Luis Martín

Why social tension in Spain does not boil over

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This article originally appeared in El Confidencial in English and in ZeroHedge


Spaniards have come to accept that their country’s dire state of economic affairs will take years to overcome. After witnessing the suffering experienced by their European neighbors, particularly in Greece and Portugal, Spanish citizens have also accepted significant tax increases and the overall deterioration of their household economies with stoic resignation. Political and social stability have admirably prevailed.

As national economic indicators continue to confirm an even more painful future with record-high unemployment and unabated economic stagnation, one can only ask how much longer such stability will last.

The short-term outlook: more of the same

In the midst of stubborn unemployment figures, rising taxes, higher utility bills and falling wages, Spanish households are facing the arduous task of reducing their debt. While consumption has fallen marginally in real terms, so have savings, which have gone into negative territory. It now looks like Spaniards may soon (within months) have to further reduce their consumption habits and renew efforts to reduce their debt.

The state finds itself in a similar situation: in spite of budget cuts and reforms to reduce the deficit, the economic slowdown has had a negative impact in terms of revenues, as well as in the government’s ability to finance itself. Consequently, the revised 5.8 percent deficit target for 2012 seems extremely difficult to attain.

Spain’s exports have shown positive signs. However, this seems to be the case only on the surface, as more time is needed to properly assess if the trade balance improvement is actually a trend. For now, three constants remain solid in an area in which all European nations fiercely compete with one another: imports are falling due to the downturn in the economy, Spain’s dependency on foreign raw materials and energy continues to be high, and the race for competitiveness is far from over.

Over 90 percent negative about the economy

The latest public opinion survey by Spain’s Center for Sociological Investigation (CIS) reveals that 9 out of 10 Spaniards regard the current economic situation as “bad” or “very bad.” The survey also confirms the order of Spaniards’ main concerns: unemployment, the economy and the political class.

Clearly, Spaniards connect the current state of economic affairs with their perception of an inadequate political establishment coupled with corruption. Why is it then that the current economic reality and dire outlook (along with Spaniards’ indentifying the political class as partly culpable for it) not translating into social disorder?

There may be four important factors keeping the streets below boiling point: 1) Spaniards do not feel the relative deprivation that reigns in Greece; 2) Family networks of support have proven highly effective; 3) Unions have refrained from adopting a belligerent attitude; and 4) The government’s lack of a sensible communication strategy has not yet caused a disaster.

“Spain is not Greece”

The teeth-pulling negotiations of the first Greek bailout may be encapsulated in the following comment, made by German Chancellor Angela Merkel to Greece’s former Prime Minister George Papandreou“We want to make sure nobody else will want this.” As far as Spaniards are concerned, Merkel was spot on.

Indeed, Spaniards have witnessed the tragic economic, political and social developments which have taken place in Greece and have embraced the politicians’ “Spain is not Greece” mantra, but in the “things could be worse” sense of the phrase.

Comparatively speaking, Spaniards are comforted by the fact that their country is not in such a terrible shape. Greece has become the ultimate threshold of economic suffering, one that Spaniards believe they will never have to cross, but which leaves quite a bit of room for pain.

There is also the element of how the entire Greek situation has been handled from the beginning. It echoes the frog in the pot analogy: the Greeks were thrown into the boiling water, while the Spaniards are being slowly warmed up.

Why the country is not in flames

Many ask how a country boasting the highest unemployment rate in the western world is not in flames for that very reason. The answer is three-fold: a strong unemployment benefits program, a growing underground economy, and the weaving of family support networks. These three elements sometimes even work together all at once.

While in some regions of Spain unemployment is a high as 32 percent, pensioners are now sharing their monthly check with their children. The long-term unemployed (particularly low-skilled labor) manage to survive in the black market economy. Then there are cases where unemployment benefits are too low for survival, so individuals resort to their relatives and the black market economy.

A simple example: If an unemployed plumber wishes to get off welfare (say he is receiving the lowest €426 monthly aid) and offers his services on his own rather than waiting for a job opening, besides giving up his unemployment benefits he is automatically liable to pay over €260 per month in social security; a monthly tax that he must pay whether or not he is able to generate income. Obviously, the incentive to enter the formal economy is simply not there.

The combination of the above, while keeping the streets calm, is equivalent to poison for the country’s ailing economy. Ideally, the government should switch the incentives that would promote self-employment when companies are not hiring, and make it easier for people to take on risks. However, that would require lowering taxes (and eliminating red tape), which is the opposite to the government’s current program to decrease the deficit.

Unions keeping it cool – for now

Spanish labor unions share almost the same loss of public credibility as the politicians they often confront. Their recent calls for protests, including the general strike of last March, have proven to be not only futile, but also receiving quite low support.

Also, as struggling small businesses have had to reduce staff (or shutdown altogether), labor unions’ have kept a rather discrete wait-and-see type of profile.

Perhaps the only area of the economy where unions may soon be able to regain visibility is in the public sector. As the government hints at more salary cuts in the public workforce this summer, September may see more protests and strikes from teachers, medical doctors, and justice personnel, among others.

The absent leader without a (public) program

Spain’s Prime Minister Mariano Rajoy has been in office for six months. During this time, he has offered only four press conferences on his own and in which he has accepted questions from journalists: two in Madrid, one in Mexico and one in Brussels. Rajoy has been seriously criticized for his elusiveness and lack of visibility, particularly during a period that can only be described as the most critical for the country since the crisis broke out in Europe. He has also cancelled this year’s “State of the Nation” debate in the parliament, a decision his office has justified on the grounds that he has only been in power for a few months.

Besides his public absenteeism, Rajoy’s government is characterized by another striking element: since abandoning an electoral program that already lacked substance only days after being electednobody knows what his plan for the country is.

Rajoy has quickly learned the European leaders’ use of euphemisms to elude difficult questions and to favor grandiloquent statements regarding his government’s actions.

He and his ministers speak of “reforming” all areas of the Spanish economy, defending the country’s commitment to the European Union and the monetary union as “irreversible” realities, and reiterate an unshakable determination “to do what needs to be done.”

Deciphering the government’s agenda

The general public is left deciphering leaks and loose statements from government officials to foretell what the prime minister’s agenda for the nation might be.

Most news media in Spain are now pointing to imminent tax hikes, public workers wage reductions and layoffs, but there is nothing concrete in terms of specific policies. It’s all rumors until one Friday afternoon the council of ministers announces new policies in the form of unquestionable rules of law.

Therefore, for no reason other than a lack of an electoral program to carry out as promised, the Spanish government is able to proudly state that it receives no “pressures” from Brussels and that there are no other commitments to the EU beyond the agreed fiscal targets. No contradictions, indeed, if nothing has been promised or announced.

More striking, however, is the public’s reaction to an absent leader acting without a public plan: resignation.

State of fear and uncertainty

That Rajoy has not had enough time to tackle all problems, that the severity of the country’s situation was unbeknownst to him (or that he was deceived by his predecessor in this regard) and that his actions can only go so far because much of everything depends on Europe seems to have sunk in the public’s psyche to the point that it is hard to find opinions questioning elemental matters of democratic legitimacy in Spain.

Currently, the Spanish society lives in a permanent state of fear and anxious uncertainty, but it has not yet turned its back against Rajoy.

It is worth mentioning, however, that a recent voter survey showed that Rajoy’s Popular Party is losing political support. The interesting element in the survey is that the main beneficiaries are smaller political formations and not the Socialist Party. It is too early to tell if Spain is to experience the same kind of political fragmentation as that of Greece, but this is certainly worth watching.

Will it boil?

It is truly difficult to believe that social tensions may be contained indefinitely under a deteriorating economic scenario – although there is the ‘frog in the pot analogy’ again.

There are also escape valves which surely help keep social tension from mounting such as the ongoing criminal investigation in which former Bankia (BKIA) chairman Rodrigo Rato and 32 members of the failed bank’s board were formally cited this week as suspects of fraud, misappropriation of funds, and the falsification of financial documents; a necessary but inconceivable turn of events compared to only two months ago.

Ultimately, however, unless the long-yearned European breakthrough (which nobody has managed to properly define) occurs soon and some form of economic upturn begins to be seen as within reach, there is no reason to believe that Spain’s situation will improve over the next several months.

If the summer turns out to be as “hot” as expected, Rajoy may at least have to revise his communication strategy and start facing the public. The cooling variables which currently work in favor of keeping society simmering in a state of fear rather than boiling with outrage may not hold the fire.

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