Editor’s note: This article was first published in July 2012, days after the Rajoy government announced a new austerity package. The Goldman Sachs bailout warning, the IBEX at 8,000 points and debt “one step from junk” belong to that moment; Spain got a bank bailout in 2012 but no full sovereign bailout.
Spain is not on the right track. It’s true that the deficit has to come down and some cuts are needed, but if we don’t have a plan to generate growth, what Goldman Sachs has forecast will happen: in the coming months the country would be in serious danger of needing a full bailout. In any case, however much anyone tries to dress it up, Spain is already under intervention. Anyone who says otherwise is lying.
The measures announced by the Government, which have been so widely applauded, have obviously not been applauded by the markets. Let’s not forget that a country whose debt is one step away from junk status is off limits for the big investment funds, because their rules don’t allow it. I find it hard to imagine the IBEX climbing towards 8,000 points in a country whose population is heading towards “third-world” conditions. The markets find it hard to picture too. Spain’s situation is extreme, so it requires extreme measures. But watch out: extreme measures from both the left and the right, plus real growth measures, because markets welcome cuts but they don’t invest in cuts without growth.
What Spain should not do to get out of the crisis
Clearly, in the middle of the biggest cuts in the history of our democracy, raising VAT is out of place. It was out of place when Zapatero started doing it (and he was criticised for it), and it still is. So we keep criticising it. A few simple facts sum up the madness of raising VAT. Right now we pay VAT above the European average, with unemployment above the European average and consumption below the European average. In short, it’s the ideal measure if you want to ask for a bailout.
As for cutting unemployment benefits… Let’s look at unemployment as if it were a stock. This stock is still in an uptrend, which means unemployment will keep rising. The unemployed are now the most vulnerable people in Spain, and they need protecting, because most of them are still paying off their debts. Cutting unemployment benefits will undoubtedly push up the rate of loan defaults. When unemployment hits its support level and there are signs of a change in trend, perhaps we could start cutting this kind of benefit.
Raising the retirement age is one of the most absurd things a country can do, considering that our retirement age was already among the highest. Not only that, it’s a measure that would only pay off in the long term (10, 15, 20 years), while Spain needs to avoid total disaster in the very short term (1, 2, 5 months). Raising the retirement age fuels youth unemployment, because jobs in companies stay occupied for longer, not to mention the problem facing anyone who loses their job at 60. Who would hire them?
See also: Apple creates jobs in Ireland
Basically, the scissors are no good without an alternative plan. If we are going to tear down in one place, we have to build somewhere else; cutting without creating leads nowhere.
What Spain should do to get out of the crisis
We shouldn’t forget the point Santiago Niño Becerra rightly made: no eurozone country can get out of the crisis on its own while it shares a single currency. In other words, while it stays in the euro.
Nationalise banks and privatise companies
A left-wing measure. This is an extreme and probably very necessary measure; between these two extremes we would find a real solution to the public deficit problem. Any bank that needs to be rescued because of its past mismanagement should be nationalised. That way, the Government would make sure personally that the money injected went into getting credit flowing again. Once the situation improves, the bank can be sold.
A right-wing measure. If a company, public body or official entity can be privatised, so be it.
Negotiate directly with God
God’s temple is not made of gold or brick; so it is written in that “holy book”. An institution like this should receive donations from churchgoers who agree to give them voluntarily, either directly or by ticking the box on their income tax return (Spanish taxpayers can assign part of their income tax to the Catholic Church). But under no circumstances should billions in public money go to an institution that, if it were a country, would be the eighth-largest economy in the world. What’s more, the Vatican should sell 2% of its wealth and invest it in the debt of the struggling peripheral eurozone countries. With that 2%, it would be one of the biggest potential investors. Remember, Father: help thy neighbour. Last night I spoke with God, and he told me he agrees that the Church should help those in need instead of drowning them.
Cut science across Europe, but which science?
No scientist should take this the wrong way, but honestly, I couldn’t care less what Venus’s crust is made of, what clouds smell like, or how the sun affects the moon on 2 August and 3 February. This is not the time to explore space but to cure diseases on Earth. Let’s cut space research and move that money into scientific research that saves lives and treats illnesses that cost our social security system money. We have good scientists, and they could help us cut healthcare spending and, with it, part of the deficit. There will be time to travel to Mars later.
Invest in the future
The future will be renewable energy, a sector that has been punished rather than supported. Spain needs to fill the hole in GDP left by the property bubble, and we have to fill it with a sector in which we are well positioned. Besides tourism, Spain has the best climate conditions in Europe to become a leader in solar power generation. We also have one of the world’s most prestigious wind energy companies (Gamesa).
Spain made the serious mistake of selling Europe’s largest solar power plant, located in Seville, to an Arab businessman. This sector could create jobs on a scale similar to what construction did in its day.
Negotiate taxes with foreign companies operating in Spain
Spain is making a serious mistake by not negotiating tax terms with the tech giants and others. As a result, companies like Google operate in Spain but pay their taxes outside the country. Even Spanish companies such as Inditex have decided to pay tax on their online sales outside Spain. We need the giants to pay tax in Spain, even at a lower rate.
Find the missing money
They say money is neither made nor lost; it just changes hands. Clearly, a lot of money is missing in our country, and someone has taken it.
- Hold some bank executives personally liable for their management. We don’t want them to pay with prison time (more deficit), but with their assets.
- Open a serious investigation into money diverted to tax havens, including money belonging to current and former members of political parties.
- Resume the investigation into bribes taken by large and small town councils all over Spain, examine how much former mayors’ wealth grew during the property boom, and reopen the investigations into building permits granted by planning councillors to developers, demanding financial accountability for them.
With just these three simple measures, we would raise more than 50,000 million euros without having to wield the scissors.
Cut public spending
I agree that public spending has to be cut, but the burden should be shared out equally.
1. Reduce the number of politicians. Spain has more politicians per inhabitant than any other country in Europe. To be precise, we have 445,568 politicians, which is 300,000 more than Germany, a country with twice our population. That’s where the scissors should go.
2. Cut politicians’ allowances. There’s little point in politicians putting on a show by announcing pay cuts if they keep allowances that are far bigger than their salaries.
Spain had a property bubble, but it clearly now has a public-office bubble. If we brought the number of politicians down to Germany’s level, we estimate savings (on the conservative side) of 11,000 million a year.
Ban short selling
This should be done across Europe, since we have already seen that banning short positions in bank stocks worked well. Right now the European Union is the target of a speculative attack that could end up making the rumour come true (that Europe is going under).
Portugal asked for an official investigation into an investment fund that, before the bailout, published negative news about the country in a prestigious business magazine so that it could bet against Portugal. As long as short positions are allowed in the eurozone, the big funds will make more money betting against Europe than betting on its recovery, at least in the short term. And within Europe, one of the short sellers’ favourite indices is the IBEX.
One way to discourage these short positions (if we don’t want to ban them) would be for the ECB to announce massive purchases of debt from the struggling eurozone countries. That should be enough to make sure nobody dares to bet against Europe.
Featured image: kallerna, CC BY-SA 4.0, via Wikimedia Commons.
