The Spanish elites, the media and the man in the street generally present the economic and financial crisis as a natural catastrophe that has been caused by external forces (read: US-triggered financial crisis, structural problems of the Eurozone, access to cheap credit and austerity measures imposed by Berlin). However, the origins of the economic and social misery as well as the roots of the political tensions between the Spanish autonomous regions can also be traced back to how the country’s transition from dictatorship to democracy was carried out, which in turn affected the economic and political development of the country. That said it must be first acknowledged that Spain’s peaceful transition from dictatorship to a multi-party democracy has undoubtedly been a success and has rightfully been used as an example the world over. The country has been firmly rooted on the path of democracy and a return of another military regime has become unthinkable.

One of the aims during the transition process was to create a constitutional consensus and a liberal parliamentary system that would guarantee stability in an extremely fragile situation. Indeed, the post-dictatorship consensus valued stability over other values, such as transparency and openness, establishing a robust party system based on two-broad based parties on the national level, one on the right and the other one on the left. In the context of ongoing globalisation, the power of the national state has been gradually eroding in relation to other actors. The state has been substituted with a self-serving partitocracy with wide-reaching clientelistic networks in all areas of public life (business, banks, justice, public service...), as Alejandro Nieto, a renowned Professor emeritus of public law in Complutense University of Madrid has pointed out in his book “El Desgobierno de lo Público” (“Mismanagement of the Public Sphere”, Ariel 2008). He argues that in extreme cases this has even led to an economic-political oligarchy in Spain.

This does not mean that a strong party system is necessarily a bad thing or that the wide majority of Spanish politicians are not honest - they are. However, due to the lack of effective democratic and judicial counterweights on the highest political level, the Spanish political class has been operating in a dysfunctional system that creates incentives for systematic abuse. The pervasive influence of the parties and the domination of the political logic over that of the public good has created an “extractive elite”, as a right-wing author and financial expert César Molinas calls it in his new book. These elites have a responsibility in the creation the real estate bubble, the collapse of the savings banks (the traditionally non-commercial cajas de ahorro) and the proliferation of unnecessary and costly infrastructures.

It is true that the introduction of the common currency caused the interest rates to fall from around 14% (the rate with the peseta) to around 4% (the corresponding rate with the euro) in a matter of weeks and opened suddenly access to cheap money. However, it should not escape anyone that it was a conscious political decision to use the cheap credit to finance a model of economic development based on low-added value and speculative activities, instead of investing in the development of the welfare state, research and innovation and well-planned strategic infrastructures. The conservative Aznar government chose in the late 1990s the first option and the socialist Zapatero government (2004-2011) did nothing to realign the situation. This model of growth based on cheap money and on the illusion of endlessly rising housing prices finished when the fountain of credit dried up in 2008 and revealed that the assets of most Spanish banks were vastly overvalued. It had been assured by the government, and backed by international audit firms and institutions, that the Spanish banking system was one of the safest in the world and yet the Spanish public woke suddenly up to the realisation that most Spanish banks were on the brink of bankruptcy. Then, instead of letting the investors take responsibility for their bad investments, the political class intervened to nationalise the private debts and the banking crisis turned into a full-blown sovereign debt crisis.

It is worth noting that since the 1990s the boards of most Spanish savings banks (and all the boards of those that are now bankrupt) were furnished with political appointees with no knowledge about banking and that the decisions taken by these boards rarely followed a rational cost-benefit approach. The politisation of the boards turned the savings banks into puppets in the hands of the ruling parties and reinforced the power of the political oligarchies. As a result most savings banks in Spain have either disappeared or been turned into commercial banks (from 85 at the end of the 1970s to only 2 viable ones remaining now).

The examples of bad, often only politically-motivated investments by the savings banks are multiple. Spain is full of ghost cities of empty apartment blocks in places where nobody wants or can afford to live. It has more airports than any other European country (50 in comparison with 18 in Germany) - some of them that have never catered to any passenger (e.g. in Castellón) or have now been deemed economically not viable (e.g. in Lleida). The country has built more kilometres of high-speed train roads than any other, with the exception of China. This had a cost of €64bn and today many of the lines run on a unsustainable rate of passenger per kilometre.

Virtually nobody has been penalised for the bad allocation of investments in unnecessary and/or inappropriate infrastructures and neither for the mismanagement of the banks and savings banks. Instead, Roberto Lopez Abad, Director of Caja Mediterranea had himself paid a cosy sum of €5.8 million in indemnities and Aurelio Izguierdo, the ex-Director of Bancaja drew respectively €7.6 million (both of the banks were at the time of the payments already financially on the downward slope). Bankia - created on the basis of several savings banks, but mainly on the basis of Caja Madrid and Bancaja - was merrily launched into the financial markets despite the fact that there was information that most of its parts were not viable. Leaked information from the Bank of Spain seems to indicate that information on the problems of the savings banks were known to them but also that their hands were tied due to political pressure. Likewise, the stakes of the big political parties in the ruinous situation of the banks is the main reason why, despite strong public demand, there has been no serious investigation into their mismanagement. The special parliamentary committee called into investigating the case of Bankia and its President Rodrigo Rato – ex-IMF Chief and Minister of Economy in the Aznar government, as well as ironically the designer of the development model of the Spain from the late 1990s – was established on the demand of a niche populist party and never reached any conclusions.

The tendency to close their ranks and to defend their own explains why Spain is yet to see any serious structural reform, although the first signs of the crisis date back to 2008. The Socialist government closed its eyes to the reality as long as it could, and now the bucket has been passed to the conservative People’s Party government that won the elections by landslide at the end of 2011. Despite the rhetoric and lip service to Brussels, very little structural reform has in practice taken place until now, except for the revision of the labour law that can be at best considered cosmetic. There have been harsh austerity cuts, though, which are mainly hitting hard the lower and the middle classes, the latter fast eroding away. Moreover, both the income tax and the VAT have been raised, reducing the population’s disposable income and contributing even more to the economic contraction. At the same time, the social cost is on the rise, as is understandably the public discontent. Unemployment is hitting catastrophic levels with the number of unemployed having reached 5.77 million or 25.02% of the population. Spain, the fourth largest economy in Europe sees more than every fifth person in its population living under the poverty line.

Hundreds of thousands of people have this year come under different signs and different ideals to the streets of different Spanish cities to protest against the rolling-back of the welfare state and the behaviour of the political elites, culminating with a pacific but populous attempt by the Indignados movement to take over the national parliament at the end of this September (the violence was mainly by the police). Yet another big general strike is expected to take place on 14 November, when trade unions are planning strikes in several European countries. The increasing disillusionment has not yet translated into the rise of extremist populist parties, however.

These do exist but have not managed to garner enough votes to enter into neither the regional nor the national parliaments. This may be partly explained by the electoral system, which favours the two big national parties, but not exclusively. The crisis has fired up already latent tensions between the ethnic regions and the central government and given a boost to the separatist movements in two Spanish historical ethnic regions – Catalunya and the Basque Country.

Some economists have pointed out that some of the disastrous measures would have had alternatives that would have been less damaging to the society and would have contributed to the general health of the economy. Cuts in the areas of health, education, and social services amount currently to €25bn. At the same time, corrections in the fiscal fraud by the big fortunes, banks and large enterprises (around 70 per cent of the total fraud committed) could have provided an income of €44bn for the state. Reduction in shadow economy by 10 points would have provided the state with extra €38.5bn. These figures are even more relevant if we consider that in 2013 Spain will be paying €38.5bn as interests of the debt (€10bn more than in 2012) and when the total expenditure on unemployment subsidies is budgeted at close to €27bn for the coming year. It is evident from these figures that Spain needs political reforms a lot more than it needs austerity policies.

However, many Spaniards –cheered on by many of the leading politicians and the media– blame the EU and especially Germany for imposing austerity measures to reduce the deficit and the public debt. It is hardly ever mentioned in the mainstream discourse that the choice to deepen the social cuts rather than reforming the functioning of the state is in the hands of the Spanish government. Actually, the latter option would be better both for Germany and Europe too for it would contract the Spanish domestic demand less and also lessen the impact on the sales by European producers. Indeed, keeping the domestic market working would open the possibility of a viable future for a modern and functioning Spain. However, the internal dynamics of the political elites running the country make this option as improbable as it is necessary. The choice to cut back on the social policies and not to curb the rampant fraud is a Spanish decision, not one imposed by Germany.

Conclusions

Although the Spanish economic and financial crisis owes to external factors, including the global credit crunch kicked off in 2008 as well as the structural imbalances of the Eurozone, it is clear that the behaviour of the Spanish political class has a lot to explain for the miserable economic, social and political situation that the country finds itself in. The global crisis and the sudden disruption in the cheap credits that had been made available by the introduction of the common European currency, the euro, just exposed and amplified the existing vulnerabilities. One of the biggest strengths of the Spanish transition - the constitutional settlement and the creation of a strong and stable party system – has become one of the biggest challenges for Spain. The establishment of wide-reaching clientelistic networks and the interventionism by the two big national parties – People’s Party and the Socialist Party – in all areas of public life and in the banking sector, as well as their undermining of the neutrality and the independence of the judiciary on the highest levels have contributed to the creation of the current Spanish crisis. The elites’ complacency and lack of motivation for changing the status quo means that very little real improvement has until now become a reality, as far as reforms are concerned. The logic of the austerity cuts that have been carried out can be questioned both from the economic and moral point of view, as these are surely and certainly leading the country even closer to the total economic and social collapse. One should not forget that we are speaking of a modern country with brand new infrastructures, a highly educated labour force, many competitive economic sectors, a relatively light public sector compared to other Western European counties, and, last but not least, a public debt 10 to 15 points below that of Germany, France or the UK. Hence, it can be argued that despite the dire situation of the banking sector and the political problems Spain can be a viable country. In other words, alternatives do exist but they are not implemented because the enforcement of these would undermine the interests of the current elites. The harshness of the crisis and the perceived incompetence of the political leaders is causing widespread public discontent that for the moment has translated into mass demonstrations as well as the ignition of latent tensions between the central government and the historical ethnic regions of Spain. Although there are signs of increasing populism both in the mainstream and on the fringes of the political landscape as elsewhere in Europe, radical extremism is not yet a strong phenomenon, most probably due to the sturdiness of the existing party political system. However, the stitches in the fabric of Spain have become clearly visible.  

Elina Viilup is a researcher at CIDOB (Barcelona Centre for International Affairs)

Joan Marc Simon is a specialist of sustainable development