The vulture of bankruptcy is also circling over spain

With austerity measures and pension cuts, Madrid is trying to rid itself of the suspicion that it poses an even greater threat to the euro than Greece, as some fear

Many renowned analysts believe that Spain is also a candidate for bankruptcy. Some even say that the real crisis potential for the euro is to be found on the Iberian peninsula. According to the British Financial Times, "a potentially much more serious drama is brewing in Spain" than Greece, which is now obviously being bailed out. Madrid is now trying to win back confidence with diplomatic initiatives, austerity plans and a planned increase in the retirement age. But slowly but surely, even in Spain, the pro-government unions are getting fed up with the idea that, in the face of record unemployment, ordinary people should be asked to pay for the crisis.

Spain is proud of the fact that the population of endangered vultures has recovered in recent years. Are these the vultures of bankruptcy that circle over a country in large numbers?? In any case, fears are growing louder that Spain, with its severe economic crisis, is becoming a test case for the euro, which even has the potential to break up the common currency area. Greece, at best, in tow with a crashing Spain, poses a real threat to the community’s security.

The bankrupt vulture also circles over spain

On the fringes of the Davos World Economic Forum, the renowned New York economics professor Nouriel Roubini had lived up to his reputation as a "Mr. Doom" and even held out the prospect of the end of the common currency area. He told the Bloomberg news agency that he has never been so pessimistic about the future of the European monetary union as he is today. However, the monetary union is still "not this year or next year" but probably only later. Roubini pointed to Spain as an example of an economy in the euro zone plagued by enormous structural problems. The euro zone is therefore in danger of splitting up. The euro area is breaking up into a "strong center and a weak group of countries on the periphery; and one day some countries could leave the monetary union", Roubini also said with regard to Spain.

Mr. Doom is not alone in this view. In fact, the Spanish debacle had been looming for many years, with no action by the conservatives until 2004 and no action by the social democrats thereafter. Nobel Prize-winning economist Paul Krugman now believes that the crisis in Spain poses a much greater threat to the stability of the euro zone than the problems in Greece: "The major source of conflict is not Greece, but Spain", he writes in his blog. Krugman points out that Spain even had budget surpluses of more than 2% in 2006 and 2007 during the real estate boom.

But the higher the flight, the deeper the crash. Krugmann makes a "Collapse of the economy" in Spain, whose economy had been truncated for years to a good extent on a mad construction activity. The collapse of this single coarser economy is in fact the fundamental threat to the euro, analyzes the Nobel laureate. The crash is evident in the exploding budget deficit. From a gross domestic product (GDP) surplus in 2008 +(2.2%), the country immediately plunged deep into a budget deficit of almost 4% in 2009, as the economy went into free fall from gross highs. Therefore, in the context of the global economic crisis, it was easy to foresee that Spain could become a real problem for the euro.

The 6% difference between the 2007 surplus and the 2008 deficit in the budget made it unmistakably clear how dramatically the situation was developing in the land of Don Quixote. This enormous imbalance became even more pronounced in 2009. Although the government still expects a deficit of 11.4%, it is now widely expected that it could actually be well over 12%, i.e. similar to that of the Greeks. This is a further increase of over 8%, and not even the Greeks were able to keep up with such a dynamic. Spain already had a deficit in 2007 (- 3.7 %), which grew by 4 % in 2008. In 2009, a year of severe crisis, it then shot up to around 13 %. This was an increase of about 6.3%, which was significantly lower than that of Spain.

However, the momentum with which debt is rising in Spain is only one reason why alarm bells are now ringing everywhere. The difference in rough order plays a significant role. If Greece has now accumulated about 300 billion euros in total debt, Spain’s debt is already almost twice as high. Despite the announced austerity plans, the country will have to take on about 80 billion euros in new debt in 2010 as well. Thus, if these optimistic government amptions were correct, the deficit would still be 10%. Even the Ministry of Economics now openly admits this, having revised its previous forecasts significantly upward. The total debt to GDP ratio was then expected to rise to 66% in 2010. However, this is much less than in Greece, where 125% is expected.

If nevertheless also the British Financial Times speaks about the fact that "a potentially much more serious drama is unfolding in Spain" than in Greece, but also has only limited to do with the total debt. Because Spain is the fourth-largest economy in the eurozone. It is of a completely different caliber than Greece, which contributes only 2% to the economic output of the common currency area. "If Greece goes under, it would be a problem for the Eurozone. If Spain goes under, it would be a disaster", says the star economist Roubini.

Because Spain’s economy is four and a half times as big as Greece’s. Therefore, the expected bailout scenarios that are being considered for Greece (Euroland has burned down) are not so easily imaginable for Spain. In Greece, a bailout is now on the horizon, as reported today. Berlin, in particular, is obviously leading the way, because a bankruptcy would hit banks from Germany hard. It was clear that it would be difficult to let a eurozone country crash, especially since this could lead to a domino effect in Spain and other countries. The rude declarations from Berlin that Greece will not be bailed out are, as expected, old news.

Bailing out Greece to prevent Spain from crashing?

Spain is also a very special problem case because the prospects for economic recovery are particularly poor. According to economic researchers, including the International Monetary Fund (IMF), Spain will be the only major country in the EU whose economy will continue to shrink in 2010. Because the country simply cannot get out of recession. The government, with its many haphazard stimulus and support programs, has so far not even managed to achieve minimal growth in any quarter. Countries such as Germany have managed to do so, even though this trend was broken again in the fourth quarter.

Last Friday, the Spanish central bank announced that economic output shrank again in the fourth quarter of 2009. Spain has now been in recession for almost two years, wrote the daily newspaper El PaIs. And the main reason for this is the high unemployment rate. It has now officially risen to over four million in January. The Organization for Economic Cooperation and Development (OECD) has just published the data for December 2009. Spain is still the worst performer in this regard. The unemployment rate was found to be 19.5%. The 125.000 new unemployed in January are not yet included in the calculation. The average of the 29 OECD member countries in December was 8.8%.

Since the Spanish economy was mainly driven by domestic demand in the years before the crisis, the continued rise in unemployment is a heavy burden for the country’s development. By comparison: Unemployment in Greece is only about half as high. In addition, the social system on the Iberian Peninsula is full of holes. This ensures that the unemployed quickly find themselves without any help after receiving unemployment benefits. The 420 euro social benefit, eagerly introduced in 2009, is not suitable to cut consumption, let alone to stimulate it. It is paid only six months anyway (wage reduction and abolition of protection against dismissal to fight the crisis). The only thing that flourishes in the face of such a situation is the shadow economy. In it, countless people have to survive by necessity. This in turn leads to enormous shortfalls in taxes and social security contributions, and here too Spain is catching up with Greece.

However, a key factor cited by Roubini, Krugman and EU Economic Affairs Commissioner Joaquin Almunia as the main reason for Spain’s woes and negative outlook is its competitiveness. Productivity has been declining for many years (Spain continues to slide toward the abyss). A year ago, the European Central Bank (ECB) therefore ranked the country second to last, ahead of Portugal, in a study and made a "technological disadvantage" and a "Undemanding institutional environment" responsible for. This is also the reason why, in addition to Greece and Spain, Portugal is increasingly being mentioned as a candidate for bankruptcy, even though its general data are not comparable with those of Spain or Greece (the vulture of bankruptcy is also circling over Portugal)?).

The fact that the Spanish socialist Almunia now also mentioned his comrades in Madrid in the same breath as Greece particularly hurt Spanish Prime Minister Zapatero. Portugal and Spain had similar problems to Greece despite different starting conditions, Almunia said. "Their economies have been permanently losing competitiveness since the beginning of the Economic Union", in addition to their considerable budget deficits. At least in view of these statements, it is no longer surprising, even to the layman, that half the world made fun of the recent EU president Zapatero when he, of all people, wanted to impose penalties on EU states that do not do enough for their competitiveness (EU presidency with limited liability). Five years in office he let pass largely unused.

Spain’s government is desperately trying to win trust

Instead of taking advantage of the crisis to change course, Zapatero, for example, cut the budget for research and development. Since 2009, however, the government has been "Plan E" in many cities Burgersteige are repaved, office buildings are painted or brigades are set up to remove graffiti. He blames the misery on a conspiracy of speculators who bet against his country and the euro. His comrade Almunia has done the "Speculators" with his Greece comparison a "great service" the government said. Zapatero rejects all doubts about Spain’s stability, as he denied for many months that Spain is in crisis.

Today, he says, they have a "solid" Finances and will limit the debt again. He is currently spreading this message throughout Europe. His Minister of Finance and Economy, Elena Salgado, and the Secretary of State for the Economy, Jose Manuel Campa, first tried to diade the Financial Times in London on Monday, especially from the very critical reporting. They also met with institutional investors and other members of the press to promote confidence, so that the new government bonds are not made even more expensive by a further downgrade. The fact that the rating agency Fitch is now mentioning Spain in the same breath as Greece suggests that the country’s creditworthiness will soon be downgraded. Standard Poor’s (SP) had already set the view to "Creditwatch Negative" set.

Attempts were also made in Paris on Tuesday to present the government’s austerity plans in a good light. The government representatives announced during their roadshow that, if necessary, spending would be shortened beyond the current savings plans in order to meet the EU stability criteria and to bring the new debt below the 3% mark in 2013. Salgado and Campa, however, are not quite sure how this will happen. Their austerity plans could even prove to be a recipe for disaster in the country’s current situation. However, the plan to save 50 billion euros over the next three years has already been withdrawn to a large extent.

Saving on pensioners

A key part is to push through a pension reform now of all times. For example, the plans call for raising the general retirement age from 65 to 67. At present, employees can already "voluntarily" work longer in order to receive a pension from which they can live (Spain decided to increase the retirement age to 70) "voluntary" Extending the retirement age to 70). But the letter that Madrid sent to the European Commission in Brussels also spoke of a change in the basis of calculation: instead of the average wage of the last 15 years of work, the last 25 years before retirement were now to be applied. It is estimated that pensions alone were cut by 2%.

At the same time, the average pension is only 760 euros, and pensioners are obviously being asked to pay extra to pay for economic stimulus programs and bank bailouts that are causing the budget deficit to explode. Wages in the public sector are also to rise by only 0.3% in the next few years, and only one in ten of the positions that become vacant is to be filled again, which means that 160% of the jobs that become vacant are to be filled again.000 jobs were eliminated. But with these austerity measures, unemployment is likely to rise further. In addition, further purchasing power will be taken away from the people through tax increases, who will therefore have to further restrict their consumption. Some taxes were already raised after the last elections against all election promises. In June, a big gulp from the bottle will follow. The value added tax will be increased from 16 to 18% and the reduced tax rate will rise from 7% to 8%.

Fierce opposition is already developing, especially to the pension plans. Similar to Greece, downgrading of creditworthiness and interest surcharges are to be expected when it becomes clear that it is not possible to simply roll the bill onto the population. Zapatero had always stressed that pensions would remain untouched because his government considered them secure in the long term. Why Zapatero is going to this construction site without any great need, is one of the rudimentary riddles that the socialist gives up. This can really only be a bow to the rating agencies, as Greece is now also doing.

It is true that Spain is aging, but even in 2009, the year of the most severe crisis, the social security system generated a surplus of more than 8.5 billion euros. Two billion went into the pension reserve fund, in which 71 billion are now sitting on the high side. The government claims that the reform serves to future-proof the system. However, the pension plans in the original catch of the savings plan was attributed a savings potential of 4% of the gross domestic product (GDP).

Resentment among the population is growing

However, the outcry of the trade unions has already caused that the passage about the new calculation period was secretly removed from the letter to the EU. How the planned savings are to be financed in order to be able to continue to save up to 50 billion is an open question. And some experts also doubt whether the increase in value-added tax will lead to additional revenues in view of the flourishing shadow economy.

The question is even whether the government will manage to push through the intended increase in the retirement age. Resentment among the population is growing ever coarser in the face of record unemployment. Spaniards are wondering where they are going to work for two years longer. The coarse unions, which are close to the socialist government, are now striking sharper tones. "From 22. to 26. February, there must be an outcry from the working class in defense of the social systems", Ignacio Fernandez Toxo said. For the first time, the General Secretary of the Workers’ Commissions (CC OO), Spain’s largest trade union, is mobilizing its members massively against the government’s austerity plans.

Toxo, meanwhile, calls the socialist government a "Gang of amateurs". Together with the UGT, the CCOO now also wants to overturn the increase in the retirement age. He does not (yet) want a general strike, as the United Left (IU) has been calling for a long time. Toxo, however, rejects it as "last extreme means" but also not completely. The union leaderships are coming under increasing prere from the rank and file as a result of the polls. 50% of Spaniards expect them to stage a general strike to defend the current retirement age. Even almost 75% reject the increase. There is practically no difference whether the voters are from the ultra-conservative People’s Party (PP) or the Socialists (PSOE). When it comes to the demand for a general strike, even PP voters clearly prevail with 63 %. This is understandable, because a general strike would bring about the early end of the socialist minority government, which the PP would like to see. In election polls, it has already extended its lead over the PSOE to 6%.

This is the only reason why the unions, unlike in Greece, are still so reluctant to go on strike and have now even agreed with the employers on far-reaching wage restraint for the framework collective agreement. Wages are expected to increase by only about 1% in the coming years. They know that a PP government would try to make even deeper cuts. They also know that the PP in particular has laid the foundations for this enormous crisis in eight years of government. Thus, with the planned protests, they are initially only showing Zapatero the yellow card.

But then there is also a labor market reform planned. The last major reform of the PP government under Jose MarIa Aznar was largely overturned by a general strike in 2002. Whether this time, too, the last resort will have to be resorted to depends on how far Zapatero will give in to the employers’ demands. They want to have even cheaper employment and further reduce the employee share of social security (Spain also has a labor market reform). Protection against dismissal has practically ceased to exist, only the severance pay still represents a certain hurdle for the employers. Last summer, Zapatero still rejected the far-reaching demands of the employers as "Attack on the welfare state" and declared the social pact talks over (Spanish media reality).

Telepolis has started a survey on this topic: Which countries should be thrown out of the euro zone??