Already shattered by the mishaps of Greece, Ireland and Portugal, the single currency could be in real danger of collapse if contagion extends to Spain. That is why the European Commission, the ECB, chancellor Merkel and president Sarkozy keep a keen eye on Spanish affairs, and keep pressing the recently elected government of Mariano Rajoy to pursue a very strict agenda of austerity and cuts. But recent developments in Spain could prove that’s it’s no easy undertaking.
It is Spain’s economic size that makes the possible effects of a Spanish default much more frightening than the above-mentioned cases. Spain is suffering the hangover of a real estate bubble triggered by deregulation and fuelled by cheap money, courtesy of the single currency. Now burst, it has left behind a mountain of private debt: businesses and households owe to Spanish banks and these in turn owe to their foreign (mostly French and German) colleagues, to the tune of well over 800 billion euros (£650 billion). Here lies the risk – a default could affect seriously these large lenders.
During 2009 there was a timid attempt to cope with the crisis by replacing dismal private investment with public expenditure. But as in many other countries – with the valiant exception of Iceland – the largest efforts were devoted to keeping the banks afloat, and there was not enough public money for both. By the end of the year the EU was back to stability as usual and austerity began.
In May 2009 came a 5 percent cut in public servants’ pay, the freezing of public pensions and reform of the labour laws. This triggered the first sign of resistance on September, a general strike called reluctantly by the large unions that was more a half-hearted blaze than a sustained fire, as their leadership feared an eventual Conservative takeover in the coming elections. In January 2011, these same leaders accepted a reform of the public pension system, selling it as the lesser evil. Consequently their credit sunk with Zapatero’s.
The radical left and the smaller more militant unions appeared too weak to pose any threat, and the Popular Party began to bank on victory in the general elections which were to take place by the end of 2011.
Previously, in May, local and regional elections had already resulted in a significant defeat of the Socialist Party as expected. But with this also came the unexpected: the eruption of the ‘indignados’, who stepped onto the stage during the electoral campaign.
Hundreds of thousands marched in the streets all over Spain and occupied public spaces, from tiny villages and working class neighbourhoods to the most centric squares in large cities. They aimed their criticism towards the banks, the markets and the EU, but also towards the political and electoral system, including the unions and the traditional left.
The movement itself was very pluralistic and undefined at the beginning. General criticism of the malfunction of formal democracy and rejection of neoliberal policies blended with naive apoliticism and the desire to behave ‘nicely’. The movement was radical enough to openly defy the electoral courts when they banned the demonstrations the day before the elections, but some controversial questions were left off the agenda, such as the war on Libya.
The movement had very little electoral impact in May – only an increase in blank and null votes and a proliferation of tiny groups which ran in the elections but got no significant results. But there was a sensible political effect: in August, after being summoned by Sarkozy, Merkel and the ECB, president Zapatero set out to amend the constitution to enshrine the absolute priority of debt repayments over any other commitment.
Socialist and Conservative leaderships supported the amendment and agreed to carry it out through an urgent procedure. They did not want to risk opening a public debate on the constitution two months after thousands of people had marched in the streets crying ‘there is no democracy when markets rule!’ The radical left and the unions strongly opposed the change. So did speakers from the ‘indignados’, and the topic started trending on the social networks.
In November, the Popular Party gained an absolute majority in the general elections. This was the result of a mass defection of Socialist voters – the Socialists’ vote fell by 4.3 million compared to 2008, while the Conservatives only grew by 600,000.
The United Left (a broad-based left coalition including, but not limited to, Communists) almost doubled its share and jumped from 2 to 11 seats, which could be read partly as fall-out from the ‘indignados’ movement.
The new government immediately launched a reinforced agenda of austerity and deregulation, which was warmly welcome by the powers-that-be in Europe: the ECB, Merkel and Sarkozy, and David Cameron by the way. Out of the need to comply with the deficit target came a new cut in public expenditure of 1.5 percent of GNP. Education, healthcare and social services run by conservative regional governments were also downsized, and some services which used to be free began to be charged for. Along with this came another reform of labour law which set out to destroy all the major achievements in labour relations, including collective bargaining and protection against arbitrary layoffs.
This was the last straw for the large unions, which until now had preferred bargaining over confrontation. A general strike was called for March 30, demanding the withdrawal of the labour reforms. It became a challenge to all the Popular Party’s policies, supported by all parties to the left of the Socialist Party, trade unions and all kinds of social movements including those connected to the ‘indignados’. The Socialist Party was caught in the middle, as it had been responsible for similar measures and also feared the strike would not succeed.
Meanwhile, regional elections were to take place five days before in Andalusia and Asturias, both of them traditional strongholds of the Socialists. Extrapolating from the results of the last elections the most probable outcome was another absolute majority for the Conservatives. President Rajoy strategically delayed the presentation of the national budget for 2012, which was expected to enclose harder cuts, to protect his party’s electoral prospects. He even engaged in a fake row with the European Commission over the deficit target for 2012, pleading for 5.8 per cent GNP against 4.4 per cent as initially planned. It was finally settled at 5.3 per cent.
The regional elections in Andalusia and Asturias were very disappointing for the Popular Party. Both ended in hung parliaments. In the case of Andalusia, which amounts to almost a fifth of Spain’s total population, the United Left and the Socialist Party won the majority of the seats, so a left-biased regional government is expected in this significant region. It will be added to Catalonia and the Basque Country, neither of which have got Popular Party government. It appears that the Rajoy’s hard measures have began to take their toll less than three months since he gained office.
Five days later, the general strike turned out to be very successful, especially among industrial, transportation, construction and, in general, blue collar workers who massively followed the call, not withstanding the years of passivity. The same cannot be said of public servants, where the number of strikers was less significant. Nevertheless the country was almost paralysed.
As is usual in Spain the strike ended in marches, attended this time by hundreds of thousands all over the country. Rank-and-file trade unionists marched alongside thousands of young people who had taken part in the ‘indignados’ movement, in a spirit of unity. Activists who had been trying to bridge the movements, with little success until then, were delighted. In some senses the elections had proved that the Popular Party is not invincible, and the resistance had taken confidence from this.
The unions have committed to further mobilisations if the government doesn’t move. The government has answered by drafting a extremely restrictive budget and announcing further cuts in health and education, plus new laws restricting civil rights. Mainstream economists admit that, with this budget, recession is almost unavoidable and unemployment will continue escalating.
The risk premium placed on Spanish sovereign debt is at it maximum, the financial system is in high distress and rumours of intervention by the EU are spreading. Recent developments have raised the stakes.
Will the resistance movement change the course of events? It is an open question now, but at least there is hope that we are not doomed. Some external developments could help too – for example, the results of the French presidential election and the coming Greek elections could open a new gap in the EU’s walls. But much will depend on the ability to strengthen the new unity that can be built in Spain. This is up to the unions, to the ‘indignados’ movement, and to the political left.