Same Old Greece...Same Old Merkel...Same Old Spain?

Spain's Podemos ("We Can") party wants to be the next Syriza, leading the austerity- ravaged Spanish people to overthrow the political establishment that supports Germany's austerity program for eurozone countries in fiscal or liquidity trouble. Polls show the anti-austerity Podemos ahead of Spain's two mainstream parties in the run-up to national elections later this year. Podemos leader Pablo Iglesias, who campaigned in Greece with Syriza's new Greek prime minister, Alexis Tsipras, hopes that a coattail effect from Syriza's sweeping victory on January 25 will push Podemos through to victory in Spain. ~~~~~ But Podemos faces some obstacles that Syriza didn't. In many ways, Spain is the eurozone's bubble nation, along with Ireland. The bubble was real estate, driven in the years before 2008 by easy bank loans, good incomes and investment appreciation. The Spanish problem wasn't that the country was bankrupt -- as Greece was and is -- but that Spanish banks were bankrupt, because borrowers, both individual and commercial, stopped paying their mortgages at the end of a boom-and-bust real estate bubble similar to what occurred in the US in 2008. The Spanish government had funds available to nationalize the country's biggest mortgage lender, Bankia, but Spain couldn't afford to rescue all its banks. So Europe stepped in, with a one-time loan. The money was passed on to the banks to rebuild their capital reserves and start taking their real estate loan losses. They needed the EU loan to stay afloat and cut their losses from the housing crash. Spain's banks still have bad debt on their books but they think they can tough it out. ~~~~~ Spaniards have suffered great economic misery the past few years. Gross domestic product shrank 15% between 2008 and 2013, according to the World Bank -- significantly smaller than the 30% in Greece, but Spain's collapse was one of the largest of any major developed economy. In addition to foreign housing buyers and developers, the collapse of the housing market seriously hit Spanish homeowners, with more than 500,000 foreclosures estimated at the end of 2012, causing many to lose their homes and related retirement savings, because under Spanish law, foreclosure doesn't end the borrower's obligation to repay the bank. This debt follows Spanish foreclosed homeowners all their lives. Spanish unemployment -- 26% at the peak of the contraction -- is now at 23.7%, with youth unemployment still at 51%. Many skilled workers have left Spain to take jobs in the UK and outside the EU. And, the Podemos political party says many of the 25,000 jobs now being created each month are low-paying, part-time jobs or project jobs with no future. ~~~~~ Now, however, Spain seems to be on the mend. In 2014, Spain’s economy improved faster than anticipated since its emergence from recession. Austerity measures have helped Madrid get its fiscal house in order. While Spain's debt-to-GDP ratio is still a relatively high 92%, that's nowhere near Greece's 175% debt burden. Spain’s Finance Minister Luis de Guindos said recently that he thinks the economy may recover the ground lost since 2008 by 2017, with expected growth between 2.5% and 3% for the next “two to three years.” De Guindos and private-sector economists cite the strong recovery in consumer spending as a key driver for Spain, as households are purchasing, after years of paying off debt and as lower energy prices kick in. Retail sales were up 6.5% year-on-year in December. At the same time, in the central Bank of Spain's first official estimate of 2014’s economic performance, it said that Spain, the eurozone’s fourth-largest economy and the world's 18th-largest, would grow 1.4% in 2014. According to the Bank of Spain, the economy expanded 0.6% in the fourth quarter from the third, slightly above the 0.5% quarterly growth posted between July and September, and slightly higher than previously anticipated by either the central Bank or the Spanish government. The Bank said : "For 2015, we believe the recovery wil continue, and the anticipated growth would be at 2%.” The Bank said consumer price growth should remain in negative territory for 2015. Deflation was at -1.1% in 2014. This is partly deliberate, with the Bank and government holding down prices to fuel the consumer spending needed to get the Spanish economy back on track. ~~~~~ The forecasts of the Spanish government and Bank of Spain are supported by the International Monetary Fund, which noted in its annual report on the Spanish economy that "Spain has turned the corner. We expect the recovery to continue over the medium term." The Spanish economy is being buoyed by increased exports, rising domestic demand and a record year for tourism, Professor Robert Tornabell of Barcelona's Esade business school told the Guardian. He warns against reading too much into the data : "While large companies are reaping the benefits of this growth, it hasn't been sufficient to provide jobs for the country's more than 5.6 million unemployed." Tornabell added : "The real recovery will be when the economy begins to create jobs for young people and the 3.5 million Spaniards who have been out of work for more than a year. Until then, economic growth will be no more than empty words, particularly for the more than 740,000 families in which every working-age member is unemployed. The government's 2012 labor reform, which made it easier for firms to hire and fire, was aimed at facilitating job creation at even lower [wage] rates. Even the IMF expects unemployment to remain above 20% for another four years. How growth might begin creating high-quality, stable jobs is another tough question. The government hasn't figured out how to tackle youth unemployment." Nearly a quarter of workers are still on temporary contracts – "junk jobs", as Tornabell calls them. ~~~~~ When the new Greek finance minister, Yanis Varoufakis, ruled out agreeing to the demands of eurozone creditors -- that Greece trudge on with its destructive austerity program in order to repay its eurozone debt on schedule -- he said : “We are not prepared to carry on pretending and extending trying to enforce an unenforceable programme which for five years now has steadfastly refused to produce any tangible benefits. The disease that we’re facing in Greece at the moment is that a problem of insolvency for five years has been dealt with as a problem of liquidity." This is the difference between Spain and Greece - Podemos will have to confront it in convincing Spanish voters to give it the leadership of the Spanish government. Spain seems to be in recovery and may not want to put radicals in charge. But Podemos has a point. In Spain, as in Geeece, when the 2008 crisis deepened, the People's party, supportive of EU ideas,came into power promising austerity and reform. Greece has seen austerity destroy its economy because austerity and reform cannot solve the problem of a country whose government poured far too great a portion of its tax-based income into social services and public sector jobs, while corruption made tax collection very difficult. Greece lacked public income. And its export goods were not competitive because its infrastructure was out-dated. In a perfect world, however, Spain should be the prime example of the ability of austerity and infrastructure reform to pull a eurozone laggard toward the German level of 21st century high productivity, based on advanced manufacturing, information technology and export excellence. However, according to economist Gayle Allard of Madrid's IE business school, while there is little doubt that the Spanish economy has turned a corner, the lack of structural change has left her feeling "optimism mixed with long-term pessimism." On the one hand, she told the Guardian, Spain will probably do well. But its economy continues to be vulnerable, because the recovery relies on traditional industries for growth, she says : "It's a typical Spanish recovery : a tourism-based, low-productivity economy that's now picking up. It's the same Spain." So, Spain paid its eurozone debt because its low productivity economy is healing itself and paying its taxes. But, structural reform fell by the wayside. Greece can't do anything but sell its infrastructure - much of it to German firms - in order to pay its ever-growing eurozone debt. Greece has no public funds for infrasctructure reform. ~~~~~ Dear readers, southern eurozone countries remain trapped by the euro - with near-zero growth and wildly high unemployment. Deflation is making debt burdens rise despite fiscal austerity. Structural reform is a luxury they cannot afford. German Chancellor Merkel's policies have failed. A revolt by Greek voters was predictable and understandable. So, Podemos may well win the next Spanish election. It is the same Spain. As it was the same Greece. Nobody in the EU has as yet figured out how to change them so they can fit into a eurozone they never should have been part of.