Spain’s Economy: It’s A Crisis, Stupid!

From the desk of Soeren Kern on Sun, 2008-07-06 07:37

Spain is basking in football glory after winning the European Championship on June 29. But now that the euphoria is over, Spaniards are waking up to discover that their economy is in a free-fall without a parachute. Indeed, the country is being buried daily by an avalanche of depressing economic news, with jobless numbers spiraling upwards, and growth projections being revised downwards, faster than most Spaniards can say ¡Viva España!.

Spain has been reeling from the collapse of a housing bubble that for the last 15 years has enabled the notoriously uncompetitive economy to post some of the highest growth rates in the European Union. The Spanish Banking Association says that Spanish growth will probably be negative in 2008. By comparison, the Spanish economy grew by 3.8 percent in 2007.

Spaniards are suddenly realizing that Socialist Prime Minister José Luis Rodríguez Zapatero has spent the better part of the last four years peddling economic snake oil. Economists both at home and abroad have warned for many years that Spanish prosperity was based on the shaky foundations of a highly speculative construction sector, and that Spain was especially exposed to global financial turbulence due to its high level of private sector debt, poor competitiveness and dependence on foreign financing. But Zapatero convinced a willingly gullible electorate that they could defy economic reality through the power of positive thinking.

Now even the most hapless among the socialist masses are beginning to have second thoughts about Zapatero’s postmodern feel-good approach to economic policymaking. After all, even the “Champions of Europe” have mouths to feed and bills to pay. According to an opinion poll published by the leftwing Cadena Ser radio station, nearly two-thirds of all Spaniards (64 percent) say the measures adopted by the government to deal with the slowing economy are “insufficient.”

In fact, Spaniards of all political stripes are increasingly annoyed with Zapatero’s now-legendary refusal to acknowledge that Spain is facing an economic crisis. The Socialist government, which likes to make-believe that all problems are imaginary, recently provoked uproar by downplaying the scale of Spain’s economic troubles. In an interview with the Socialist mouthpiece El País, Zapatero asserted that the idea that Spain was actually in trouble was “opinionable.” He said that “it all depends upon what we mean by crisis.”

Considering that millions of once-prosperous Spaniards are suddenly struggling to make ends meet (more than 100,000 Spanish homeowners are expected to default on their house payments in 2008), such neo-linguistic gymnastics are not as amusing as they once were: Zapatero’s approval ratings are now on a downward trajectory for the first time since he was re-elected 100 days ago.

Even the London-based Economist Magazine, which has spent the last four years uncritically singing Zapatero’s praises, appears finally to be parting ways with the beleaguered prime minister. On July 3 it reported that Zapatero’s “popularity is now tumbling, in line with the economy. The litany of bad news has become interminable. Growth is slowing sharply and unemployment is rising. The housing bubble has burst and residential construction has seized up. Prices of petrol, electricity, food and a host of other things Spaniards buy have all gone up sharply, as (on July 3rd) did euro-area interest rates.” Ouch!

The move by the European Central Bank on July 3 to raise benchmark interest rates to 4.25 percent in the 15-nation eurozone is almost certain to push Spain closer to recession. Spain is particularly vulnerable to higher lending costs because the housing industry accounts for about 10 percent of GDP, or twice the EU average. It will make new mortgages more expensive and will make existing ones costlier as 98 percent of Spanish home loans are on a variable rate. The rate hike caused the Spanish Bourse to plummet to its lowest level in two years.

The ECB rate hike came in the wake of a (un)diplomatic dispute between Zapatero and German Chancellor Angela Merkel, which only served to highlight how little influence Spain actually has in European politics. Zapatero, who wanted interest rates lowered, not raised, urged the ECB to show “a bit more prudence. We all respect the independence of the European Central Bank but we all expect the European Central Bank to behave responsibly.” Zapatero said an increase in interest rates was “surely excessive.”

Zapatero’s comments drew an unusually swift and sharp public rebuke from Germany. “We have no criticism to make of the ECB or Mr Trichet. If Mr Zapatero sees this differently, he must explain that,” said Thomas Steg, spokesman for Merkel. ECB President Jean Claude Trichet said the ECB would not be pressured by politicians. “Everybody knows that we are independent,” he declared.

Crisis or Accelerated Deceleration?

The Zapatero government has established a four-year track record of using an arsenal of postmodern euphemisms to avoid unpleasantries and to create a virtual Spanish reality. In this context, the word “crisis” (as in economic) has now superseded “Bush” (as in George W) as the most hated utterance among Spanish socialists.

The following is a brief selection of comments by Zapatero and his chief economic advisors on Spain’s economic non-crisis and their artful semantic dodging of that hated word “crisis.” It sheds some light on the postmodern approach to economic policymaking in the land of today’s “European Champions.”

•   On September 11, Zapatero said: “We are in the Champion’s League of the world economy.”

•   On October 16, Zapatero said: “Every day that passes, the situation is more relaxed.”

•   On November 22, Zapatero said monthly inflation figures [4.1 percent jump] “would not be good.”

•   On December 14, Spanish Agriculture Minister Josep Puxeu advised consumers to counteract spiraling inflation by “eating rabbit meat” for Christmas dinner, which at 5 euros per kilo is far cheaper than the traditional pork or lamb.

•   On December 15, Spanish Economics Minister Pedro Solbes told Spaniards that they were to blame for rising consumer price inflation because they had failed to “internalize the euro” and thus were leaving inappropriately large tips for waiters at restaurants.

•   On January 6, Zapatero said the outlook for the Spanish economy was “positive.” The problems in the construction sector will “normalize.” He said: “We have governed very well and have known how to save [money] like no other government since the transition to democracy.”

•   On January 9, Zapatero said that those warning about an impending economic crisis were being “antipatriotic.”

•   On January 14, Zapatero said that talk about an impending economic crisis was a “fallacy, pure catastrophism.” One of his objectives: that “Spain achieves a higher per capita GDP than France.”

•   On February 7, Zapatero admitted that the Spanish economy is facing “some difficulty ahead.”

•   On March 14, Zapatero said that “Spain needs a new sustainable growth model.”

•   On April 8, Zapatero said Spain faced “less favorable” economic conditions, but not for a “prolonged horizon, just transitory.”

•   On April 28, Zapatero said: “Criticizing the economy is unpatriotic.” He accused those who are worried about the economy of “demagoguery” and “exaggeration.”

•   On April 28, Zapatero said: There exists “a minor turn in unemployment within a reasonable situation.”

•   On April 29, Zapatero said: “Let’s not turn economic forecasting into a fetish.”

•   On May 9, Zapatero called the economic crisis “a transitory deceleration, now more intense.”

•   On June 4, Industry Minister Miguel Sebastián said Spain was facing an “imported problem.”

•   On June 5, Zapatero said the Spanish economy had “lost the capacity” to create jobs.

•   On June 8, Spanish Deputy Prime Minister María Teresa Fernández de la Vega said Spain’s economic slowdown is due to “radical neoliberalism,” by which she meant the free market.

•   On June 11, Zapatero said the Spanish economy is facing a “period of objective difficulties.”

•   On June 11, Solbes said “Yesterday, the only thing I said was that we need to prepare for a crisis, but I never talked about the crisis.” Solbes was referring to his use of the word “crisis” during a closed-door session of Congress. The parliamentary spokesman for the Socialist Party, José Antonio Alonso, said Solbes had suffered from a “slip of the tongue [lapsus].”

•   On June 12, Zapatero said: “Every person should call the economic situation what he or she wants.”

•   On June 13, Solbes said the Spanish economy was experiencing an “abrupt adjustment” and not a “crisis.” Using the word “crisis” is “abusing a false affirmation. Crisis means that everything is going badly and that every other thing is going well, neither one thing nor the other,” he explained.

•   On June 15, Solbes said that “all citizens need to tighten their belts.”

•   On June 16, Labor and Immigration Minister Celestino Corbacho announced measures to pay unemployed immigrants to leave Spain for at least three years.

•   On June 19, Zapatero justified his government’s approval of an 8.0 percent increase in the cost of electricity by saying that Spanish “families should use less” energy.

•   On June 22, Zapatero said the Spanish economy was going through “a moment of uncertainty with serious difficulties that directly affect the citizens.”

•   On June 23, Zapatero said the Spanish economy would “overcome serious difficulties.” He then announced that he would freeze his annual wage at 92,000 euros.

•   On June 24, Solbes said Spaniards “should not be afraid and should go on [summer] holidays.”

•   On June 26, Zapatero blamed “the neo-conservative model based on capitalism without borders nor limits nor ethics.”

•   On June 29, Zapatero said: “To say that we are in a crisis is a matter of opinion. It all depends on what we mean by crisis.” He added: “Talk about concepts like crisis belongs in the field of academia.”

•   On June 30, Sebastián told a gathering at the Expo 2008 in Zaragoza that a “Made in Spain” campaign could improve Spain’s image abroad and thereby increase exports, which he said could be the motor that drives the economic recovery.

•   On July 2, Zapatero told a special session of Congress that “the situation we are passing through is clearly difficult and complicated” but on the bright side “we have never been in better shape to confront a situation like this one.”

•   On July 2, Sebastián attended a session of Congress without wearing a tie. He said going tie-less is his way of saving energy on air conditioning. Sebastián has ordered the temperature at the ministry set to 24 degrees until October, after which he will resume wearing a tie. Labor and Immigration Minister Celestino Corbacho has also stopped wearing a tie, to show “solidarity” with Sebastián.

•   On July 3, Zapatero said things are now “going less well.”

•   On July 4, ex-Labor Minister Jesús Caldera addressed the Socialist Party national congress in Madrid, saying the current economic situation “has a lot to do with the neo-conservative thinking preached by US President George W Bush, which has resulted in capitalism without ethical limits.”

•   On July 4, Zapatero said: “To be optimistic is something more than a rational act, it is a moral requirement, an act of decency and, if I may say so, elegance.”

Soeren Kern is Senior Analyst for Transatlantic Relations at the Madrid-based Grupo de Estudios Estratégicos / Strategic Studies Group

Warning # 2

Submitted by marcfrans on Thu, 2008-07-10 17:33.

@ Vincep1974

I am slighly more optimistic than you.

Yes, Justice Kennedy and his (occasional) "4 friends" do believe in "evolving standards". But, that does not mean that they believe in criminalising all expression of particular ideas (I have not seen evidence of that). By contrast, many (perhaps most) European politicians and jurists today do. Also, remember that the Constitution was written in the 18th century. It does not cover everything. Some of the "evolving standards" are really 'original' in some sense.

Yes, I agree, there are those on the Left who are desperate "to show Europe that America can be like Europe". But they are only (a big) part of "the Left". And, only a minority of the Left would subscribe to the way you phrased it. At the same time, virtually no one on the Right wants to be like "Europe" (with some exceptions of course, especially those few with vacation homes in the south of France).

marcf

Submitted by Vincep1974 on Thu, 2008-07-10 13:20.

I do believe that there is still a significant cultural difference between Europe and the US on this crucial matter. Several European parliaments have expressly forbidden the expression of certain ideas, and they have criminalised highly subjective concepts like 'racism' and 'insults'. That kind of mind control is still impossible to imagine in the US today. Not even Justice Kennedy and his more liberal colleagues on the Supreme Court would countenance such blatant disregard for freedom of political speech.

I am in total agreement with your assessment about American society in general. However I have no confidence that the Supreme Court cares one bit about that. I dont think the American people's viewpoint has any influence on the Justices like Kennedy and his 4 friends.

They clearly dont care what the Constitution says. It's all about what the "evolving standards" are today. And for whatever reason, the Left in America is so desperate to show Europe that America can be just like Europe.

Warning

Submitted by marcfrans on Wed, 2008-07-09 15:45.

@ Onecent

1) Vincep1974 is right that freedom of speech is under threat everywhere, including the US. The products of 'academic speech codes' are now occupying seats in Congress and elsewhere, and a variety of regulations (Including McCain& Feingold on campaign finance) can be construed or interpreted as acting as limitations on speech. And, let's admit that Vincep's joke about Justice kennedy's "shrimp" is superficially very funny, while being profoundly sad too. And, yes, Nancy Pelosi does represent a genuine threat to freedom of speech, and she is the most senior person in the US Congress today.

2) At the same time, you have a point too. Regulations of all sorts of matters are often unavoidable or necessary. And when it comes to freedom of speech one must look at the spirit of the value involved, not numerous specific applications. What matters, first and foremost, is that all ideas are allowed or can be expressed, and not that they could be expressed anywhere, anytime, by any method. I do believe that there is still a significant cultural difference between Europe and the US on this crucial matter. Several European parliaments have expressly forbidden the expression of certain ideas, and they have criminalised highly subjective concepts like 'racism' and 'insults'. That kind of mind control is still impossible to imagine in the US today. Not even Justice Kennedy and his more liberal colleagues on the Supreme Court would countenance such blatant disregard for freedom of political speech. Nor could there be a majority found in the US Congress for such type of laws, despite Nancy Pelosi. So, you have a piece of the truth too.

onecent

Submitted by Vincep1974 on Wed, 2008-07-09 06:45.

Come on, and, think this through, please, the US has a miniscle Muslim population. We have free speech and the right to bear arms codified in our Constitution, that's not going away, a huge plus for us. Most Europeans don't have a written iron-clad constitution, they lose to any and every fascist on that big issue.

Things are hardly dire here. Islam isn't really willing to take on the people that have taken on the Taliban and Saddam with military force. Islam understands power and force. It understands that all of the Euroweenies that dump on Bush for being a cowboy are easy pickings.

Um, I did think it through. I stated it's very unlikely that any sort Borgification would sucede in the US. I left it to the reader to extrapolate my point that high-density enclaves are critical to the take-over of a polity:

[Me:] One thing to the advantage of the average US Citizen is that the US is a low-population density country. So it's very unlikely that Muslims would be able to ghettoize much of the country.. just the Democartic-run major cities.

Regarding "ironclad" protections for Speech and Bearing Arms, I suggest you take off the rose-colored glasses. Nothing is Iron-Clad when we have a Supreme Court that acts as a Consitutional Convention every time it is in session.

You realize that if Justice Kennedy had bad shrimp on his flight to Washington from Vienna in order to rule on the DC Gun Ban case that the decision could have gone the other way, and *POOF* there goes your iron-clad Second Amendment rights.

As far as Speech goes, I dare you to try to get a television ad to air in October advocating to your fellow citizens to not vote for Obama. Oh.. can't do it.. It's illegal.

The group Citizens United made a movie called "Hillary: The Movie", which was a anti-hillary documentary. They were prohibited from having the film be released in theaters because it violated campaign finance laws to do so.

Just wait till the Muslims inflitrate all sectors of our government and academy (they already have IMHO).. just wait till the Nancy Pelosi of the country take time from getting their carcass stretched tighter than Joan Rivers face to pass the Fairness Doctrine and Hate Crime Speech laws.

But in any case that's all abstract because they're not going to be able to dominate the country .. like i said. they're aiming for destruction via WMD. Plan B is the slow Borgification.

If Islam wants to deal us a nuclear bomb, then, they know they'll get one in return. With the EU they'll score a surrender as it stands now.

You win my "Dumbest Argument Ever" award. Wow.. we're going to nuke them back. I live and work in Downtown Chicago. I'll be dead or dying from liquidification... I really don't care at that point.

America - Islam

Submitted by Vincep1974 on Tue, 2008-07-08 05:32.

A few years ago i was of the opinion that we wouldn't stoop to European-levels of Self-Dhimmitization , but I am no longer of that opinion. The US is on the same path that the rest of the world is. Namely, denial of reality, and incurable Islamophobia (the real Islamophobia.. the kind where you bend over so much to accomodate the scary Muslim people that you even preemptively capitulate to demands that they didn't even have the balls to make yet.)

One thing to the advantage of the average US Citizen is that the US is a low-population density country. So it's very unlikely that Muslims would be able to ghettoize much of the country.. just the Democartic-run major cities.

However, a thing to our disadvantage is that the Muslims readily admit conquering the US is a tall order, so they rather just destroy it , nuclear bomb style.

@Vincep1974

Submitted by onecent on Wed, 2008-07-09 00:44.

If Islam wants to deal us a nuclear bomb, then, they know they'll get one in return. With the EU they'll score a surrender as it stands now.

Depressing

Submitted by marcfrans on Mon, 2008-07-07 17:06.

While I largely agree with Mr Kern's views on Spain, I find the 'uniformity' of opinions expressed by the commentators rather depressing. Two specific points:

-- Akira's 'Schadenfraude' is definitely not a morally-commendable sentiment. Also, his thesis that the 'reconquista' of Spain could be a "good thing" in the long run, strikes me as absurd. "The fall" of a major European state is very unlikely to restore sanity in Europe's (or western leftist) 'elites'. It is much more likely to hasten the 'collapse' (in the sense of seeking 'accomodation' with islam) elsewhere in Europe. That was certainly the lesson of experience with 'fascism' in the 1930's, and also of more recent events in European history (e.g. the 'missile crisis' during the cold war, European reponses to islamic terrorism in recent decades, etc...). No, instead of benefiting from the collapse of a major European state, the Europeans are much more likely going to swim or sink together. They will either succeed together in preserving genuine 'European' Enlightenment values (especially freedom of speech), or they will join 'Eurabia' more or less simultaneaously over a relatively short time period.

-- Amsterdamsky does not seem to realise that there is nothing certain or fixed about "labor force participation rates". These rates have moved in opposite directions in a variety of countries in recent times, because they are very much subject to policy measures. For example, the 'welfare reforms' of the mid 1990's in the US led quickly to a substantial increase in labor force participation. Whether the effects are temporary of more permanent will depend on policies and thus politics. Similarly other countries have taken a variety of measures in 'social security' with varying results in terms of impact on labor force participation.

In defense of Socialism

Submitted by Amsterdamsky on Mon, 2008-07-07 08:55.

Socialism or socialist concepts can work better when free market competition is impossible or for long term projects were capital markets don't work well like long term science projects like space exploration, fusion reactors, tunnel or bridge building. I don't see anyone privatizing their militaries anytime soon either. Water works and electrical transmission lines seem best served by the government.

Be careful what you wish for, or whom you vote for

Submitted by YankeeDave on Mon, 2008-07-07 03:46.

A final thought. The old saying is "be careful what you wish for, as you may get it."

The democratic electoral corollary is "be careful whom you vote for, as they may win." It's been said that Socialists have learned all the wrong lessons from History and none of the right ones. They're incapable or unwilling to change.

However, the Spanish electorate had the benefit of watching what a century's worth of European history tells about Socialist governments. SOCIALISM DOESN'T WORK AS IT'S IN DENIAL OF FUNDAMENTAL LAWS OF ECONOMICS.

The Spanish people were careless about who they voted for. Now they have to live with the consequences of their choice.

@ Akira

Submitted by Frank Lee on Mon, 2008-07-07 03:44.

I can't speak for Europe on this point, but if the definition of Muslim conquest is that debate or criticism of Islam is limited, then the United States is clearly part of the Muslim world already.

Akira, thoughtful posts. ......

Submitted by onecent on Mon, 2008-07-07 15:15.

The US is never going to have the Muslim problem that Europe does just by the numbers and our lack of geography with the Mediterranean. What happens to the EU if/when Turkey is admitted? To me that's the tipping point, the point of no turning back. It's the French with their perpetual delusions for grandeur that promote and see themselves as the masters of an Eurabian empire as Bat Ye'or has written about:

http://www.frontpagemag.com/Articles/Read.aspx?GUID=0876143D-ECB0-4B31-B...

Socialism shapes a collective sheeple attitude that is ripe for dhimmitude. Europeans long ago traded off free speech, the right to have arms for personal protection and economic risk taking behavior to the state. Small pockets of rebellion, the few disempowered sceptics in the EU aren't going to save Europe. Like posters that spew their stale well learned socialist ideas here, there isn't much fresh intellectual capital left in the EU to forge a risk taking solution to the problem.

Europeans are an aging population, servicing the all of the fat public pensions will distract them as they graze themselves into oblivion.

“To be optimistic..."

Submitted by YankeeDave on Mon, 2008-07-07 03:39.

It's been said that Hope makes a good breakfast but a poor dinner. Government policy, especially dealing with crises, ought to have a more substantial menu.

Sadly not.

"On July 4, ex-Labor Minister Jesús Caldera addressed the Socialist Party national congress in Madrid, saying the current economic situation “has a lot to do with the neo-conservative thinking preached by US President George W Bush, which has resulted in capitalism without ethical limits.”

This Socialist former Cabinet Minister has nothing to offer to buttress this unsubstantiated Hope, to deal with this major domestic economic crisis except a gratuitous, totally irrelevant, kneejerk-leftist, anti Bush remark, equating Bush, Capitalism and lack of ethical limits.

Pres. Bush will be out of office in seven months. What excuse will the Comrade Ministers of the Spanish Socialist government have then?

Spain: Immigrants Welcome

Submitted by ovalteen on Sun, 2008-07-06 14:38.

Spain is now well-placed to find out whether Diversity Is Our Strength or not. My money is on "not":

Spain: Immigrants Welcome

Over the past decade, the traditionally homogeneous country has become a sort of open-door laboratory on immigration. Spain has absorbed more than 3 million foreigners from places as diverse as Romania, Morocco, and South America. More than 11% of the country's 44 million residents are now foreign-born, one of the highest proportions in Europe. With hundreds of thousands more arriving each year, Spain could soon reach the U.S. rate of 12.9%. And it doesn't seem to have hurt much. Spain is Europe's best-performing major economy, with growth averaging 3.1% over the past five years. Since 2002, the country has created half the new jobs in the euro zone. Unemployment has plummeted from more than 20% in the 1990s to 8.6%, within shooting distance of the 7.2% euro zone average. The government attributes more than half this stellar performance to immigration. "We are very thankful for all these people who have come here to work with us," says Javier Vallés, economic policy chief for Prime Minister José Luis Zapatero.

http://www.businessweek.com/magazine/content/07_21/b4035066.htm

Those whom God wishes to destroy, he first drives insane.

Labor Force Participation

Submitted by Amsterdamsky on Sun, 2008-07-06 08:43.

I think the entire west is in for a steep decline as labor participation drops and the growing ranks of retirees suck on a dwindling supply of funds. Not like nobody saw this coming.