Photo: AP/Manu Fernandez
Another week, another bout of social unrest in a Euro peripheral nation, if the fourth largest economy in the area (Spain) can even be called that. Yesterday’s action saw more than a million people take to the streets in protest, while several million actually participated in the 24-hour general strike (about 77% of union workers), resulting in 176 arrests and a 104 injuries.It is estimated that 91% of all large business employees took part in the strike and/or occupied the streets. The Spanish politicians, of course, tried to downplay the rate of participation and claimed victory because the strike wasn’t as bad as the last big one in 2010, but those claims merely reveal how their desperation is taking on a ridiculously childish quality at this point.
All of this was in response to newly proposed budget cuts of €27bn that are the harshest in Spain’s history (along with a 7% rise in electricity/gas bills), but are STILL estimated to fall well short of what’s needed to meet the deficit targets required by the Troika gang. In fact, as TAE readers (and Greeks) should know by now, this severe austerity virtually ensures that deficits and sovereign rates will spiral out of control, necessitating calls for bailouts with capital that simply doesn’t exist. With a general unemployment rate of about 23% and youth unemployment at stunning levels of 50%, it is rather surprising that the pain in Spain isn’t projecting itself into the streets with even greater force. One thing is for sure – Rajoy and his administration is extremely flustered, and the Eurocrats must be soiling their undergarments right now.
When the “bond vigilantes” show up at the Spanish Treasury’s doorstep, because of their unprecedented austerity measures, there is no possibility of a bailout fund or debt restructuring plan that can quell the markets and ease the pain. The Spanish people will not endure any of it for much longer after seeing in no uncertain terms how it has gone and continues to go for the Greeks, who are equally unemployed and at their wit’s end. Indeed, Rajoy’s latest austerity proposals didn’t even last more than a few hours before it was universally shot down by economists and analysts, and now everyone is wondering when exactly Spain becomes the new Greece – bailouts, austerity, rage and all.
What will eurozone leaders do to Luis de Guindos this time? Last time Spain’s finance minister met with fellow finance ministers, a photographer snapped him being throttled by Jean Claude Juncker, the head of the eurogroup.
That was because he and Spain’s prime minister Mariano Rajoy had demanded Brussels relax the austerity targets for their struggling nation. Just a few weeks on, de Guindos is heading to Friday’s meeting in Copenhagen amid fears that Spain needs a Greek-style bail-out.
Rajoy succeeded in getting Spain’s budget targets for 2012 relaxed from 4.4pc of GDP to 5.3pc. His officials told Brussels that their target of 5.8pc would be “suicidal”; Rajoy said it was a “sovereign decision, made by Spain”.
Rajoy’s victory served as a warning flare to markets, but it delighted Spaniards.But on Thursday it counted for nothing: as the new regime prepared to unveil its first Budget on Friday, Spain was brought to it knees by protests. The demonstrations rattled the markets and pushed Spain’s shares down and borrowing costs up.
Citigroup’s Willem Buiter said he expected Spain to “be pushed into a troika programme of some kind during 2012”, either because it gets shut out of the bond markets or its banks fail.
European finance ministers are gathering again to resolve the advancing debt crisis, but, despite international demands for action, the draft document is pointing to another dangerously damp squib.
Spain is the big worry: it’s raced to the head of market fears – as well as the political agenda – with alarming speed.
International leaders and traders are now watching in horror. The tightrope Rajoy is trying to walk between austerity and human costs is the fault line dividing the whole of Europe.
On one side there’s the German-led plan to forcibly reduce debt by axing public spending, raising taxes and executing structural reforms; on the other is a demand for more support of the sinner states to avoid depression and anarchy.
But with hopes fading that massive support will be agreed in Copenhagen, the world is watching Rajoy instead. Can he turn around Spain’s economy alone?
(not that it needs to be stated here, but the answer to that last question is a resounding NO)