The Spanish Model

8/3/2019 The Spanish Model

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new left review 69 may jun 2011 5

isidro lópez & emmanuel rodríguez

THE SPANISH MODEL

Prior to the debacle o 2008, Spain’s economy had beenan object o particular admiration or Western commentators.1 To reproduce the colourul metaphors o the nancial press,in the 1990s and early 2000s the Spanish bull perormed

much better than the moping lions o ‘Old Europe’. In the decade ol-lowing 1995, 7 million jobs were created and the economy grew at arate o nearly 4 per cent; between 1995 and 2007, the nominal wealtho households increased threeold. Spain’s historic specialization in sec-tors such as tourism and property development seemed perectly suitedto the age o globalization, which in turn seemed to smile on the coun-try. Construction boomed as house prices soared, rising by 220 per centbetween 1997 and 2007, while the housing stock expanded by 30 per

cent, or 7 million units. All eeling o being merely the biggest countryo the continent’s periphery was dispelled by a new image o modernity,which did not just catch up with but in some ways surpassed standardEuropean expectations—at least when Spain’s dynamism was comparedto the ‘rigidities’ o the Eurozone’s core. Add to this the 2004 returnto power o the Socialist Party, under a youthul José Luis RodríguezZapatero, and the eect o such quintessentially ‘modernizing’ laws asthose on same-sex marriage, and the mixture acquired the bouquet o a

young red wine: extremely robust on the palate.

In stark contrast, the nancial crisis has given the country a completelydierent image o itsel, with eects on Europe that remain to be cal-culated. Over the past year, Spain has on several occasions hovered onthe brink o classication as a case or Eurozone bail-out, ollowingGreece, Ireland and Portugal. Its construction industry, which in 2007contributed nearly a tenth o the country’s gdp, has suered a massive

blow-out, leaving an over-build o unsold housing worse than Ireland’s,and the semi-public savings-and-loans sector waterlogged with debt. Theeects o the housing-market collapse have reverberated throughout



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the economy: unemployment is running at over 20 per cent, and morethan double that rate among the under-25s. A deep recession has beencompounded by draconian austerity measures, supposedly aimed atreducing a decit currently standing at over 10 per cent o gdp to 3

per cent by 2013. The political all-out o the crisis is putting additionalstrain on Spain’s decentralized governmental structures, in which theseventeen Autonomous Communities administer a large proportion o public spending; in Catalonia and elsewhere, the ac budgets are alsorunning decits. The Spanish bull’s prostration also carries implica-tions or the Eurozone as a whole. At over 45 million, the population o Spain is almost twice as large as those o Greece, Ireland and Portugalput together; its economy is the ourth largest in the Eurozone, with a

gdp o $1,409bn, compared to $305bn or Greece, $204bn or Irelandand $229bn or Portugal. The scale o a Spanish bail-out, were Madridto run into diculty in nancing its debts, would be likely to capsizethe Eurozone’s current tactics or dealing with its indebted periphery—heavily conditional imf–ecb loans, so ar made available to Greece,Ireland and Portugal with the aim o ‘tiding them over’, while saeguard-ing the exposed positions o big German, French and British banks. Soar, the wager has been that, ater a dose o austerity and labour-market

reorm, Spain’s pre-crisis economic model can be resuscitated in leaner,tter orm. Is this a viable proposition?

Phalangist architects

The genealogy o the Spanish macro-economic model has been com-plex; one might even say, ironic. Its origins lie in the modernizationprogramme o the Franco dictatorship rom the late 1950s, premised on

the development o mass-market tourism rom northern Europe and theradical expansion o private home-ownership. This ‘solution’ to Spanishindustry’s eternal competitive weakness was a notable anomaly in thecontext o the manuacturing growth that marked the post-war boom else-where in Europe. But as Franco’s Minister or Housing, the PhalangistJosé Luis Arrese, put it in 1957: Queremos un país de propietarios, no de

proletarios—‘we want a country o proprietors, not proletarians’. ThisThatcherism avant la lettre transormed the Spanish housing market:

1 This article summarizes the main ndings o the research and activist group,Madrid Metropolitan Observatory, published as Fin de ciclo. Financiarización, ter-ritorio y sociedad de propietarios en la onda larga del capitalismo hispano (1959–2010),Madrid 2010. The authors would like to thank Brian Anglo or his translation.



lópez & rodríguez: Spain 7

during the 1950s, rented accommodation was still the norm; by 1970,private ownership accounted or over 60 per cent o housing, 10 pointsabove the uk level (see Figure 1).

The legacy o the Franco dictatorship and the enormous shortcomingo the country’s industrial structure did not augur well in a scenariocharacterized by increasing competition in international markets. Therecessionary crisis beginning in 1973 was more severe in Spain thanin most European countries, overlapping with the political transitionthat ollowed Franco’s death in 1975. But the advent o parliamentarydemocracy brought no change in macro-economic policy. The PartidoSocialista Obrero Español (psoe), in power continuously under Felipe

González rom 1982–96, had no alternative model to propose. Indeed,the strategy or relaunching the economy in the 1980s was based ondeepening Spain’s existing ‘specializations’ in tourism, property devel-opment and construction, as ‘competitive advantages’ neatly adapted to

1950/53 1960/61 1970/71 1981 1991 2001 2007

Source: ine (National Institute o Statistics) and Ministerio de Fomento (Ministry o Inrastructures);

and uk National Statistics.

Figure 1. Private home-ownership rates, Spain and England, 1960–2007

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the new approaches o the emerging global economy, i.e. high capitalmobility and growing competition to capture nancial incomes.

This approach was eectively sanctioned by the other European powers

in the negotiations that preceded Spain’s accession to the eec. In thesepacts, which eectively constituted a strategic agenda or the country, theGonzález government accepted its partial de-industrialization in exchangeor extremely generous subsidies, which would account or an annualaverage o 1 per cent o Spain’s gdp between 1986 and 2004. As we shallsee, these unds would play a key role in building the inrastructure—transport, energy, etc.—underlying the later construction boom, whichconsumed more than hal the total subsidies. The run-up to integration

into the European Community on 1 January 1986 saw a renzy o invest-ment, as European capital recognized the market opportunity opened upby the Iberian countries’ entry into the eec. German, French and Italianmultinationals took up key positions within Spain’s production structure,buying up most o the big ood-industry companies and the public-sectorrms that were being privatized, taking over much o the supermarketsector and acquiring what remained o the major industrial companies.Only the banks, construction rms and the state-owned electricity and

telecommunications monopolies remained immune to the buying renzyor Spanish assets.

The upshot o this wave o investment—which brought the rst periodo sustained growth since 1973—was a rapid overheating o the mar-kets. The Madrid Stock Exchange saw increases o 200 per cent between1986 and 1989, while the capital’s property market became one o themost protable on the planet. In parallel with Reaganism in the us and

Thatcherism in Britain, the economic cycle in Spain under Gonzálezrom 1985 to 1991 was the rst attempt in continental Europe at growthby means o a nancial and property asset-price bubble that would havea positive knock-on eect on domestic consumption and demand with-out any signicant support rom industrial expansion.2 The euphoria didnot last long, however; the growing external decit and the lack o a solidoundation or growth ended up unleashing speculative attacks againstthe Spanish peseta, whose value the government was pledged to main-

tain at any cost. A massive publicity campaign around the pomp and2 See José Manuel Naredo, La burbuja inmobiliario-fnanciera en la coyunturaeconómica reciente (1985–1995), Madrid 1996.




ceremony o the Barcelona Olympic Games and the Seville UniversalExhibition in 1992 proved unable to prevent the crash o the markets—ollowed, eventually, by a series o aggressive currency devaluations. Bythe early 1990s, the Spanish economy was once again aced with the

problem o nding a path to growth.

Euro-boost

Henceorward, however, Spanish macro-economic policy would beincreasingly determined at European level, structured within the rame-work o the convergence criteria set or monetary union and the neoliberaldoxa consolidated in the Maastricht Treaty and its successors, to which

both psoe and pp governments gave their ull support. The reductiono public spending, infation-targeting and the deregulation o labourmarkets laid down by Maastricht enabled a recovery o nancial prots,but generated new problems o stimulating demand in Europe’s ratherslack economies. The pace o the Spanish economy’s post-95 recovery—accelerating rom 1997 onwards to grow by an average 5 per cent per yearbetween 1998 and 2000—cannot be explained, thereore, by the localimplementation o neoliberal prescriptions. It lay rather in the capacity

o the new rounds o property development and nancial engineering toresolve, i only temporarily, a number o contradictions inherent in thechaotic articulation o the neoliberal recipes themselves.

Four actors proved decisive here. First, low interest rates, as Maastrichtand the control o public decits—as well as the demands o the bignancial companies, more interested in touting their new products(such as pension and investment unds) than in strengthening the posi-

tions o the typical creditors o the 1980s—led to a continual all in theprice o credit. Spain thus began a long journey that would take it roma position o boasting the highest interest rates in Europe to becom-ing the country with the highest levels o internal indebtedness on theContinent. Second, monetary union and denitive incorporation intothe Eurozone in 1999–2002 guaranteed the Spanish economy an inter-national umbrella, endowing it with strong purchasing capacity abroadand marginalizing the importance o its external decit in the context

o the European Union’s relative surplus. Third, the eu liberalizationpolicy set the seal on the privatization o publicly owned companies instrategic sectors such as electricity and telecommunications. Lastly, theprivatization o the equivalent public-sector companies in Latin America,



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oten imposed on those countries by the imf’s adjustment plans,opened up signicant opportunities or the internationalization o lead-ing Spanish rms. With the aid o the Euro’s purchasing power, Spain’s

grande bourgeoisie went global, recolonizing the Latin American markets

stricken by the 1998–2001 crisis and snapping up local companies at bar-gain prices. The two major Spanish banks, bbva and Banco Santander,became the biggest in Ibero-America, just as Teleónica and the Madrid-based electricity companies became the biggest in their sectors in thatregion. In other words, the ramework established by Maastricht andthe Euro opened the door to the nancial repositioning o the Spanisheconomy within the international division o labour and also to what wasto become its central element: the property-development cycle.

From an analytical viewpoint, the mechanisms that enabled the propertybubble to become the domestic motor o economic expansion in thatperiod, obviating the problems o demand ormation in a context gov-erned by neoliberal austerity policies, lie beyond the grasp o orthodoxeconomics. ‘Asset-price Keynesianism’, to borrow a suggestive conceptrom Robert Brenner’s analysis o the American economy between1995 and 2006, oers a more ruitul perspective.3 Indeed, asset-price

Keynesianism, together with the mechanisms linking increased valueo private assets to the growth o internal private consumption, enablesus to explain the relative success o the Spanish economy during thisperiod. Its motor lay precisely in the so-called ‘wealth eects’ generatedby growth in the value o households’ nancial and property assets. Solong as this continued to increase, it could sustain a double ‘virtuouscircle’ o rising aggregate demand and nancial prots, without raisingwages or public spending.

In this respect, the Spanish case can be regarded as an international labora-tory. Unlike the early trials o the nancialization o household economieselsewhere, the novelty o the Spanish experiment was the scale o its model,which was based rom the outset on the very extensive nature o home-ownership. By 2007, the gure or private home-ownership stood at 87 percent. By contrast, in the usanduk the proportion o home-ownership neverrose above 70 per cent. In addition, some 7 million Spanish households—

the 35 per cent that comprise the ‘real’ middle class—owned two homesor more. The sustained appreciation o house prices, rising at an average

3 Robert Brenner, The Economics o Global Turbulence, London 2006, pp. 293–4,315–23.




o 12 per cent per year throughout the 1997–2007 ‘boom’ decade, and

a record-breaking expansion o credit, supported a historic increase inhousehold consumption among the property-owning strata which, inSpain’s case, constituted the vast majority (see Figure 2).4

To put it synthetically, decit spending in the years 1997–2007 was deci-sively transerred rom the Spanish state to private households, which,in the nal years o the cycle, became net demanders o nancing. (Thisposition o negative savings, coupled with high investment in housing

and inrastructure, again strains the interpretative ramework o ortho-dox economics.) Parallel to this, nominal wealth in the hands o private

Figure 2. Real house prices & growth rate o nominal credit relative to GDP

Average per cent growth rate o nominal credit relative to GDP (2002–06)

Source: Prakash Kannan et al., ‘Macroeconomic Patterns and Monetary Policy in the Run-Up to AssetPrice Busts’, imf Working Paper, November 2009, p. 31.

4 Between 2003 and 2006, house prices in Spain rose by an astonishing annualaverage o 30 per cent. Source: ine (National Statistics Institute).

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households grew more than threeold on the back o the spectacular risein house prices, the expansion o credit and the rapid growth o the hous-ing stock.5 According to the imf, the Spanish ‘wealth eect’ translatedinto an annual average increase o 7 per cent in private consumption

between 2000 and 2007, compared to 4.9 per cent in the uk, 4 per centin France, 3.5 per cent in Italy and 1.8 per cent in Germany. Meanwhileemployment, driven by both construction and consumption, recordedan accumulated growth rate o 36 per cent, higher than in any otherhistorical period and well above the rates o other eu countries. And allthis against the backdrop o a 10 per cent all in average real wages, suchthat the entry o 7 million new workers into the labour market producedan increase o only 30 per cent in the total wage bill.

The Spanish economy appeared to be adapting itsel advantageously tothe new context o international nancial deregulation. The relative stag-nation o productivity throughout the whole 1997–2007 decade and theeternal lack o international competitiveness o its industry were no obsta-cles to growth. On the contrary, in so ar as the lion’s share o economicdevelopment took place in sectors whose goods are non-transerable,such as property-development products and personal services, productiv-

ity and competitiveness became practically irrelevant variables. It mightbe said that Spain’s success was ounded on a practical reversal o theclassical Schumpeterian strategy o income rom innovation. At the sametime, the ormula ‘growth o prots without investment’6—which somehave used to summarize the nancialization o the central economies—is less applicable to the Spanish model, in which what David Harveycalls secondary-circuit accumulation played a key role.7 Indeed, theSpanish ‘miracle’ can only be understood as a combination o a restora-

tion o prot—and also o demand—through nancial avenues, with the

5 Property assets, which play a central role in highly nancialized economies, are stillnot considered a priority or statistics in most oecd countries’ national accounts.In the case o Spain, use has to be made o the estimates by independent research-ers such as José Manuel Naredo, Óscar Carpintero and Carmen Marcos, Patrimonioinmobiliario y balance nacional de la economía española 1995–2007, Madrid 2008.6 The ormula is used by Michel Husson, Un pur capitalisme, Lausanne 2008.7 According to Harvey, when problems o over-accumulation appear in the accu-mulation process, capitals switch rom the ‘primary accumulation circuit’—theproduction o surplus value in expanded reproduction schemes—to the ‘secondaryaccumulation circuit’: the circulation o capital in the built environment. The ter-ritorial orms this shit can take range rom major public works to house building.David Harvey, The Limits to Capital, London 1999, pp. 235–8.




generous involvement o accumulation mechanisms operating throughthe built environment and residential production.

Within the Eurozone, meanwhile, Spain’s role during the bubble years

was to provide record returns or northern European capital, above allrom Germany, France and Britain. Between 2001–06, oreign capitalsinvested an average o €7 billion a year in Spanish property assets, orthe equivalent o nearly 1 per cent o Spain’s gdp, much o it in secondhomes or investments or British and German nationals. High levelso domestic demand, boosted by asset-price Keynesianism, also oeredimportant markets or German exports. Along with Italy, Greece, Portugaland Ireland, Spain experienced a growing balance o payments decit,

reaching over 9 per cent o gdp between 2006 and 2008, most o itdue to European imports.8 Hence the paradoxical eects o the overvalua-tion o the Euro rom 2003, which—while it undermined the Eurozone’scapacity to export beyond its borders—actually ensured the internal pur-chasing power o its peripheral and southern countries, not least Spain.According to Eurostat, reckoned in terms o purchasing power parity,Spain’s per capita income was higher than Italy’s, almost the same asFrance’s and just 10 points lower than those o Germany and Britain. On

a scale minuscule compared to the monetary circulation between Chinaand the United States, a symbiosis was established within the Eurozonebetween surplus and decit poles o European capitalism. In this case,imports by the southern countries, mainly rom Germany, were partiallynanced by northern purchases o property and nancial assets in thosecountries, particularly Spain. In this context, it is not surprising that thegeneral perception in Spain was o having let peripheral status behind,once and or all. For the young generations, it was enough to travel

around Europe to realize that the dierences had become marginal andthat prosperity and modernity, i they existed at all, were to be ound asmuch on the Spanish side o the Pyrenees as beyond.

State backing

State intervention played a crucial role in lubricating the dierent partso the property circuit to maintain a permanently increasing housing

supply. The 1998 Land Act, more commonly known as the ‘build8 The one Eurozone country whose balance o payments swung conclusively in theother direction was, o course, Germany, which went rom a moderate decit in thelate 1990s to a surplus equivalent to over 7 per cent o gdp by 2007.



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anywhere’ law, enormously speeded up the procedures or obtainingbuilding permits and made available a huge amount o land or con-struction. Similarly, policies o reducing the public-housing stock,marginalizing renting and providing tax relie or home-buying had

become the central planks o government housing policy during theprevious 25 years. Successive reorms o the mortgage market and thelegal ramework also acilitated the expansion o securitization, a eld inwhich Spain is second in Europe only to the uk. The huge investmentin transport inrastructure, which has given Spain proportionately moremiles o motorways and high-speed railway networks than any countryin Europe, has played an important role in opening up large areas o urbanizable land that were previously lacking in real market value. I to

this is added a lax environmental policy, little inclined to put obstaclesin the way o urbanization, and subsidies or squandering energy andwater on inecient property developments, the circle is closed, with thestate guaranteeing and regulating the smooth running o the nancial-property development circuit.

The dependence o economic growth on the property asset-price bubblehas had a major eect on the country’s social-geographical divisions (see

Figure 3). In the context o Spain’s highly decentralized administrativestructure, in which the regional Autonomous Communities and munici-pal governments have wide-ranging powers over urban development, theenvironment and transport, local units have typically operated as growthmachines in competition with each other. Indeed, local governments havebecome boosters o their localities, the main advertisers o the miraculousbenets, or both the populations and the entire class o investors, fow-ing rom oten disproportionate or poorly planned growth. In illustration

o the numerous cases that have combined irrational infation o invest-ment with unrealistic uture projections, suce it to mention the plans(still going ahead) to build a casino megacomplex, ater the manner o Las Vegas, in an arid inland area o the Ebro valley; or the developmento eight super-ports, with their respective logistical centres, on a coastlinethat has at most room or two acilities o this type.

The environmental costs o this growth model are incalculable. The

eects o mass housing construction in the traditional tourist regions—the coasts and the two archipelagos: Canaries and Balearics—havegenerated strips o continuous urban abric along the coastline, betweentwo and ve kilometres wide, and stretching uninterruptedly or 100




Figure 3. Spanish Regional gdp per capita and Newly Built Homes

Source: ine (National Institute o Statistics) and Ministerio de Fomento (Ministry o Inrastructures).

NAVARRE CA N

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kilometres or more along the Costa del Sol and the Alicante coast. Evenin relatively marginal areas, the construction o second homes andgreen-tourism complexes has ravaged areas o great ecological value,such as the oothills o the Pyrenees and the inland mountain ranges. In

terms o land consumption, so-called articial suraces expanded by 60per cent between 1986 and 2006.9

Politics o the bubble

The boom years also served to exacerbate long-standing territorial rac-tures and imbalances within the always-dicult Spanish jigsaw-puzzle.One eature o the property bubble has been a renewed population drain

to the coasts and the big cities, while nearly 75 per cent o the inland terri-tory continued to lose inhabitants. Existing urban hierarchies have beenstrengthened: Madrid, the city most avoured by the growth years, is nowthe centre o a metropolitan region with more than 6 million inhabitantsand has become the third largest European city in demographic and eco-nomic terms. In addition to Madrid’s central position in the ‘secondarycircuit’ o Spanish nancial accumulation, it is home to the headquarterso most o the big Spanish multinationals operating in Latin America

and Europe, an emerging ‘global city’. By contrast, most o the other bigcities in Spain have been relegated to secondary positions, putting theirenergies into dierent strategies o ‘urban entrepreneurialism’, aimedat capturing locational rents rom international tourism.10 Barcelona hasbecome a global example o this strategy: its policies beore and ater the1992 Olympics have been ‘exported’ to Latin America, in particular, as thegreat model o urban regeneration, and reduplicated, with contradictoryresults, in Medellín and Valparaíso; but Barcelona’s relative success on

this ront is still a Pyrrhic victory when set alongside its long-term declineas Spain’s leading industrial centre.11

Politically, too, the eect has been to exacerbate territorial rivalriesand infame the particularist claims o peripheral nationalisms over

9 Data rom corine (Coordination o Inormation on the Environment) LandCover programme, available rom the European Environment Agency website.10 See David Harvey, ‘From Managerialism to Entrepreneurialism’, Geografska

Annaler, Series B, Human Geography, vol. 71, no. 1, 1989, pp. 3–17.11 So insistent has this type o propaganda become that a leading satirical periodicalin Buenos Aires has dubbed itsel Barcelona. Una solución europea a los problemas delos argentinos—‘Barcelona: a European solution or Argentinians’ problems’.




questions such as taxes, transport, regional conguration and water,in short supply across two-thirds o the country. At the same time, acomplete consensus prevailed across the mainstream parties on themerits o the country’s economic model. The Spanish political class has

historically exhibited an extraordinary complacency on this question;encouraging the rise in property values was considered a matter o state,pursued by both psoe governments (1982–96; 2004 to the present) andthe pp under Aznar (1996–2004). At regional level, the Socialist-runAutonomous Community o Andalusia was just as deeply implicated inhanding out loans and construction permits to property developers aswere the hard-line pp administrations in Murcia and Valencia, or thebig-business Catalan nationalists o the Convergence and Union party

in Catalonia. When the CiU was replaced, rom 2003–10, by a coali-tion o the Catalan Socialists and two smaller parties, the RepublicanLet and the environmentalist Initiative or Catalonia–Greens, property-development practices continued unchanged.

The main mortgage lenders were the country’s 45 cajas de ahorros, semi-public savings-and-loans banks administered by depositors, employeesand local political representatives. Regional and district councils could

earn important revenues by re-zoning green-eld sites or urban develop-ment and selling the land to a property developer, who would pay or itwith a loan rom a caja run by the same councillors or their riends. Withhouse prices rising at an average 12 per cent per year, it seemed a gooddeal all round. The bi-partisan nature o the process was illustrated inValencia, where the pp administration deployed extremely aggressive leg-islation to expropriate small landowners, in order to put together the largepackages o land that a big developer required. The legislation had been

drated by the psoe ederal government and was used in several otherAutonomous Communities under psoe control. Corruption and nepo-tism were given ull rein: riends and amily o the pp in Valencia and o the psoe in Andalusia were among the most notorious beneciaries.12

12 The construction craze did not go unopposed. In some o the worst-aectedareas, environmentalist groups, denouncing both the disproportionate despoliationo the landscape and the corruption o local ocials involved, succeeded in bring-ing down local governments and even Autonomous Community administrations

(Aragon in 2003; the Balearic Islands in 2007). Between 2005 and 2007, the mainSpanish cities were shaken by an imaginative cycle o protests against rising houseprices, mobilizing around slogans such as V de Vivienda, on the model o ‘V orVendetta’ (‘vivienda’ being the Spanish word or housing) and mounting demon-strations o tens o thousands o people.



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But i both the major parties, the psoe and the pp, are implicated inSpain’s asset-price Keynesian model, it is the talante (approach, wayo going about things) o José Luis Rodríguez Zapatero that has espe-cially marked rst the high boom years and then the crash. Spain is the

only European country in which mass mobilizations against the 2003us–uk–Spanish invasion o Iraq had—belatedly—an impact at govern-ment level. For the ollowing year, Aznar’s attempt to blame the 11 MarchIslamist bomb attacks, which killed 192 people in Madrid’s central trainstation, on the Basque group eta provoked a huge social mobilization,directly linked to those o the previous year against Spain’s participationin the Iraq war and the Aznar government’s narcissistic authoritarian-ism. The eect was to reverse the two parties’ standings in the opinion

polls and sweep Zapatero into power. The mobilization expressed the riseo proessional sectors that had grown thanks to the country’s acceler-ated modernization and, especially, o a younger generation, aected toa greater or lesser degree by job insecurity, generally more educated andsecular than its parents.

The progre image13 o Zapatero’s Spain was ostered by policies such as‘dialogue’ with the trade unions, a token wage or carers, a same-sex

marriage law and initial gestures towards a truce with eta. Abroad,Zapatero carried through his pledge to pull Spanish troops out o Iraq,but compensated by sending them to Aghanistan. He ell oul o thepowerul prisa media group, however—El País, Digital+, Cadena ser—which had hitherto always backed the Socialists, and depended insteadon support rom a new paper, Público, and the tv channel La Sexta.From the rst, Zapatero’s success had a lot to do with the conscioususe o political marketing strategies; the new government’s talante was

essentially cosmetic. Social expenditure was very slightly increased,but not so as to jeopardize nancial prots, or the income o the super-salaried executives o the multinationals based in Spain. No alternativewas developed to the ederal-state model, hobbled by tensions betweenperipheral nationalisms and a centralizing Spanish nationalism, in aninterplay that was becoming increasingly raught yet still unctionedas ar as local property-development machines were concerned. Norwas there any attempt to control the increasingly over-heated housing

13 Progre is a hal-pleasant, hal-sardonic diminutive o progresista, or progressive.It denotes the communication style and rhetoric o the middle-class, institutionalcentre let, based on an essentially uncritical, do-gooder social liberalism.




market—let alone to construct an alternative model. In the 2008 elec-tion psoe slightly increased its share o the vote, winning 43.6 per cent,compared to 42.6 per cent in 2004—though this may have come mainlyrom the letist Izquierda Unida, whose vote ell rom 5 per cent in 2004

to 3.8 per cent in 2008, while the pp vote rose rom 37.7 per cent in 2004to 40.1 per cent in 2008.

Insecurities

As long as credit fowed and house prices continued to be borne up bythe bubble, it seemed little matter that social expenditure was extremelylow, that wages had stagnated or even allen, or that the Spanish labour

market had one o the highest rates o temporary contracts in Europe.(Spain’s chronically high unemployment rates—between 8 and 12 percent or most o the early 2000s—in act refect high rates o temporarywork, aecting more than a third o the labour orce, and the high partic-ipation in seasonal sectors, such as tourism; in other words, ast rotationthrough insecure employment, rather than structural unemployment assuch.) Rising property values came to supplement an under-unded pen-sion system as a guarantee o income in old age. Young people, oten

orced to delay leaving their parents’ home, might nevertheless hope tobenet rom the increasing value o amily assets, either by way o inher-itance, amily investment or parental help in getting a mortgage.

The problem o providing care, in the absence o decent social provi-sion, was eased by the arrival in Spain o a gigantic army, several millionstrong, o transnational domestic workers. These women, mostlywithout residence permits, took over looking ater children, the elderly

and the disabled, and did the domestic chores in several million middle-class homes. By 2010 there were nearly 6 million oreigners in Spain,the country’s population increasing in just ten years rom 39.5 millionto almost 47 million, a jump o more than 18 per cent. O the incomers,2.67 million were eu citizens, in large part rom new member states:nearly 800,000 rom Romania alone; 2 million rom Latin America,principally Ecuador, Colombia and Bolivia; a million rom Arica andthe Maghreb, including 650,000 Moroccans. What better token o the

act that Spain had let behind its traditional peripheral status than thearrival o its rst wave o mass immigration? As expected, the migrantslargely occupied low-paid jobs in construction, agriculture, domesticwork and also sexual services. A complex system o residency permits,



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job quotas, European and internal borders skilully subordinated theseworkers to the needs o an expanding economy, creating long, some-times lielong, periods o exclusion rom citizenship that let themdeenceless in the labour market.14

Nevertheless, as they gradually established themselves and their ami-lies rom the early 2000s, the migrants too were invited to join in theproperty bonanza. Together with the young people born in the 1970s—the post-Franco baby boomers—they stimulated and sustained the nalyears o the cycle: Spanish ‘subprimes’ consisted in granting at leasta million mortgages to vulnerable segments o society between 2003and 2007. Naturally, a widespread increase in indebtedness was one o

the side-eects o Spain’s assets euphoria—the ratio o indebtednessto available income rising, by 2007, to the highest level o any oecd country—though the risks were heavily concentrated in householdswith lower incomes and ewer assets. As in the United States, the magico renancing through the sustained increase in housing prices wasregarded as sucient security or the risks in credit. Unlike the UnitedStates, however, Spanish law does not consider the asset underlying themortgage—i.e., the dwelling—to be sucient guarantee in the event

o deault by the borrower. This means that the guarantees securingloans might include the homes o the mortgagees’ relatives and riends.This would result in alarming chain reactions o repossessions ater theproperty bubble burst.

The crash

The rst to notice that the bubble was coming to an end were the

property developers. Ater nearly 900,000 housing starts in 2006—exceeding those o France, Germany and Italy put together—salesbegan to all away. Mediterranean coastal developments were espe-cially hard hit by the bursting o the uk housing bubble in mid-2007,leading to problems or British second-home owners. Re-zoned landawaiting development, bought at the height o the bubble with loansrom the cajas, started to be seen as a bad investment. By the end o 2008 there were a million unsold homes on the market, while Spanish

14 The years 2000–01 and 2004–05 saw a series o mobilizations by undocumentedmigrants, including sit-ins in churches and ocial buildings, as well as strikes bymigrant workers in the agro-industrial districts o the south-east.




household indebtedness had risen to 84 per cent o gdp. Collapsingproperty developers began landing the cajas with massive bad loans: inJuly 2008 the Martinsa–Fadesa construction company led or bank-ruptcy with debts o over €5bn.

The Zapatero government’s initial response was to try to pass the crisiso as a global phenomenon, only marginally aecting Spain, in com-parison to the—ar larger—debacle o the subprime-related market inthe United States. At most, Madrid acknowledged that it would be neces-sary to give some help to the cajas—the possibility o a €50bn bail-outund was foated in October 2008—and to expand short-term decitspending, in tandem with the rest o the g20. However, these predic-

tions were quickly shown to be hopelessly optimistic as unemploymentdoubled, pushing the jobless rate up to nearly 20 per cent by the end o 2009. The destruction o jobs was not conned to construction, but alsoaected the consumer-goods industry and market services. The virtu-ous circle o asset-price Keynesianism had gone into reverse, generatinga severe ‘poverty eect’ which, together with the contraction o credit,drastically reduced private consumption. Owing to the high propor-tion o employees on short-term and temporary contracts, businesses

were able to reduce their workorces quickly and at very little cost inresponse to alling demand, which was then in turn urther depressedby rising unemployment, reaching over 40 per cent among under-25s.Government revenues plummeted, as gdp contracted by 7.7 points,peak to trough, and the 2006 scal surplus o 2 per cent o gdp turnedinto a 2009 decit o over 11 per cent.

Like its European counterparts, the Zapatero government ocused on

a policy o socializing the losses o the country’s oligarchic blocs. Thisvery much included the major Spanish construction companies, someo them—acs, fcc and Ferrovial—now global players, having beengenerously attened up by more than 25 years o expansive inrastructurebudgets, and who now demanded that their public-works contracts bemaintained, whatever the cost. The large private banks—Santander andbbva are the biggest—appeared to be better provisioned than some o their British and us competitors, having captured the deposits o the mid-

dle classes o Latin America. In act they now went on a spending spree,Santander in particular adding British building societies and Americansavings banks to its already extensive Latin American and Asian interests,creating a behemoth too big to ail—and perhaps too big to save.



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For their part, the cajas remain saturated with debt. Estimates o theirtotal capital shortall vary rom €15bn (the Bank o Spain’s gure) toaround €100bn, which would be approaching 10 per cent o gdp; inMarch 2009 the Caja Castilla–La Mancha alone was bailed out to the

tune o €9bn.15 In June 2009, Zapatero announced plans or a €99bnrescue und, the frob, and a merger programme that would reduce the45 cajas to 17; they were also instructed to raise their core-capital levelsto 10 per cent by September 2011, which would require an extra €20bn–50bn in cash. Sidestepping this, the cajas have also been encouraged,through the Bank o Spain, to swap property developers’ debts or realestate, land and houses, valued somewhat ctitiously at 10 per cent belowtheir peak price, in order to fatter their balance-sheets and avoid tech-

nical bankruptcy. As in Ireland, however, losses have tended to exceedinitial estimates: in March 2011 revelations o bigger-than-anticipatedproblems at the Alicante-based Caja de Ahorros Mediterráneo, Spain’sourth-largest caja, scotched the merger plan in which it was involved.Ater their record-breaking rise, Spanish house prices have so ar allenback by little more than 10 per cent (see Figure 4).

By mid-2009, the pressure at eu and, more specically, Eurozone level

switly shited rom bank-rescue packages—the total pledged may havecome to €2.5 trillion rom the eu as a whole—to the austerity measuresnecessitated by the transer o nance capital’s losses onto the nation-states’books. From early 2010, budget cuts, wage reezes and the dismantlingo social programmes were introduced in one country ater another. Thecrisis was explicitly seen as an opportunity or state-by-state ‘structuraladjustments’ according to the well-known prescriptions. The role o theeu’s summit institutions in the crisis could not have been more closely

linked to nancial interests. In this sequence o events, the sovereign-debtcrises, especially the episodes involving Greece and Ireland, must be seenas providing an enormous business opportunity or the big European—German, French and British—banks, the main holders o the Europeancountries’ sovereign bonds. Aided by the rating agencies, the announce-ments o the insolvency or nancial ragility o the Eurozone’s decitmembers—Greece, Portugal, Ireland, Spain and Italy—enabled themto amass enormous prots based on debt-bond interest rates, articially

15 The Economist has proposed a ‘doomsday scenario’ gure o €270bn which, itpoints out, would be smaller than the Irish banks’ shortall, relative to gdp: ‘Undersiege’, 13 January 2011.




Per cent change in housing prices, 2001–06

Per cent change rom recent peak

706050403020100–10–20–30

Source: Prakash Kannan et al., ‘Macroeconomic Patterns and Monetary Policy in the Run-Up to AssetPrice Busts’, imf Working Paper, November 2009, p. 29.

Figure 4. House-price rises, 2001–06, and subsequent alls

Portugal

Netherlands

Greece

USA

Italy

Finland

Sweden

Denmark

UK

France

Ireland

Spain



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blown up at a time when it was impossible or nancial prots in the pri-vate and household sectors to return to their pre-crisis levels.

Zapatero’s volte-ace

In April 2010, as the Greek debt crisis unolded, Zapatero came underincreasing pressure rom Berlin, Brussels and the ecb to impose auster-ity measures and labour-market restructuring—eectively launching anoensive against the state-sector employees who still had long-term con-tracts and wage-bargaining rights. Unwilling to assault key sections o his base, yet incapable o mobilizing it towards any alternative solution,Zapatero procrastinated. Finally on 12 May, apparently ater urther arm-

twisting rom the Obama White House, he announced a drastic austerityprogramme: public-sector wages slashed by 5 per cent, benets andpensions cut, investment projects cancelled, the retirement age raised,wage bargaining restricted, sackings made simpler. The result was animmediate plunge in the polls: rom level-pegging with the pp, the psoe dropped to 7 points behind, then carried on alling. Trade-union leaderswere trapped between the pressure rom their rank and le and theiranxieties about precipitating the all o the psoe government. A general

strike on 29 September 2010 was the main ocus or social oppositionto the Zapatero measures, but the leadership prevented some o thebest-organized sectors, such as transport workers, rom coming out, andailed to mobilize the huge mass o short-contract workers in servicesand retail. The union leadership then promptly signed an agreement oncutbacks in pension provision and a rise in the retirement age.

The mask o a modern progressive republicanism has allen as the Socialist

Party government lined up unambiguously with the hegemonic nancialbloc. Following the script that has characterized the current phase o thecrisis, the extra burdens on Spanish public-debt issue have led to meas-ures in line with the most orthodox structural adjustment policies. In thenal analysis, this means that public expenditure is subject to the politi-cal oversight o the nancial agents. The result has been the desertion o a large part o the psoe electorate, the Party now at an all-time low in thepolls. On 2 April 2011, with unemployment soaring (see Figure 5) and the

Socialists trailing by 16 points, Zapatero announced that he would notbe running as the psoe leader in the March 2012 general election. Themain pressures or him to resign came rom within the party, particularlyrom Socialist candidates in the May 2011 regional elections who wanted




to distance themselves rom his political legacy. The ront-runner to suc-ceed him is Alredo Pérez Rubalcaba, a veteran o the psoe right whosepolitical career began under Felipe González. Rubalcaba has been at theInterior Ministry since 2006 and is notorious or having ormulated aneven tougher, ‘war on terror’ response to the Basque separatist movement

eta than the pp. As a result o this strong-man stance, he was rewardedwith two other high positions in the Zapatero government: vice-presidentand spokesman o the government. As a man o the elipista old guard,Rubalcaba is avoured by the mighty prisa group and its chie mouth-piece, El País. The leading candidate o the psoe’s zapaterista wing andthe Mediapro group, Deence Minister Carme Chacón, withdrew whenshe saw which way the wind was blowing.

The crisis has brought Spain ace to ace with the ragility o the economicstructures underpinning its long decade o prosperity, and the psoe withthe aporias that were the oundation o its politics. Financial engineer-ing perpetuated the ction that an expanded home-owning middle-class

Ireland

Italy

Greece

Portugal

Germany

France

Spain

Figure 5. Selected Eurozone unemployment rates, 2006–11 (%)

20

15

10

5

0

2006 2007 2008 2009 2010 2011

Source: World Economic Outlook Database, April 2011.



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majority had achieved permanent levels o prosperity. The collapse o theproperty bubble has torn the veil rom a highly polarized social order,with a large proportion o the population deep in debt, many out o work and dependent on public services doubly hit by spending cuts and

privatization. I to this we add that the worst hit are the young—acingstarkly diminished prospects compared to their elders—and oreign-bornworkers, then the lines projecting the cost o the crisis onto the most vul-nerable groups become clear. Spain has long been the most Europhiliaco eu member states; Europeanism was deeply associated in people’simaginations with the post-Franco democratization and modernizationo the country, and the Spanish electorate has historically been almostcompletely uncritical o the eu. Such complacency has now disappeared.

On 15 May, in the run up to the 22 May regional elections—and exactly ayear ater Zapatero had announced his swingeing cuts—a huge wave o social protest swept across the country. Tens o thousands o young dem-onstrators took to the streets, then set up camp in the central squares o ascore o Spanish cities, including Plaza Catalunya in Barcelona and Puertadel Sol in Madrid: students, workers, employed and unemployed, stakinga claim to public space, with a salute to the young Arab demonstrators

o Pearl Roundabout and Tahrir Square (see page 29). In Puerta del Solthe occupation established a permanent popular assembly, voting dailyon all decisions. Among the slogans o the 15M movement: ‘For a transi-tion to democracy!’—‘We are not commodities in the hands o politiciansand bankers’—‘ppsoe: psoe and pp, both the same crap’—‘Real democ-racy now!’ The 20 May Maniesto approved by the Sol’s popular assemblyassailed political corruption, the closed-list electoral system (in whichonly the names o the party and its leader appear on the ballot paper),

the power o the ecb–imf and the injustice o the ruling-class responseto the crisis. At the time o writing, the ‘campers’ have been holding thesquares or nearly two weeks—during which period the psoe has hadthe worst drubbing in its history, losing control o Barcelona, Seville andour acs, as well as town halls across its stronghold o Andalusia.16 But i Mariano Rahoy’s pp takes power in the general election, due in less thana year, it will conront the orces o the 15M movement, the indignados and‘youth without a uture’: ‘No house, no job, no pension—no ear!’

16 The psoe won only 28 per cent o the vote in the 22 May regional elections, a 7point drop; but the pp was only 2 points up, at 38 per cent. Meanwhile IzquierdaUnida polled 6.3 per cent, up rom 5.5 in 2007, but—punished in part or localcoalitions with psoe—taking only 210,000 o the 1.5m votes the Socialists had lost.




The outlook or economic recovery in Spain remains bleak. The scaleo the housing bubble; the centrality o asset-price Keynesianism togrowth since the 1990s; the depth o the post-bust recession, exacerbated

by truly draconian austerity measures; the strength o the Euro (thanksin part to quantitative easing rom the us Federal Reserve), which hitsnon-Eurozone tourism; and a tightening o credit by the ecb—all thissuggests that any return to growth in Spain is a very long way o indeed.The immediate prospect is almost certain to be urther retrenchmentand thereore an increase in Spain’s decit. This poses severe dilemmasor the Eurozone’s attempts to pretend that the crisis is just a tempo-rary liquidity problem which can be managed by unnelling ecb–imf

bridging loans to the countries in question during the time it takes togrow their way out o debt. In act, the crisis is that o the major German,French and British banks, hugely exposed by the bursting o the periph-ery’s property bubbles (see Figure 6). Rather than ace the trauma o a

120100806040200

UK

France

Germany

Claims as per cent o equity o banks with oreign exposures, 2010 Q3

Claims as per cent o total bank equity, 2010 Q3

6040200

Source: imf, Regional Economic Outlook: Europe, May 2011, p. 13.

Figure 6. Claims to Eurozone periphery domestic banks and public sector

UK

France

Germany

Claims on Greece, Ireland and Portugal Claims on Spain



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ull-blown banking crisis at home, Berlin, Paris and London have beenrunning what one central banker has described as a public-sector Ponzischeme, ‘only sustainable as long as additional amounts o money areavailable to continue the pretence’:

Some o the original bondholders are being paid with the ocial loans thatalso nance the remaining primary decits. When it turns out that coun-tries cannot meet the austerity and structural conditions imposed on them,and thereore cannot return to the voluntary market, these loans will even-tually be rolled over and enhanced by Eurozone members and internationalorganizations . . . European governments are nding it more convenientto postpone the day o reckoning and continue throwing money into theperipheral countries, rather than ace domestic nancial disruption.17

The collapse o the Spanish model threatens this pyramid schemerom several directions: rst, German and French banks’ exposure isar greater in Spain than in Greece and Ireland; second, the scale o the cajas’ problems has yet to be athomed; third, the social problem—apopulation that has grown by 18 per cent in the past decade, largely byimmigration; nearly one in two o the younger generation unemployed—is potentially more explosive, as social and welare spending shrinks still

urther, rom levels already low compared to those in central Europe. ASpanish debt crisis could nally capsize the eu3’s attempt to make theperipheral populations bail out the stricken banks, which are reapingusurious, articially infated rates on government bonds to compensateor the lack o nancial prots in the private sector. For that reason, everyeort will no doubt be made to avoid one.

17 Mario Blejer, ‘Europe is running a giant Ponzi scheme’, ft, 5 May 2011.



‘Yes, We Question this Democracy’

Yes, we question this democracy. We question this democracy becauseit ails to support popular sovereignty: the markets impose decisions ortheir own beneft and the parties in Parliament are not standing up tothis global act. Neither in our country nor in the European Parliamentare they fghting to put an end to fnancial speculation, whether in cur-rency or in sovereign debt.

We question this democracy because the parties in power do notlook out or the collective good, but or the good o the rich. Becausethey understand growth as the growth o businessmen’s profts, not thegrowth o social justice, redistribution, public services, access to hous-ing and other necessities. Because the parties in power are concernedonly or their own continuation in ofce, making deals to stay in power

and leaving their electoral programme unulflled. Because no politi-cian has to live with what they legislate or their ‘subjects’: insecurity,mortgage debt and uncertainty. We question this democracy becauseit colludes in corruption, allowing politicians to hold a private post atthe same time as public ofce, to proft rom privileged inormation, tostep into jobs as business advisors ater leaving ofce, making it veryproftable to be a politician.

We question this democracy because it consists in an absolutedelegation o decision-making into the hands o politicians that are

nominated in closed lists and to whom we have no access o any kind.Nor is there any proportionality between votes and seats. We questionthis democracy because it is absurd that the only way to ‘punish’ a partyis to vote or another one with which one does not agree. We questionthis democracy because the parties in power do not even comply withthe social provisions o the Constitution: justice is not applied equally,there are no decent jobs nor housing or all, oreign-born workers arenot treated as citizens. Excuses are not good enough or us. We do notwant to choose between really existing democracy and the dictatorships

o the past. We want a dierent lie. Real democracy now!

—Beatriz García

Response from an indignada in Puerta del Sol to a TV presenter who

told protesters ‘not to question democracy’:

from puerta del sol

The Spanish Model

Documents

Transcript of The Spanish Model