Wreckonomics: Troika Accelerates Demolition of Spain’s Economy

By Don Quijones, freelance writer and translator in Barcelona, Spain. Raging Bull-Shit is his modest attempt to challenge the wishful thinking and scrub away the lathers of soft soap peddled by our political and business leaders and their loyal mainstream media.

For the last few months rumours have been circulating in Spain that once the European elections were done and dusted, the Troika would be back with a vengeance to tighten the vice (Joe Pesci style) on the country’s flagging economy. Lo and behold, on Tuesday, with the dust still settling from the elections, the IMF dispatched its suited-and-booted troops of highly trained economists to Madrid to impose a new round of structural conditions.

“The people must pay” if they want to maintain the current levels of public services, warned James Daniel, the man in charge of the IMF’s mission in Spain, who, as an employee of the IMF, pays no income taxes  to any country.

In total, more than 38 billion euros must be pruned from government spending in the next two years if the country is to meet its budget deficit target of 2.8 percent by 2016.

To achieve that, the IMF is calling for a drastic hike in highly regressive taxes such as VAT and “environmental taxes,” including on essential goods such as food and fuel. It is a perfect example of the IMF’s long-honed hypocrisy: just a few months ago the Fund publicly chastised the Rajoy government for applying austerity measures that fell disproportionately on the poorest and most vulnerable in society; now it is calling for more of the same.

The Fund is also requesting further liberalisation of the labour market and the application of continued downward pressure on the country’s already penurious salaries (according to estimates, the average salary in Spain is roughly 35 percent lower than the EU average, while its income tax rates are among the highest).

The Austerity Myth

None of these recommendations should come as any surprise to anyone remotely familiar with the IMF’s history. Despite spending the last 40 long years visiting economic doom, gloom and destruction on some of the least developed economies of the Global South, the IMF’s ideologically-infused hymn sheet – protecting banks and bondholders no matter what the costs to the people – remains virtually unchanged. And now it’s being applied to the stagnant economies of Europe’s southern rim.

The inevitable result is yet more economic pain and impoverishment for the working and middle classes, and even greater opportunities for wage exploitation and wealth confiscation for the world’s biggest corporations and banks – banks whose reckless actions were the primary cause of the Western world’s current economic woes.

In Spain, three years of brutal internal devaluation and fiscal tightening have done little to rectify the country’s bloated public deficit, which continues to hover around 7 percent of GDP. Meanwhile, public debt — even with all the government’s financial trickery and off-balance sheet accounting — has almost doubled in the last five years, having recently surpassed the one trillion euros mark. In fact, as El Diario reported this week, government spending actually rose by 4.4 percent in the first quarter of 2014, prompting speculation that the government had excluded certain payments from the last quarter of 2013 so as to “finesse” its 2013 budget deficit.

Even more worrisome, the country’s exports registered a 0.4 percent decline in the first quarter of this year, while imports rose 1.5 percent, putting a serious dent in government claims that the recent labour market reforms – including measures that make it easier for companies to hire and fire staff – had boosted the international competitiveness of Spanish companies.

Put simply, there is no austerity, just pain for most and immense riches for a few. Many companies – especially large national and multinational ones – are systematically reducing unit labour costs and pocketing the difference. Thanks to the government’s labour reforms, they can now lay off huge numbers of workers at a much lower cost; they can reduce salaries and benefits across the board (with the exception, of course, of senior management); and they can and are offering “eternal internship” programs (no pay, no benefits, no hope of being offered future gainful employment) to Spain’s youngest generation of wannabe workers.

“A National Disaster”

“The cost of the crisis has been distributed very unequally in Spain,” Edward Hugh, an independent British economist in Barcelona, told The Spain Report. “Some barely have noticed it, while a growing number of others have been out of work for more than three years. Many of these people are now ‘structurally unemployed’ and many of those over 50 may never work again. It’s a national disaster.”

The most tragic thing of all is that such socially destructive policies were not even needed, since there are a host of more effective measures the Troika could have used to bolster Spain’s fiscal and economic health — and without ripping apart the country’s economic fabric.

Here are a couple of examples:

1. Combat Tax Fraud.

If it wanted to, the IMF could pressure the Spanish government to tackle the obscene levels of tax fraud and evasion by the country’s largest corporations and wealthiest individuals. According to a 2012 report by Spain’s Tax Office, the country’s richest people and organizations evaded over 40 billion euros worth of tax payments in 2010 alone, accounting for well over 70 percent of total tax fraud and enough to cover one year’s total public health-care costs.

The preferred methods of tax fraud range from avoiding VAT (accounting alone for at least 18 billion euros in lost tax revenues) and billing for fake sales, to hiring undeclared personnel and hiding capital offshore, often through front companies. These kinds of practices — some of them blatantly illegal, others on the edge of legal legitimacy — are standard for many of the world’s largest companies and wealthy individuals (just ask Tony Blair). And now, thanks to pressure the IMF is applying on the Spanish government to have business taxes shaved from 30 percent to 25 percent of declared profits, these corporations will soon have even less tax to evade.

2. Trim the Political Fat.

According to El Economista, Spain has the largest political class in Europe. In fact, so large is it that there are currently no official figures for its total size, though recent estimates put in somewhere between 400,000-500,000 people – roughly one political “representative” (Ha!) for every 115 people. If this figure is true, it means that the country has more politicians than doctors, police officers and fire fighters combined, and four or five times more politicians than Germany, a country with a population twice the size, and with its 16 lander, even less centralized.

The problem in Spain is not just the size of the political class – it’s the political class’s latent greed, hubris and sense of entitlement. For example, the maximum rate of income tax paid by Spanish MPs and senators is 4.5 percent, compared to 52 percent for the rest of society. Politicians are also awarded extremely generous pensions for completing just seven years in office, while demanding that normal workers put in 37 years (and rising) of service before picking up their pitiful pension returns. Other privileges include free travel, food, phone-call and accommodation expenses (paid for, of course, by taxpayers), not to mention fleets of chauffeur-driven luxury cars. Yet still, many of the country’s politicians feel the need to top up their incomes by soliciting undeclared contributions – in other words, bribes – from private corporations.

The IMF: Serving and Protecting the Status Quo Since 1944

Tackling tax fraud and political waste are just two ways the IMF could cut billions of euros off Spain’s bloated public debt. There are many others. But the Fund is not interested, for the simple reason that targeting the waste and abuse of the servants of state, big business and big finance, clashes head-on with the Fund’s number-one priority: to serve and protect the economic status quo – at literally any social, financial or political cost.

In overseeing the controlled demolition of Spain, one of Europe’s largest economies, the IMF’s task is a slippery one: it must keep the host economy sufficiently weak to depend almost entirely on transfusions of foreign debt, but sufficiently strong to be able to keep paying the interest payments on that debt.

The people of Spain, however, are beginning to rally: in the last European elections, Spain’s two main political parties — the PP and PSOE — were unable to scrape together even fifty percent of votes, for the first time since the 1980s. And now the country’s lost generation — the late teens and twenty-somethings who have been hung out to dry and left on the tab by an economic system from which they have been completely excluded — rightly feels aggrieved. If the recent explosions of violent rage in Burgos, Madrid and now Barcelona are anything to go by, this new generation, left with nothing left to lose, is not going to take the Troika’s medicine lying down. By Don Quijones, Raging Bull-Shit

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