Spain's Economic Crisis: Cuts or Run? 

Advancing lines of riot police spread out across streets; thousands of shouting, sometimes violent protestors squeezed into the city centre; and placards raised in the air declaring the return of a fascist government. These events did not transpire recently in the province of Homs – an area ravaged by Syria’s ongoing civil war; they took place, instead, after the latest €65 billion austerity package was announced by the Spanish government, in the country’s capital, Madrid. 

In justification of its staggering amount, Prime Minister Mariano Rajoy said to Parliament that the austerity package (which includes raising the general sales tax rate (IVA) from 18% to 21%; bringing forward the proposal to raise the legal working age from 65 to 68; and slashing unemployment benefits after six months’ joblessness) was “not pleasant, but it has to be done.” 

In the unforgiving financial environment of the Great Recession, however, Mariano Rajoy’s determined efforts to save the Spanish economy comes at a price – a costly one. Spain’s long-term borrowing rates now exceed 7% (Portugal, Greece and Ireland, after their long-term borrowing rates surpassed the same amount, were all previously forced into bailout schemes), and this precarious economic situation has left many forecasting even more vehemently the imminence of Spain’s financial system’s collapse. 

Gavin Hewitt, for instance, European Editor of the BBC, writes: Spain’s “borrowing costs of around 7.5% cannot be sustained. Some time, probably in autumn, the country will need a full-blown bailout. A Spanish bailout,” he goes on to say, “would need around €350 billion. An Italian bailout might need more than €700 billion. Most officials doubt there are the resources to save Italy and Spain together.” 

Some journalists, such as Matthew Lynn in The Wall Street Journal, have even dared to predict that Spain, not Greece (who are currently failing to meet their required tax and privatisation programme targets in order to receive any further bailout funding), will be the first country to abandon the Euro: “the Spanish are a lot more likely to pull out of the Euro than the Greeks, or indeed any of the other peripheral countries,” Lynn writes. “They are too big to rescue, they have no political hang-ups about rupturing their relations with the European Union…and there is a bigger Spanish-speaking world for them to grow into.” 

Mariano Rajoy’s €65 billion austerity package entails, also, the suspension of Christmas bonuses for all civil servants, members of parliament and regional sectors – a decision, according to El País, that will save 14% in governmental spending; an end to the tax deduction, in 2013, for citizens buying a new house; and the modification – a euphemism, in this instance, for increase – in energy tariffs that have already risen, according to the EU, by 70% over the last six years. (El País) 

Understandably, the Spanish public’s response to the latest austerity measures has been one of indignation. Before embarking on a protest march in Madrid against the cuts to civil servants’ salaries, when 40,000 protesters later that evening packed into La Puerta del Sol – the geographical centre of Spain, Ignacio Fernandéz Toxo, the leader of the Confederación Sindical de Comisiones Obreras (CC.OO), and Cándido Méndez, leader of the Unión General de Trabajadores (UGT), described the government’s austerity plan as “a brutal backward-step in quality of life” for the country’s citizens, and, because there was no evidence to suggest such cuts would occur in Mariano Rajoy’s electoral manifesto, a “fraudulence of democracy.” 

Since Mariano Rajoy came into power in November 2011, some aspects of the austerity measures of his party (the Partido Popular) have indeed included cuts to some sectors that would generally be regarded as a regressive step in the developed world’s accepted standards of normal life. In January 2012, for example, whilst the Brugal Case still continued in the region – an investigation into the alleged crimes of bribery and extortion in the Partido Popular’s regional government – several schools in Alicante were forced to accept reductions to their lighting, heating and even toilet paper. 

We need to keep on fighting! has been the widespread message from union leaders to their members, and in some parts of Spain there has been actual physical confrontation between the public and the police. In León, for instance, miners (who are now faced with a 63% cut in the government’s subsidies to coalmining companies – a decision that might cripple the Spanish coal industry entirely) shot fireworks at riot police through make-shift rocket launchers and set up road-blocks of flaming rubber tyres across the region’s main roads. The police, in turn, responded to the miners’ violence by ostensibly firing only rubber bullets at the miners. However, as The Guardian reported in their coverage of the confrontation, the police may have also been using golf-balls as ammunition – an object, as the miners said themselves: “if it hit someone’s head…would kill them.” 

As the Spanish government, then, continues to scavenge savings from wherever it can, there is evidently – and worryingly – a growing divide between Parliament and the rest of the country’s population. The most unsettling aspect of Spain’s financial situation, though, is that the public’s protests are mostly futile: because of the overwhelming pressure it is currently under from the European Central Bank and the European Banking Authority to rescue its debt-inundated banks, the government cannot (and will not) alter its austerity measures. Leaving the Euro, therefore, is perhaps the most likely way the Spanish government will be able to have control over its own political decisions – an audacious step, if it is taken, that may well foreshadow the painful dismantlement of the Euro currency.

Published in The Prisma


Bibliography 

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Hewitt, Gavin. Euro Crisis: Spain Debt Fuels German Angst. London: BBC News, 2012. Web. 21 July 2012. .

Las protestas contra los recortes toman las ciudades españolas. Madrid: RTVE.es, 2012. Web. 23 July 2012. .

PAIS, EL. Los recortes e impuestos con los que el Gobierno quiere ahorrar 65.000 millones. MADRID: EL PAIS, 2012. Web. 24 July 2012. .

in Madrid, Associated Press. Spanish miners in mass protest against cuts. Madrid: EL PAIS, 2012. Web. 22 July 2012. .

Caballer, Neus, and Ezequiel Moltó. Valencia y Alicante se vuelcan en la protesta contra el tijeretazo en educación. Valencia / Alicante: EL PAIS, 2012. Web. 23 July 2012. .

Lynn, Matthew. 6 Reasons Spain Will Leave The Euro First. New York: The Wall Street Journal, 2012. Web. 21 July 2012. .