(The following post originally appeared on the author’s blog)
How backwards does a modern nation have to be for a 20% unemployment number to be even remotely tolerable?
I’m always fascinated with democracies that choose to embrace a form of quasi-communism after watching every single one of these experiments toppled – from Russia to Latin America to Asia.
When will they learn? 22% unemployment? 25%? 30%? Must the people be boiling and eating shoe leather before the marxist regime is finally dismantled?
In Spain’s case, apparently.
The timing of the March 11, 2004 Madrid train bombing couldn’t have been worse…3 days later, a nationwide legislative election was held in which the Socialist Party, under current Prime Minister Zapatero, pulled off a major upset. The socialists carried the vote as cowardly citizens ran from the previous ruling party which had been tough on terror, essentially performing the script that the Islamo-Fascists had written for them.
Immediately following the election, Zapatero let the populace of Spain know that there would be no coalition government, that the Socialist Party would be using its perceived mandate to take the country hard-left.
The trouble with this large-scale adoption of big government was that it began just prior to a meltdown. Within just a few years, the global real estate bubble began its descent into hell. The Spanish had gorged on mortgages and buildings with the best of us, levering up to a median ratio of indebtedness-to-income that exceeded 125% by 2005.
Spain has now gone from being the envy of most of Europe (they created more than half the continent’s jobs in the first half of the aught’s) to being the next Greece – a big program, government-spending free-for-all. Taxes are not collected efficiently as a lot of commerce is done “underground”. Youth unemployment is said to be closer to 40% than the national 20% number. The banks are quasi-state run, so the world has absolutely no idea what kinds of loans and liabilities are hidden behind the machinery.
Like Greece, Spain’s long term sovereign debt has just received an S&P downgrade one notch to AA. The ratings agency has kept a negative outlook because of the lack of credit-fuelled activity they see going forward and the fact that Spain will probably not get back to 2008’s economic levels until 2015 at the earliest. Without a miraculous improvement, it is likely that more downgrades could follow.
The only thing left would be for mass protests in Spanish cities over the cutting back of benefits while the government lobbies its better-capitalised EU compatriots for a bailout. That train’s never on schedule, but always on time.
Another socialist experiment buried under mountains of promises and a tapas assortment of debt.