Spain’s government Rosy scenario

The Spanish government is newly optimistic, but many Spaniards are not . IN MADRID ministers brag that they have turned a corner. Euro-zone bond yields have been hitting new low levels (see article). Spain’s banking and labour reforms are now in place. Growth will revive later this year or in 2014. Jobs, the Spanish El Dorado, will eventually follow.

But that is surely too rosy a view. Exports are growing and the current account is now in surplus, but even the government sees GDP shrinking by 0.5% in 2013 (and most analysts talk of 1.5%). Spaniards are suffering an aching spell of record unemployment, at 26.6%. Austerity means worsening public services just as real wage and pension cuts make people poorer. The biggest asset for many families, their house, is plunging in value, with a further 20% price fall expected. Higher income, sales and housing taxes will hit spending power further. Business confidence and retail sales are in retreat. And a housing glut will take years to digest. Only 25,655 of what Fitch, a ratings agency, says are 1.2m unsold Spanish houses were bought in November.

Spain must eventually emerge from all this. But will Spaniards put up with extended pain? Or will they rebel against a political establishment that has failed them? So far they have been quietly dignified. Peaceful demonstrators have made more headlines than violent protesters. Yet days lost to strikes are at a ten-year high. A budget deficit of 7-8% of GDP in 2012 must be cut this year. The European Union has set a 4.5% target, though it may relax this. Investment has already been slashed so future cuts must fall on public health, education, pensions and welfare services.Polls show most politicians in the doghouse. Barely half of all Spaniards back the two parties that have governed for three decades: the ruling People’s Party (PP) of Mariano Rajoy or the opposition Socialists. The communist-led United Left has surged to almost 16%, while Rosa Díez’s centrist Union for Progress and Democracy stands at 10%. Spaniards blame the Socialist government of José Luis Rodríguez Zapatero for dropping them in the mess, and Mr Rajoy’s PP for failing to get them out of it, says Juan José Toharia of Metroscopia, a pollster. Only one in six Spaniards has confidence in Mr Rajoy.


That may also explain why he is so anxious to dodge the euro-zone bail-outs that led to changes of government in Greece, Ireland and Portugal. With bond yields heading down, thanks to the European Central Bank (ECB), the pressure has eased. As long as this holds, Mr Rajoy can avoid the new soft bail-out under which the ECB promises to buy Spanish bonds on the secondary market. Josep Comajuncosa of the Esade business school now sees only a 50% chance of a formal bail-out. Renewed market nervousness could yet force one; and a bail-out that slashed borrowing costs would speed recovery, even if it damaged Mr Rajoy. But his ministers still see it as a silver bullet that is all the better for being left unused.

Mr Rajoy has time on his side. He is only a year into a four-year term and enjoys an absolute majority in parliament. Catalonia is rumbling, but any stand-off over independence has been postponed two years or more. In electoral terms, he need fret about the economy only in 2016. He wants Germany to stimulate growth to help Spanish exports.

But Spaniards are shedding their enthusiasm for an EU that seems to impose austerity and prevents devaluation. Only 4% thought the EU was bad for Spain five years ago, but now 37% do. A century ago the philosopher José Ortega y Gasset declared that “Spain is the problem, Europe is the answer”. As the crisis drags on, Spaniards may start thinking the opposite.