Most business owners, employees, the unemployed and even civil servants in this country are wondering how long this crisis will last – this ordeal for the welfare state that is taking such a severe and persistent toll on household and business finances. But I fear that the answer does not match the hopes of the Spanish people.
The fact is that, faced with a situation like the current one and such a bleak outlook, it is likely to be of little help for the general public to realise the wilderness they still have to cross. What good would it do for millions of people to realise that their future will be even worse than their present for many years to come? What good is it for pensioners to know in advance that their children will have to turn to crime to feed their grandchildren, that the only job still supporting a family is going to disappear, that the living conditions of families already living frugally will soon become miserable and marginalised, or that business owners will no longer be able to absorb the losses, and that the company’s collapse will destroy the future well-being of their once-well-off families?.
It is pointless for our middle or upper-middle class to realise that their status will perish from thirst and starvation in the desert that lies before us. It would merely speed up the process and lead to even greater social decline. Perhaps we could compare it to the burden of knowing the details of future misfortunes – for example, knowing when we are going to die, or at what age we will suffer from cancer or have an accident. Sometimes there is little point in knowing about future misfortune if it is going to be inevitable. We can benefit from knowing that the future is uncertain and even that it will be favourable, but it will not always help us to know that tragedy awaits us. Maintaining hope helps us – as religious people know only too well – even when there are no objective grounds for optimism, and such hope is the result of mere ignorance.
Our welfare state has been living in the constant hope of recovery for several years now. Ever since the grotesque green shoots right down to the stubborn and consistently inaccurate macroeconomic forecasts. But that does not mean we are any closer to an improvement. Those in a position to decide when this economic recovery should take place on the periphery of the Eurozone have other plans. The fact is that it is the ECB and Germany (with the permission of the rest of the world’s influential economies, such as China, the US, etc.) who will decide when countries like ours have purged their excesses sufficiently. When our debt has been reduced sufficiently, our wages have fallen to competitive levels, our public budgets have shrunk and been brought sufficiently into balance, our banks are self-sustaining, or our property prices have fallen at prices that are affordable even for the most hard-pressed household budgets in our society. And to achieve all this, of course, there are still many years of wandering in the wilderness ahead.
The prescription put forward by the EU’s Vice-President for Economic Affairs, Olli Rehn, is crystal clear: “Fiscal stimulus for Spain is not the answer“. Rehn warned last week, in a speech delivered in Warsaw, which Peripheral countries with high levels of debt cannot afford to take counter-cyclical measures. The priorities for these countries remain the stabilisation of their banks’ balance sheets (with specific reference to Spain) and prevent market pressures from becoming unbearable (lethal).
So that the markets can continue to sustain us, The fire that must be prioritised above all else is that of the public deficit. Why is this the most pressing crisis we must resolve? Well, it’s quite simple: because no one in Europe is prepared to bail out either Spain or Italy. And at the moment, the only thing keeping us afloat – albeit just a hair’s breadth from the brink of collapse or default – is Mr Market, who cares deeply about whether or not the country’s accounts balance – as is only to be expected. Therefore, the European recipe for the periphery is to continue cutting public spending and increasing the tax burden, so that the deficit does not scare off our only saviour.
What all this boils down to is that the patient is in such a critical condition that, for the time being, the priority is to prevent them from dying as a result of cardiorespiratory arrest or multiple organ failure. And later on, once the risk of imminent death – default, the break-up of the Eurozone or a massive bailout of peripheral countries(?) – has been reduced, we will treat their ailments in order of severity. Rehn puts it very clearly: we are in no position to afford tax cuts to revive our economy, nor to take any other counter-cyclical measures, simply because we are all but doomed and we have no time. We are dying and, aSurprisingly, Mr Market remains confident, teeming with institutional investors disoriented by the New Normal, it’s not going to give us medication or intubate us, because its role is precisely the opposite. Let us not forget that scavengers are an essential and hygienic part of the food chain, and also of the economy, because they recycle the waste left behind by the weak and sick, thereby enabling the reuse of resources. Cruel, yes, but healthy. Therefore, Either we balance our books at all costs, or Mr Market will evict us and the Eurozone will fall apart.
Germany and the Troika are probably banking on the fact that society in the periphery – a generation brought up in a culture of welfare – will endure the hardships of the desert with only moderate unrest. After all, we are essentially talking about Spaniards and Italians (Portugal and Greece carry far less weight), whose level of education and social fabric is far more resilient than that found, for example, in Latin America or Africa. And that is what is going to make us – indeed, is already making us – admirably resilient and dignified in the face of brutal impoverishment, which would generate far more street violence and widespread crime in any society with only a moderate level of literacy. This is probably why Northern Europe is confident that our educated and formerly wealthy society in the south will weather the storm, without sparking any ‘peripheral springs’ that would scupper the European project at a stroke. As We warned about this four years ago, the social fabric will not be able to survive much longer in this wasteland without serious unrest, because there is still no sign of an end to it, and We are temporarily alleviating the anxiety solely through hope and the residual effects of the defunct welfare state.
This seems to be the plan – if you can call it that – drawn up by the heart of Central Europe and its dominant economies. And if we manage to survive this desert into which Germany is abandoning us, the future may once again belong to a Europe as we know it. But bear in mind, we’re talking about the periphery growing strongly again within a generation, because the current one is going to be lost – it’s already lost, even if we’re not aware of it. And it may take us two decades to recover from the point when debt caused our economy to collapse, which was more than five years ago now. We Spaniards are going from being the ‘new rich’ to being the ‘perennial poor’, enduring hardship and suffering until our second chance arrives. And Germany will wait patiently and watchfully as we decline, because that growing market of 250 million middle-class consumers that its economy needs is currently lying fallow, paying for its excesses and preparing for what will once again be the great market for Germany in the 20s – but this time in the 21st century.
The North, with its economic strength, writes the script, whilst the impoverished South endorses it and endures it dutifully, in ignorance. This is how the history of Europe is being written. Fortunately, it seems that the wars of yesteryear are giving way to financial battles, battles over competitiveness and economic flows. And to remain part of the Eurozone, we Latins will have to lose many more battles for years to come. The periphery of the Eurozone will either be the loser, or it will cease to exist. The fact is that, otherwise, we might perhaps be masters of our own destiny, but not within the Eurozone as we know it. A word of warning to all concerned and to investors for the coming five-year periods.