ANALYSIS: If the economic slide continues society could fracture, allowing old rivalries to resurface
THAT SPAIN would eventually run out of road has been a distinct possibility since the global financial crisis punctured its huge property bubble in late 2008.
Since the most serious manifestation of that crisis – the fiasco in the euro zone – erupted in early 2010, the world’s 12th biggest economy has been among the countries most at risk of crashing.
Now the crash has come. If, in the very unlikely event that formal bailout talks do not start today, they will start very soon.
Spain has gone too far to save itself.
For the European and global economies this is very different – and much more serious – than any of the three pervious euro zone bailouts. Some numbers serve to illustrate this.
Spain’s economy is seven times bigger than the Republic’s and not far off being twice the combined size of the three bailout countries – Ireland, Portugal and Greece. It accounts for more than one tenth of the entire euro zone economy.
At the end of last year its public debt reached €735 billion – more than the rescued trio combined. While this is a big figure, relative to the size of its economy, it is comparatively low, at 69 per cent of GDP. Super frugal Germany’s public debt, for instance, stood at 82 per cent in 2011.
So why is Spain in so much trouble? The answer is its banks, as it seemingly always is these days. The lack of certainty over the size of their losses stemming from a still-collapsing property market has ended up bringing down the state.
That is not going down well in Madrid. The Spanish are proud and can be prickly. I once lived in the country and wrote about its politics and economy for years.
Spain is one of the EU’s big six, along with Britain, France, Germany, Italy and Poland. It takes itself seriously. Its prime minister from 1996-2004, José Maria Aznar, had designs to make Spain not just a European force, but a global player too.
Such pretensions have long ago been dispensed with. For Spain, recently, the battle has been to avoid the serious loss of influence that comes with being forced to seek the help of others.
However bad being bailed out is to smaller nations, the damage for bigger countries is greater because they can and do exercise more influence in the normal scheme of things.
But once a country gets to the point Spain has, its influence evaporates.
That includes influencing the terms of its own bailout, as Britain’s International Monetary Fund bailout proved in the 1970s.
With money flowing out of its banks and out of the country, its economy in deep recession and one in four people out of work (the Spanish unemployment rate has long been the highest in developed world), things are bad and getting worse.
Thus far, the politics of the situation have been much better. There has been no rise in support for extremists. Last autumn’s election was marked by the smooth handover of power from the centre-left to a centre-right administration.
The indignado protesters have been dignified and non-violent in making their point and the new government has a thumping majority in parliament. The political system was designed to prevent sitting governments from being unseated easily. A Greek-style governance meltdown can, therefore, be discounted.
But every society has a breaking point. If the economy continues to slide Spanish society could start to fracture.
The scars of Spain’s civil war, which was infinitely bloodier than Ireland’s, have not healed. It is not difficult to find people who, to this day, harbour deep bitterness about relatives killed by the other side in the 1930s. Against that rancorous backdrop is the powerful centrifugal force of independent minded regions. Clashes between Madrid and regional governments are becoming more frequent as the latter bridle at the former’s attempts to rein in their spending.
The potential exists for things to become nasty.