently needs an optimistic story to counteract mounting pessimism and cynicism among its people. Spain used to be the poster child for the benefits of the European project. It now risks becoming a symbol of everything that has gone wrong.

gideon.rachman@ft.com

Copyright The Financial Times Limited 2013.

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