By taking Spain into a war with Libya, Socialist Prime Minister José Luis Rodríguez Zapatero was calculating that he could defy fate by diverting media headlines away from the fact that he has also led Spain to the brink of economic catastrophe. But like the haughty Babylonian King Belshazzar, drunk on the wine of narcissism, a dazed Zapatero has been forced to read the writing on the wall: He has been weighed on the scales and found wanting.
After a recent opinion poll showed that more than 80 percent of Spanish voters have lost their trust in Zapatero, making him Spain’s least popular prime minister since the end of the dictatorship of Francisco Franco in 1975, Zapatero announced on April 2 that he will not be seeking a third term in the 2012 elections. “I thought it would be best for the country,” he said.
The irony is that while many Spanish voters will be breathing a sigh of relief, Zapatero’s exit is likely to create even more problems for Spain than it resolves. Spain is hopelessly mired in the worst economic recession in its modern history, and Zapatero’s withdrawal from 2012 race has opened a power struggle within the Socialist Party. Analysts fear that any power vacuum may spook the markets and endanger Spain’s fiscal future by increasing its borrowing costs.
The political uncertainty in Spain comes as Moody’s Investors Service downgraded Spain’s sovereign debt rating by one notch on March 10 and warned of further cuts to come as it expects bank restructuring will cost far more than what the government expects. Moody’s says Spain may need up to €120 billion ($165 billion) to recapitalize its failing banks, even though the Spanish government and central bank insist they need no more than €20 billion ($30 billion).
At the same time, Spain announced on March 2 that its jobless rate surged to a 15-year record to above 20 percent at the end of February, the highest level in the industrialized world. The jobless rate among the young in Spain has soared to well above 40 percent, a figure that exceeds youth unemployment rates in Egypt and Tunisia. Overall, more than 4.7 million Spaniards are now out of work, and unemployment benefits constitute the largest single component of government expenditures.
As if that were not enough, the Spanish government on March 7 imposed a series of extraordinary measures to combat an increase in fuel prices caused by popular uprisings in North Africa and the Middle East, major suppliers of crude oil and natural gas to Spain. Among other measures, the government has reduced the speed limit on Spanish highways. Deputy Prime Minister Alfredo Pérez Rubalcaba said “the objective is to lower the growth of our energy bill.”
Meanwhile, the government announced that the Spanish economy contracted by 0.2 percent over the whole of 2010, after falling 3.7 percent in 2009. The economy is expected to stagnate in 2011.
The steady flow of bad news in recent weeks — coupled with the dramatic developments in neighbouring Portugal, where the resignation of Prime Minister José Sócrates has sparked early elections and pushed that country to ask for a bailout — implies that Spain’s economic crisis is far from over. Not only does it cast further doubt on the sustainability of Spain’s debt, it also increases the chances that Spain, like Greece and Ireland, will need to ask for a financial bailout. A bailout of Spain would have major implications for Europe as well as for the United States.
How did Spain end up in such a mess? Spain’s economic meltdown largely stems from the collapse of the country’s housing and construction sectors, which accounted (directly and indirectly) for nearly one quarter of Spanish GDP before a speculative real estate bubble began to burst in 2007. The ensuing spike in unemployment, coupled with a sharp drop in domestic consumption and a steep decline in tax revenues, among myriad other woes, have all combined to leave Spain on the edge of an economic abyss.
But other factors have contributed to Spain’s economic crisis: incompetent politicians, reckless government spending, and voter apathy.
Incompetent Politicians: Economists both inside and outside of Spain had been warning for many years that the country’s construction boom was unsustainable, and that urgent measures needed to be taken to diversify the economy and to make it more competitive.
Instead, Zapatero wasted valuable time and energy denying that there actually was a problem. Spanish Socialists, like many postmodern relativists, believe that all problems are by definition imaginary and can be wished away by avoiding negative thoughts. In an effort to downplay the scale of Spain’s economic troubles, the Socialist government has established a seven-year track record of using an arsenal of postmodern euphemisms to avoid unpleasantries and to create a virtual Spanish reality.
In an interview with the Socialist mouthpiece El País, for example, Zapatero famously asserted that the idea that Spain was actually in trouble was “opinionable” and said that “it all depends upon what we mean by crisis.” He said that those warning about an impending economic crisis were being “unpatriotic” and that such talk was a “fallacy, pure catastrophism.” Zapatero also warned: “Let’s not turn economic forecasting into a fetish.” Think positive, he said: “To be optimistic is something more than a rational act. It is a moral requirement, an act of decency and, if I may say so, elegance.”