The Spanish government is pushing for regional deficit limits, writes PADDY WOODWORTH
THE PAIN in Spain was palpable again this week, as rising interest rates on its sovereign bonds brought the spectre of a bailout ever closer.
Pain has become the common lot, of course, in a country with an exploded property bubble, unemployment at 23 per cent and youth unemployment at least twice that high.
But now the pain has spread to Spain’s ruling party, the deeply conservative Partido Popular (PP), elected only last November with an ample majority over the Socialist Party (PSOE), which was blamed by many Spaniards for chronically mishandling the economic crisis.
The PP, however, is already faltering in the face of deepening hostility from the markets, exacerbated by criticism from other EU leaders.
Spanish prime minister Mariano Rajoy is not well known for expressing his emotions, but anguish was evident in his repeated denials on Thursday that a bailout was even remotely on cards. “To suggest a bailout does not make sense. Spain is not going to be bailed out; it is not possible to bail out Spain. There is no intention to do so, no necessity, and therefore Spain is not going to be bailed out.”
Rajoy has had a terrible three weeks. Against all expectations, his party lost elections to Andalusia’s powerful autonomous parliament in late March. Then he introduced, late, a budget of extraordinary severity, only to find that the markets were distinctly unimpressed.
Adding insult to injury, his conservative counterpart in France, Nicolas Sarkozy, used Spain as a stick with which to beat his Socialist Party opponent, François Hollande, in the French presidential election campaign. “Look at Spain after seven years of socialism,” he said at a rally.
Rajoy has himself often enough blamed the PSOE for Spain’s financial mess, with some justice. But he might be forgiven for wishing that the French president had, instead, commented on how well Spain was doing after four months of right-wing government.
Rajoy has introduced a battery of “exceptional measures” within his first 100 days, slashing government spending on services, freezing wages, facilitating job dismissal and promising to bring Spain’s deficit under control.
But the Andalusian elections tripped him up in more ways than one. In the hope of boosting the expected PP victory there, he had delayed his inevitably unpopular budget. This not only made the markets more jumpy, it also made him look doubly inept when he lost at the polls anyway.
A disappointing Spanish bond auction last week was followed by a falling stock market and a menacing rise in bond interest rates this week.
Several Italian newspapers reported earlier this week that Italian prime minister Mario Monti had, for the second time in a month, made scathing comments about Spain’s performance.
What lies beneath the growing chorus of international criticism?
A clue was provided in a sensational speech by a maverick PP figure, the president of the autonomous government of Madrid province, Esperanza Aguirre.
Spain’s biggest problem, she argued, was not the debts of central government, but overspending by most of the country’s remarkably powerful autonomous governments, though not, of course, her own. She proposed a drastic reduction in their political and financial clout.
Spain’s “state of autonomies” has its roots in political, not economic, history. Nationalists in Catalonia, the Basque Country and Galicia demanded independence, or something close to it, as the country was negotiating its difficult transition from dictatorship to democracy in the late 1970s.
To placate them, Madrid offered these “nationalities”, as the constitution calls them, extensive powers of self-government. This produced a chorus of demands from other regions with a strong sense of identity – sometimes only recently discovered, and sometimes virtually invented – that there should be “coffee for everyone”, as a popular Spanish saying goes.
There have been notorious cases of corruption in these autonomous governments, under both PP and PSOE administrations. Even more seriously, their spending became completely uncontrolled during the housing boom, briefly underpinned by property sales taxes. Yes, it does sound familiar.
Aguirre claimed that removing autonomous governments’ responsibilities in certain areas could save up to €48 billion.
Rajoy is pushing hard for transparency and accountability from the autonomous governments, and for regional deficit limits as rigorous as Madrid’s own new targets.
However, removing their existing powers would radicalise them even further. And any attempt to remove powers from the other regions, while leaving Basque and Catalan governments intact, would provoke much Spanish outrage against nationalities already often regarded as “privileged”.
While Rajoy is unlikely to adopt Aguirre’s proposals in the near future, dealing with the autonomous governments presents him with a political challenge as nightmarish as the economic one he already faces.