Not everybody’s buying it. Not this time.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Spain’s economy is back on track. In fact, it has never been better. That’s the narrative being peddled by the Rajoy government and all those who desperately need it to win December’s do-or-die general elections, including Spain’s big banks, corporate giants, and the Troika of international creditors. And they will do “whatever it takes” to keep the narrative intact.
Just last week the European Commission postponed negative opinion on the Spanish budget for 2016 – a budget that has been drawn up with one basic goal: to buy off as many cheap, gullible voters as it takes to tilt the electoral balance in the government’s favor. It’s a classic ruse as old as democracy itself: austerity gets suspended, spending is hiked, and tax cuts are brought forward. And then everyone goes to vote feeling just a little bit richer.
When Europe’s Economic and Taxation Affairs Commissioner Pierre Moscovici told the press last week that Madrid was at “risk of non-compliance” with the Stability and Growth Pact – not only for 2016 but for 2015 as well — he was quickly silenced by both the Commission and Germany’s Eonomy Minister Wolfgang Schauble. Once again, whatever it takes.
Then today, after a week of bumbling controversy, came news of yet another U-turn with the Commission effectively admitting that Moscovici had been right all along: the Spanish government’s 2016 budget was just a little on the optimistic side.
Despite all the gushing reviews and rampant economic misinformation, including last week’s conveniently timed credit rating upgrade by Standard and Poor’s, not everybody’s buying the government’s rose-tinted version of reality. Not this time. You can hardly blame them given the real, on-the-ground reality of Spain’s economic “recovery”:
1. Achieving Massive Growth in… Poverty.
One in four Spanish workers is poor, according to a study by the International Labor Organization. The number of people earning less than 60% of the average salary increased by four percentage points between 2000 and 2014, from 18% to 22.2%. This year the number of households with no official source of income reached a historic peak of 770,000 – close to 5% of all households.
Spain has become a society that boasts of economic growth as entire families and communities are excluded from the economy, wrote Caritas, the Catholic Church’s official organization for charity and social relief in Spain, in a damning 2015 report on the state of the Spanish economy. If it wasn’t for the so-called black economy, long the bane of governments all over the planet, Spain’s social fabric would have snapped long ago.
2. Deactivating the Population.
Unemployment may have fallen in the last four years from 26.5% to 22%, but the active population is shrinking at a much faster rate than the growth in job creation, notes Caritas. The main reason for this contraction is the mass exodus of foreign workers.
Spain also continues to suffer from a brain drain as its best and brightest seek opportunities in other European countries, such as Germany and the U.K., or in Latin American nations like Brazil, Argentina or Mexico. “The recession has led to the biggest migration in Spain’s history,” the Bank of Spain lamented in a recent report. The banking institution pointed out that since 2010, the brain drain has been of around 400,000 people annually.
3. No Country for Young Men.
Most of the new jobs being created are not for the nation’s job-starved youth which, despite Rajoy’s much-touted “economic miracle,” still have a one-in-two chance of being unemployed. Most businesses that are hiring prefer to recruit workers with extensive experience, meaning that those just out of school or university end up trapped in the “no experience, no job; no job, no experience” loop.
Effectively excluded from the official salaried job market, many graduates have little choice but to jump on the eternal internship carousel, as I reported in No Country for Young Men:
In the complete absence of any kind of inspection regime, young workers are being shifted from one internship contract to another. Few of them will ever get hired full-time, and those that are, are invariably given a short-term contract that, once expired, is replaced by yet another.
Even for the select few fortunate enough to find real, lasting employment, the salary they pick up the end of each month is likely to be a hell of a lot smaller than it would have done before the crisis. According to the OECD, the average monthly salary of young Spanish workers decreased from 1,210 euros in 2008 to 890 euros in 2013 – a 35% drop in real terms.
4. Ubiquitous “Precarity.”
The percentage of part-time work in Spain grew from 12% in 2008 to 17.4% in the fourth quarter of 2014. As Caritas’ report puts it, “instead of creating more jobs, we are chopping them into ever smaller pieces.” Since the government’s labor reform act of 2013, Spain has become a Mecca for mini-jobs. Statistics provided by the Ministry of Employment show that of the 1.24 million employment contracts signed in August, only 6.4% were for permanent jobs while more than one in four contracts were for jobs lasting less than seven days.
5. Lost Decade.
While all the talk is of GDP growth, the actual level of production registered in 2014, after a year and a half of so-called “recovery,” was still 5% below the level registered in 2008. Given the evolution of this and a host of other indicators, some experts have began using the term “Lost Decade” to describe Spain’s post-crisis period. Hardly cause for champagne.
6. Ugly Long-Term Fundamentals.
The Spanish government’s management of the economy, under the Troika’s ever watchful and generally approving gaze, has significantly reduced the Spanish economy’s long-term growth prospects. Gross capital formation, as a proportion of GDP, is now down 14 percentage points since 2007; funds for research, development and innovation shrank from €321.90 per inhabitant in 2009 to €279.30 in 2013.
Finally – and most importantly – the root causes of the crisis, far from being resolved or for that matter even tackled, have actually deteriorated, notes Caritas. Inequality and poverty have reached unprecedented levels. The agents of big finance and their twisted logic continue to dominate the economic debate, while the productive, commercial and technological differences between the North and South of Europe continue to widen.
In Spain the Rajoy government has achieved an impressive economic growth rate just before the general elections. Its timing is impeccable, but it is unlikely to be enough, for the simple reason that growth alone is rarely enough, as the late British business magnate James Goldsmith warned in a 1994 interview with Charlie Rose:
“The economy is there to serve the fundamental needs of society, which are prosperity, stability and contentment… If you have a situation whereby the economy grows but you create poverty and unemployment and you destabilise society, you’re in trouble.”
Or at least you should be. By Don Quijones, Raging Bull-Shit.
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