In the last month Spain’s credit rating has been downgraded two grades, from A to BBB+ and new unemployment figures have revealed one in four Spaniards are now out of work, including an unfathomable 52% of under 25’s. The prospects for Spain are extremely bleak, but the repercussions for the rest of Europe and the Euro may be equally dire.
Can Euro survive bail-out of Spain?
Spain – the Eurozone’s fourth largest economy – is in deep crisis and threatens to re-ignite further banking turmoil.
The right-wing Popular Party (PP) government has embarked on a €27 billion austerity programme of spending cuts and tax rises which is hammering the Spanish working class. In fact, the Spanish Prime Minister, Mariano Rajoy, accepted that his “very, very austere” measures would “cost him a general strike”. At the behest of the European Commission the PP are attempting to cut Spain’s deficit from 8.5% to 5.3% this year, something even right wing economists believe to be totally unachievable. On top of this, Spain’s 17 autonomous regions have outstanding debts totalling €135 billion. The political strain on Spain’s internal politics is mounting and tensions between central and autonomous regional governments have resulted in a swing in the polls towards the regional nationalist parties. Given the scale of the crisis it seems that Spain will follow suit with Greece, Portugal and Ireland and, despite protestations of Spanish politicians, require a massive bailout. The question is however, who can afford to bail out Europe’s fourth largest economy?
The similarity between the Spanish and Irish crisis are stark. As in Ireland, the Spanish economy experienced a massive property boom, followed by a bust with the arrival of the 2008 financial crisis. It is believed that Spanish banks are still sitting on around €100 billion in losses. Many international banks, including French and Italian banks are left exposed. Like Ireland, Spain has ghost housing estates, however the number of houses are in the millions and the fact that a newly built airport stands idle brings the scale of the crisis into sharp focus. Potential losses in the financial sector are massive. Given the size of the Spanish economy and the involvement of international banking, the risk of the crisis spreading is an immediate threat to the world economy as a whole.
One option being promoted as a ‘solution’ to Spain’s woes is the setting up of a ‘bad-bank’ modelled on the unmitigated disaster of NAMA in Ireland. This proposal would mean the Spanish state taking on the banks and speculators debts and placing them on the shoulders of working class people. This is no solution. It would still mean Spain would most likely require a bailout. With euro-zone corporations unwilling to invest their €2 trillion cash holdings anywhere, the only option currently on the table is the €900 billion European Stability Fund. This is not enough to save Spain. As they currently exist, the recently ‘beefed up’ ESF is not capable of bearing the burden of a Spanish default. With austerity leading to a deepening of recession across Europe and the danger of Portugal, Greece and Ireland defaulting on current EU/IMF bail-out commitments, the increasing likelihood of Spain requiring a colossal bailout spells disaster for the Euro and the world economy.
Opposition to austerity is growing across Europe and in Spain as seen in the magnificent 10 million strong general strike on March 29th. The key parts of the economy; industry, transport and agriculture saw upwards of 95% participation in the strike action. However Rajoy had already counted on a general strike and the character in many parts of Spain was of protest, not a real challenge to the government. The strike did however see, for the first time in decades, uniform strike action throughout Spain. Neither the EU nor the Spanish central government is differentiating between regions when they are doling out poverty through austerity, and workers responded in kind with over 4 million people taking part in mass demonstrations the length and breadth of Spain. The only way forward for workers in Spain and throughout Europe is to unite in struggle against the dead-end policies of austerity that are strangling the economy and driving living standards into the dirt. This struggle must be linked to a programme to end the dictatorship of the markets and big business and for workers throughout Europe to jointly struggle for a socialist confederation of Europe to meet the needs of society, not the profits of the financial sharks.
