What began as an economic storm has blown into a full-scale political crisis. Amid popular discontent and separatist protests, Spain has stumbled towards a crossroads: without decisive action by the government, the post-Franco democratic settlement is at risk.
Yesterday’s announcement of the 2013 budget does not change this. Spain is persisting with the excessive austerity favoured in the eurozone but which is making the crisis worse. In the middle of a swingeing recession, Madrid is taking some €40bn out of the economy to achieve a fall in the public sector deficit from 6.3 per cent this year to 4.5 per cent next year. The slump and obscenely high unemployment are at least in part caused by an overly rigorous view of public finances that are not that bad by eurozone standards.
Social security costs are going up by €6.6bn or 0.6 per cent of gross domestic product. Cristobal Montoro, the budget minister, attempted to put a brave face on this by calling it a “clearly social” budget. In fact the increase reflects the higher cost of the welfare state at a time of economic suffering. Indeed this increase in social spending, caused by the recession, is almost as large as the €9.7bn increase in interest spending due to the debt problem.
The announcements need not leave markets, investors and politicians from Brussels to Berlin entirely bereft of hope that Spain may muddle through the crisis. As important as the tax and spending numbers is the emphasis on continuing structural reforms. It may not be a budget “exclusively targeted on growth and job creation”, as Mr Montoro claims, but it is true that some of the non-budgetary measures – such as energy liberalisation and educational reform – should bring about a healthier Spanish economy once the crisis is over. Efforts to bring more transparency and efficiency to public spending – such as an independent budget authority – can also do much good.
Given the current politics of the eurozone, however, it would be vain to hope for a looser policy that could let the Spanish economy breathe while it adjusts to structural reforms. The question is whether the political imperatives of European monetary union are compatible with the political pressures coming to a head in Madrid and beyond.
Under the hammer of austerity, national unity and social cohesion are crumbling. From the more independent-minded regions, such as Catalonia, prime minister Mariano Rajoy’s handling of the crisis looks very much intended to tighten central control. Artur Mas, Catalonia’s president, has called a snap election which, in practice, will amount to a referendum on independence. Madrid’s intransigent response risks triggering a constitutional crisis.
Mr Rajoy must bear responsibility for the state of his country. Elected in a landslide, he had the political capital to lead a united Spain through this crisis. Instead his government has played a partisan game rather than building consensus.
Last spring, for example, he delayed a budget in the hopes of winning a round of elections in Andalucia. As a result, Mr Rajoy has lost support in the streets, antagonised his opponents, and disappointed both his own party and his counterparts in Europe. Mr Rajoy needs both to forge a national consensus on how to manage these crises and reach firm agreement on how Europe can help.
Today, Madrid will announce how much money it needs from the promised eurozone rescue of its banking system. Recent backsliding on the terms of this aid partially justifies Mr Rajoy’s coyness on whether Spain will also need a fiscal rescue loan. As the political mood turns poisonous and the prospect of growth recedes further, this is not a decision that can be postponed for long.