It’s Official: Spain is Unraveling

While the Rajoy government fiddles in its endemic culture of corruption, the people simmer with anger.

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

Since taking office in late 2011, Rajoy’s government has been embroiled in one sordid political scandal after another. In the latest episode, the Punica Affair, more than 100 politicians have been arrested and charged with varying acts of white collar crime, including taking kick backs from private sector companies.

Payment often came in the form of cash-stuffed envelopes although, as El Confidencial reports, it could also include completely free-of-charge construction work on a politicians’ property, luxury holidays, hunting trips and even an intimate evening or two with a high-class prostitute. Most of the politicians involved in the scandal are – or at least were – members of the governing Popular Party. The rest belong – or at least belonged – to the other partner in Spain’s (until now) two-party system, the not-really-socialist-at-all party, the PSOE.

The good news is that some of Spain’s corrupt politicians and business figures are finally seeing the sharp (or at least not entirely blunt) end of the law. Scores have been arrested and some are even going down. The bad news is that Rajoy’s scandal-tarnished government of self.serving mediocrities still stands, albeit more precariously than ever. In El Pais‘ latest poll of voters’ intentions in next year’s general election, the Popular Party (PP) was, for the first time in decades, relegated to third place. Indeed, the two incumbent parties – the PP and PSOE – were unable to muster 50% of the vote between them.

The most popular party in the poll was Podemos, a stridently left-wing political movement founded just at the beginning of this year. In May’s European elections the party picked up five seats; now, six months later, it is apparently the hottest contender for the spoils in next year’s general election, picking up 27% of the votes polled – six percentage points more than PP and one more than PSOE.

Lead by Pablo Iglesias, a firebrand (or as the right-wing media like to call him “demagogic”) 35-year-old professor of political science, Podemos has masterfully exploited the general public’s disaffection with a political establishment that serves no one’s interests but its own – and, of course, those of the country’s biggest businesses and banks.

The political establishment is quite rightly blamed for stoking and feeding the country’s biggest ever real estate bubble. Thanks to a change in the property laws enacted in 1997 by the Aznar government, local and regional administrations were encouraged to part-finance themselves through granting authorization for ever larger public and private construction projects, many of which turned out to be white elephants (empty toll roads, high-speed train stations planted slap bang in the middle of nowhere, ghost airports…).

Naturally, cash or other undeclared inducements helped grease the wheels of the bubble-making machine. As long as the local and regional governments were taking their cut of the action, property prices were allowed to reach ludicrous levels that could only be sustained (in the short term) by getting the country’s saving banks (also largely run by members or affiliates of the two main political parties) to push down-payment-free mortgages down the throat of a largely compliant public.

The bubble popped, the economy tanked, unemployment soared and all of a sudden austerity became the menu du jour for everyone – everyone except, of course, Spain’s political class and their private sector paymasters. Given the scale of the two main parties’ betrayal, it’s perhaps no surprise that many Spanish voters are determined to take their vote elsewhere, and Podemos has one huge advantage over its political rivals: almost all of its members are political virgins and as such are uncorrupted – at least for now!

The fledgling party also has the luxury of being able to espouse policies and strategies that sharply mirror the demands of a long-ignored, long-disenfranchised electorate. Those policies include a redistribution of wealth, the right to a basic income, a cap on executive salaries, an independent audit of the country’s public debt, increased transparency of political party funding, more stringent restrictions on political lobbying, stronger government support for SMEs and R&D-intensive industries, higher penalties for tax evasion, the creation of a national bank for investment and the renationalization of strategic sectors such as telecommunications, utilities and the country’s formerly public-owned savings banks [Spanish speakers can read the party’s full manifesto by clicking here].

Such promises – whether realistic or not – can be extremely seductive to a public sharply embittered by a two-party system that long threw them overboard. That’s not to say that Podemos can be expected to turn their current popularity into an electoral victory – in Spain, as in most managed democracies, the electoral system is rigged in the favor of the incumbent parties. Nonetheless, if it continues to capture the hearts and minds of the disaffected – in a country where the disaffected are now the overwhelming majority – it could well hammer the final nail into the country’s two-party system. As such, the result in the next elections would be a very weak coalition government at best or a hung parliament at worst – and just at the very moment when Spain’s richest region, Catalonia, is itching to break free.

While the Rajoy government fiddles, the country simmers with anger. Just a few days ago his second-in-command, Maria Dolores Cospedal, herself accused of myriad financial irregularities, argued that her party had done all it can (read: nothing) to fight the scourge of political corruption. As for Rajoy, all he can do is undeftly dodge (as illustrated last year by the hilarious Bloomberg interview) uncomfortable questions on his party’s endemic culture of corruption, while talking up the wonders of an economic recovery that only 12% of the population now believes in. Once that final bubble of illusion bursts – which it assuredly will, especially given Europe’s seemingly unstoppable economic descent – Spain will enter a whole new world of pain. By Don Quijones. An exclusive for Wolf Street.

The policy of the Spanish government has been to threaten Catalonia over its desire for independence and sow the seeds of discord in its fragile coalition government. Now it’s reaping the spoils. Read…   Spain’s Divide and Unconquer of Catalonia

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  16 comments for “It’s Official: Spain is Unraveling

  1. mick
    Nov 7, 2014 at 8:08 pm

    After 4 years of this utter B.S. day in and day out, the only thing I can say I’ve gained is a thorough understanding of just how far the status quo will go to stay in power.

    That and the realization that the entire financial system is an illusion, which the status quo will happily tweek and mould in order to stay in power, even if it means grinding the whole economy into dust.

    • RETIRED
      Nov 8, 2014 at 10:50 am

      Mick,you said that the financial system is an illusion!
      Wow,who would have thunk it.
      While you are at it you might as well throw in the modern medical industry which was an invention of the Rockefeller crime family over 100 years back.The medics & their pharmaceutical partners in crime have probably sent more people to an early grave then Stalin or Hitler! Talk about illusions!
      While we are on this scavenger hunt we can throw in a few words about the public education system in America.America’s public education system is a modified remake of the Prussian 3 tier education system,also funded by the Rockefeller clan at the turn of the 20th century.It’s goal is to bury the general population under a mountain of misinformation & distortions.
      Woodrow Wilson,who signed the law which created the Federal Reserve Bank,was advised by Colonel House who was in league with the Rockefellers;House & a lot of Rockefeller money got Wilson elected.
      We can go on & on,but what’s the point!All of human societies,including our own, are illusions created by the rich & powerful to keep us peons toiling in the fields for the greater benefit of the elite classes.When times are good they toss the masses a bone here & a bone there,when times are rough they call out the militia.
      Spain’s problem is that it has always been a case of “Bread & Circuses” In Spain,& the rest of the EU. They have run out of bread but the circus keeps going on.No one,including Spaniards,can eat the circus.What they want is bread & the corrupt political establishment has none for them!
      Is it time for a new Mussolini or a new Franco? “Someone to make the trains run on time”?

      • Petunia
        Nov 8, 2014 at 12:24 pm

        I was in Spain not too long after Franco died. I saw women weeping at his grave and men lamenting his death. Spain was doing well at the time.

        • cogito
          Nov 12, 2014 at 7:18 pm

          It was certainly orderly and most people went cheerfully about their business, even though things must have been simmering under the surface

  2. Dead at 18, buried at 65
    Nov 7, 2014 at 9:13 pm

    Thanks Don Quijones for such a well written report! You did say,

    “Such promises – whether realistic or not – can be extremely seductive to a public …”.

    The problem is as I see it – having had a quick look at some of those policies which you outlined – would leave much of Spain in the same situation in which it is now.

    The best way to for me to explain it is like this: –

    It is like taking a old house with all its old furniture and completely rearranging it! Perhaps a smack of new paint there and dusting off an old piece of crockery there, but the house and all its contents still remain essentially the same.

  3. Ignacio
    Nov 8, 2014 at 3:01 am

    The problem with Podemos is they don’t understand monetary economics (or if they do, is tangentially), and are misguided by the typical misunderstanding of the, not operational, reactionary left.

    In their agenda is not ‘dump the euro’, because if it was, they wouldn’t get elected, most probably their politicians are still enamoured with the political project of USE (United States of Europe), and their policies will be impossible inside the current EU, even less in the EMU.

    So the Spain electorate (much like all southern Europe), is still captured by the myth of the euro, as their politicians are. They are backing already from many of their proposals (for example BIS), as they know those are impossible, no matter how much you tax the rich, economically (and likely, socially).

    So the pretended votes they are getting, are based, mostly on a promise of regeneration, specially regarding corruption. In that sense Spain is getting ahead of other countries, like Greece, where the stinking corruption still runs rampant and there is not much regeneration. However, the misunderstanding of monetary economics, still remains with a big part of the populace, and so does the misunderstanding of budgets, the euro, etc. When we check that removing corruption is a good start, but not enough, to get things going, we are in for a rude awakening and more danger and uncertainty ahead.

    In sum: not enough, not smart enough, still misguided.

  4. Petunia
    Nov 8, 2014 at 8:10 am

    All this instability in Europe and the US will eventually lead to some new system. It brings to mind the phrase “Don’t mess* with people who have nothing to lose”.

    *Cleaned up version

  5. LG
    Nov 8, 2014 at 12:15 pm

    Revolution!

  6. Oskar
    Nov 8, 2014 at 2:09 pm

    I read all of Don Quijone’s posts with great interest (I’m not Spanish but know the people and the language well), but found that the title on this one is a bit exaggerated. I kept waiting for the part which would explain how the country is “unraveling”. It’s rather ordinary in any democracy that the popularity of governing parties should slide downwards over time, especially in a time of economic hardship. Corruption and scandals is rather ordinary too. So is the growing popularity of a brand-new populist anti-establishment party in such an environment; if that party ever gets close to power, it’s strength will be tested for real and its ambitious promises can turn in its hands. All of those are in my opinion fairly ordinary political developments.

    Aside from the over-dramatic title, an interesting post. And Spain probably is in a truly precarious position, for various other reasons. So I’ll continue to read Don Quijone’s posts with interest and monitor the state of affairs there.

    • Nov 8, 2014 at 3:43 pm

      Oskar, I did the title. DQ had a different title.

      When you think about the different conflicts building up in Spain currently, including the independence movements and how they’re being repressed by a national government that is steeped in corruption, etc., it doesn’t seem that exaggerated to me.

      • Oskar
        Nov 8, 2014 at 4:56 pm

        Yes I’ll agree with that actually — as I implied towards the end of my comment. Spain is under serious stress, or more or less unraveling as you describe it. I just felt that the developments described by DQ don’t fully describe why, so there seemed like a mismatch between the title and content. Catchy title though ;)

      • Cogito
        Nov 12, 2014 at 7:21 pm

        Agreed, Wolf. It would seem to me the conditions are ripe for civil conflict n Spain.

  7. PML
    Nov 8, 2014 at 5:13 pm

    Why are central banks printing trillions — and using much of this cash to buy stocks — or hand it to corporations who use it to ramp their own stocks?

    Why is are governments turning blind eyes to corruption?

    Why did central banks PURPOSELY inflate housing bubbles?

    Why are the doing the same thing again post 2008?

    Are they stupid? Of course not.

    Are they corrupt? No more than ever.

    So WHY are they engaging in these seemingly mad policies?

    Here is why.

    Growth stops when oil prices rise. Virtually every recession in recent decades was a result of spikes in oil prices.

    What happened at the turn of the century to the price of oil?

    See the graph http://renewablechemicals.agra-net.com/wp-content/uploads/2011/09/Chart_WTI-Crude-Oil-Prices-since-2000_Microsite.jpg

    Why is this time different? In the past the oil spikes were temporary — this time they are PERMANENT.

    Oil at even $80 kills growth. $147 of course destroys growth.

    If oil goes too low we don’t look for more because it is a money losing proposition (Big Oil was cutting capex with oil at $110…)

    To understand why governments and central banks are doing what they are doing, have a look at these articles:

    HIGH PRICED OIL DESTROYS GROWTH
    According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf

    THE PERFECT STORM (see p. 59 onwards)
    The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

    Note – Prebon provides energy analysis to investment banks — you do NOT put that in front of Goldman Sachs unless you are very sure of your conclusions

    PEAK CHEAP OIL https://www.youtube.com/watch?v=0uKihKkx0eY

  8. Paul Prichard
    Nov 9, 2014 at 6:19 am

    My cat was more fit to run the government of Spain than these s**theads.

    • Dead at 18, buried at 65
      Nov 9, 2014 at 9:40 am

      Sorry! Paul Prichard!
      But you have pissed me off! Do you really think this is a joke?
      So, how the hell is your cat going to spend all those back-handers and under-the-table briefcase monies then?

  9. Mr Reality
    Nov 9, 2014 at 1:37 pm

    When i read articles about i can’t help but think that this is a setup for all the housing bubble countries. Interesting times indeed.

    Mr. R.

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