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    Spain is one of those places in Europe where Austerity has been in full swing. Budget cuts, downsizing, trimming government services...how well has that worked anyway?

As Spain enters another year of recession, Europe's politicians offer only one remedy. It must swallow more of the harsh medicine of austerity. But will it survive the cure? And will the spiral of decline really come to a halt towards the end of the year, as Prime Minister Mariano Rajoy promises?

Already the country's social fabric is tearing. Family networks keep the working class going as unemployment hits 26%. Fewer than half of those aged under 25 find work. Anecdotes of misery abound. Grandmothers with memories of the "hungry" 1950s cook up large pots of lentils to feed unemployed grandchildren. At night, small crowds gather outside supermarkets in poorer neighbourhoods of Madrid, seeking thrown-out produce. In middle-class neighbourhoods ghostly figures wander the streets rummaging through bins by night.

Surely the conservative Popular Party politicians pursuing policies of privation perceive the pain they're producing, right? Maybe not. The BBC has news of a scandal rocking the Popular Party, from the Prime Minister on down.

More below the Orange Omnilepticon

        The Spanish economy is another victim of the flaws in the European Monetary Union, where the collapse of a housing bubble in Spain sent the economy into a downturn and the government running deficits as a result. The response has been to impose austerity measures: lay off public sector workers, cut government spending, raise taxes, and the rest of the usual remedies. And as has been noted, contractionary policies are...contractionary.

   Prime Minister Mariano Rajoy announced tough new austerity measures back in July on top of measures already taken. Part of the logic behind them is to make Spain more competitive to boost exports, by lowering labor costs. But...

Fresh data from the OECD show that Spain has narrowed the gap in “unit labour costs” with Germany by 5.5% over the past year alone. It has clawed back 4.6% against France and 6.6p% against Austria since late 2011, as it slashes pay and pursues a scorched-earth policy of “internal devaluation”.

Luis Maria Linde, the Bank of Spain’s governor, says that within two years the country will have recovered “almost all” the ground lost during the first disastrous years of euro membership. The total gain in competitiveness against the EMU bloc since 2008 has been 10%.

Yet economists say it is far from clear whether Spain is chasing the right target or even whether it can recover within EMU. Deflation has pushed the numbers out of work to 26.2%, with 55.9% youth unemployment.

“This has come at a massive cost. If you put a whole generation out of work, you damage your trend growth rate for a long time,” said Marchel Alexandrovich from Jefferies Fixed Income.

emphasis added

       The cost of bailing out the Spanish banks has been to throw people out of work wholesale, put an entire generation permanently behind economically, and generally make a bad situation worse.

    Which is why it is a particularly bad time for this story to break about Rajoy and the other leaders of the Popular Party.

Spanish Prime Minister Mariano Rajoy has strongly denied media claims that he and other members of the governing Popular Party received secret payments.

"I have never received nor distributed undeclared money," he said, stressing that he would not resign.

El Pais newspaper published photographs of ledgers showing payments to Popular Party figures on Thursday.

It said Mr Rajoy had collected 25,200 euros (£22,000; $34,000) a year between 1997 and 2008.

Mr Rajoy and his party were elected by a landslide in November 2011 on a promise to reduce the high public deficit.

But wait, there's more.
El Pais said the photographs it had published were of ledgers kept by former [Popular Party] treasurers Luis Barcenas and Alvaro Lapuerta between 1990 and 2009.

Money was allegedly paid by firms via Mr Barcenas, who stepped down in 2009 and is currently under investigation for money-laundering.

Investigators recently revealed that Mr Barcenas held a Swiss bank account which at one point held as much as 22m (£19m; $30m) euros.

Until 2007, Spanish political parties were allowed to receive anonymous donations.

      The sad thing about this is, from a U.S. perspective, we're talking about chump change comparatively (by just one example). Meanwhile, millions of Spaniards are suffering to atone for the sins of the bankers and the politicians.

       And the deficit hawks in the United States think that's just what we need here.

Poll

The Pain in Spain Falls Mainly on:

0%0 votes
28%10 votes
68%24 votes
0%0 votes
2%1 votes

| 35 votes | Vote | Results

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Comment Preferences

  •  Tip Jar (13+ / 0-)

    Follow the money. It's that simple.

    "No special skill, no standard attitude, no technology, and no organization - no matter how valuable - can safely replace thought itself."

    by xaxnar on Sat Feb 02, 2013 at 03:54:23 PM PST

  •  Personal experiences (4+ / 0-)

    A few years back we made our first visit to Pamplona. The building was so fast they couldn't even keep track of the street addresses. Thousands of wind generators along the mountain range were ready for an expected economic boom. Part of the reason was that the Basque region needed jobs, and this was not only economically but socially smart.

    Then the recession hit--here worst of all. A visit a couple years later showed unfinished buildings and unfinish dreams. We saw the encampments of unemployed in Saragosa.

    Lots of mistakes here, but it's hard not to imagine that there's still potential here under proper government management.

  •  DIMISIÓN INMEDIATA! (2+ / 0-)
    Recommended by:
    xaxnar, Lonely Texan

    What a pathetic bunch of crooks. You can be sure their families are not rummaging through garbage bins.

  •  I heard there's a barter economy going now (3+ / 0-)
    Recommended by:
    Laurence Lewis, xaxnar, Lonely Texan

    and people are printing their own money.  Do you have details?

    Sounds as if Spain did the opposite of Iceland, and look at Iceland now.

    "Religion is what keeps the poor from murdering the rich."--Napoleon

    by Diana in NoVa on Sat Feb 02, 2013 at 06:22:36 PM PST

    •  What do you mean "look at Iceland now"? (0+ / 0-)

      And before you answer, I should add, I live in Iceland.

      •  I think it's meant as a compliment (0+ / 0-)

        The Iceland example being that, protecting the banks was not the government's highest priority.

        At least, that's what we're hearing from people who aren't totally committed to austerity. What's it look like from where you are?

        "No special skill, no standard attitude, no technology, and no organization - no matter how valuable - can safely replace thought itself."

        by xaxnar on Sun Feb 03, 2013 at 07:42:06 AM PST

        [ Parent ]

        •  How about the fact that we did do austerity (0+ / 0-)

          (about half of our shortfall was made up with it), our exchange rate is half what it was when the crisis started, our unemployment rate is still double what it was when the crisis started, our stock market is still basically nonexistant, we have huge outstanding loans, we spent a ton of money restructuring the banks in receivership, etc.

          And that picture you linked is a fake.

          •  Which is why I asked - YMMV (0+ / 0-)

            The reports I'm seeing are that Iceland is still doing much better than Spain, Ireland, Greece. That doesn't mean everything is great, but still better.

            And there's this:

            But during the crisis, the country did many things different from its European counterparts. It let its three largest banks fail, instead of bailing them out. It ensured that domestic depositors got their money back and gave debt relief to struggling homeowners and to businesses facing bankruptcy.

            "No special skill, no standard attitude, no technology, and no organization - no matter how valuable - can safely replace thought itself."

            by xaxnar on Sun Feb 03, 2013 at 01:15:26 PM PST

            [ Parent ]

            •  Thank you, xaxnar, yes, I did mean it as a (1+ / 0-)
              Recommended by:
              xaxnar

              compliment.  Thank you for mentioning it.

              No country is perfect, including our own, but I had the impression that Iceland handled its crisis a lot better than some countries.

              "Religion is what keeps the poor from murdering the rich."--Napoleon

              by Diana in NoVa on Sun Feb 03, 2013 at 05:57:48 PM PST

              [ Parent ]

            •  Yes, the (0+ / 0-)

              here want to pull their hair out.

              First off, trying to make comparisons to begin with is fundamentally flawed for a number of reasons.  First, the scale of the crisis.  Yes, many places have had financial crises recently.  None like Iceland.  To give you a sense of the scale of the collapse of the Icelandic banks, remember how huge Lehman Brothers was, that crash?  The three main Icelandic banks that went down, combined, had about half the unpaid obligations as Lehman Brothers.  The US has 1000 times the population of Iceland.  So that's a per-capita rate 500 times that of the Lehman Brothers failure.

              The Icelandic banks were not just big in Icelandic terms.  They were big in global terms.  In a country of only 320,000 people.  It was simply impossible for the government to back all obligations.

              Also, unlike many countries, Iceland wasn't  required to back all of the obligations.  Iceland was treaty-bound to create a means to insure the banks against a crash.  Iceland's approach at the time was to create a private insurance account that all banks had to pay into.  They did not at any point promise government backing.  This is quite unlike the banks in most other countries, which were government-backed.

              Third, Iceland is not on the Euro.  Obviously this matters, having a free-floating currency.  Oh, and FYI, that collapse of the króna's value is like everyone's salaries got massively cut all at the same time (most goods here are imported).  On top of the austerity.  And the rate hasn't improved one iota since then.  Oh, but hey, we "bailed out the people", right?

              Fourth, the whole Icesave crisis was because others "bailed out their people" too in the way you're arguing Iceland did (namely in that case, the British and the Dutch).

              Fifth, Iceland widely used a type of loan nearly unique in the first world (I believe Hungary is the only other first world nation to use them, and to a much lesser degree) - loans indexed to a foreign currency, not your own.  That means when the exchange rate changes, your principle owed changes.  So when you hear about the loan restructuring, you need to realize that it only applied to this one weird kind of loan, which passed all of the risk of a currency collapse onto consumers.  They were ruled unconstitutional by the Supreme Court, but the government did the bare minimum to comply with the ruling rather than just void them, and simply converted them to standard loans at a higher interest rate, and only in the case of where the loans hadn't inflated to too much over the property value (if you paid off half your loan, and then it ballooned all the way back to where it was when you started, tough luck).

              All of these "reports you're seeing" are trying to spin Iceland as some sort of anti-capitalist utopia, when the reality is we're the IMF's latest poster child.  Don't get me wrong - there's much that Iceland has done that was good, and much that was unavoidable.  But it's not the anti-capitalist fairy tale that the international-left wants to spin it into.

              •  Subject should have read: (0+ / 0-)

                Yes, the "reports you've been seing" make people
                here want to pull their hair out.

                •  I take your point (0+ / 0-)

                  The news about Iceland's recovery tends to make it sound as though there's no pain and suffering involved. Obviously not. And Iceland does have a different situation from the Eurozone; at least you still have your own currency and the measure of control that gives you over your fate.

                  While I can't speak for others who see Iceland as an anti-capitalist utopia, I'd suggest one reason why it is still seen as encouraging is that Iceland does not appear to be burdened by a political class in power that insists on learning nothing and staying the course, despite all indications it's the wrong course.

                  Given the prevalence of really stupid people running so much of the world, any place where there's at least a little divergence from that seems like good news.

                  Having said that, what mistakes do you think are still being made, and what could be done differently? I think there's plenty of material for a diary from someone experiencing it, if you feel so inclined.

                  "No special skill, no standard attitude, no technology, and no organization - no matter how valuable - can safely replace thought itself."

                  by xaxnar on Mon Feb 04, 2013 at 09:38:59 AM PST

                  [ Parent ]

                  •  FYI... (0+ / 0-)

                    Sjálfstæðisflokkurinn, the conservatives who managed the country up to the collapse, including supporting all of the deregulation, are currently winning in the polls.  Does that count as a mistake?  ;)

                    •  It will if the parties opposing them (0+ / 0-)

                      Fail to remind voters who got them where they are today.

                      "No special skill, no standard attitude, no technology, and no organization - no matter how valuable - can safely replace thought itself."

                      by xaxnar on Mon Feb 04, 2013 at 11:19:17 AM PST

                      [ Parent ]

                      •  You think they haven't been? :Þ (0+ / 0-)

                        The left keeps getting more fragmented, the right is unified.

                        At least the left will tend to be more natural coalition partners for each other, although there are some pretty large divides, for example, EU accession...

  •  56% (3+ / 0-)
    Recommended by:
    Lonely Texan, isabelle hayes, xaxnar

    unemployment among young people in Spain.  Its already been proven that austerity doesn't work.... the bankers have not paid for their fraud and corruption but the politicians in Spain and everywhere will not allow the corruption and fraud to stop.... in order to 'save' the system ... which it won't.  That is all I have to say about the whole sick thing.

    "History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance." -James Madison

    by FreeTradeIsYourEpitaph on Sat Feb 02, 2013 at 08:55:56 PM PST

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