Austerity with a “socialist” face

July 13, 2011

Pat Gallagher describes the history and development of Spain's ruling party--so-called "socialists" who are presiding over a dire program of austerity.

INSPIRED BY the protests in Egypt's Tahrir Square and the uprisings across the Middle East, masses of mostly young Spaniards--known as the "indignados" (indignants)--occupied plazas across the country in May and early June.

With official youth unemployment at more than 40 percent and miserable prospects for the future, Spain suffers from some of the underlying conditions that drove the revolutions and rebellions across the Middle East--above all, the worsening living standards that are the legacy of years of neoliberalism.

But unlike the Middle East uprisings against dictatorial regimes notorious for crushing political dissent, the mass protests in Spain, as in Greece, are against parliamentary governments led, for now, by moderate left parties historically known as social democratic.

How did parties which claim to stand for workers--and which still have links to the labor movement--come to represent the same pro-business policies of austerity associated with the right in Europe, and even with dictatorships in the Arab world? To answer this question, we need a brief history of Spain's recent political and economic shifts.

Spanish Prime Minister José Luis Rodríguez Zapatero
Spanish Prime Minister José Luis Rodríguez Zapatero (Tomás Gómez)

THE SPANISH government is led by Prime Minister José Luis Rodríquez Zapatero, leader of the Spanish Socialist Worker Party (PSOE).

The PSOE has ruled since its electoral victory over the conservative Popular Party (PP) in 2004. That election drew international attention because voters turned out in unexpectedly high numbers to throw out the conservatives in the aftermath of terrorist bombings in Madrid--and the PP's bumbling scheme to blame Basque nationalists, in spite of all evidence to the contrary. The right's grisly attempt to exploit a tragedy where 191 people were killed and many more injured embittered large numbers of Spaniards.

Early in his tenure, Zapatero was popular with progressives, for several reasons. First, he somewhat unexpectedly fulfilled a campaign promise to withdraw Spanish troops from the occupation of Iraq. Former conservative Prime Minister José María Aznar had been one of the three international leaders, along with George W. Bush and Tony Blair, to sponsor the invasion and occupation of Iraq. Zapatero's campaign promise was a response to protests numbering in the millions, both before and after the outbreak of the war--he even carried out the withdrawal ahead of schedule.

Second, Zapatero was seen as a social progressive. For example, in July 2005, Spain became the third country in the world to legalize same-sex marriage, and it also legalized adoption by same-sex couples. While Spain's Catholic Church adamantly opposed the law, it was undeniably popular with the electorate. In the first year alone, some 4,500 same-sex couples were married.

Finally, Zapatero's disarmingly awkward public persona contrasted sharply with former Socialist Prime Minister Felipe González, whose famous charisma lost its luster after ruling for almost 14 years until 1996. No doubt voters hoped that Zapatero's image reflected a political sincerity that González lacked.

González's Socialists had won elections in 1982 by promising to take Spain out of NATO. But in a famous about-face after taking office, they chose to remain in the military alliance. Faced with an outcry from supporters, the Socialists were forced to schedule a referendum on the matter. González's nasty campaign to scare voters into backing NATO membership is remembered by progressives as one of the lowest moments since Spain's fascist dictatorship fell in the 1970s.

González built a political machine based on cronyism, corruption and, worse, a Reagan-Thatcher-style neoliberal overhaul of the economy, in which unions were weakened and industrial jobs destroyed.

The Socialists went on winning elections, however, because at least they weren't the Popular Party (Alianza Popular until 1989), which many rightfully associated with the regime of Gen. Francisco Franco, which lasted from 1939 until a democratic constitution was approved in 1978. Only after years of corruption--and suffering the political effects of the prolonged economic recession of the early 1990s--the Socialists finally lost to the PP in 1996.

WHEN ECONOMISTS talk about the Spanish "economic miracle," they usually point to the tremendous economic growth experienced under Franco's dictatorship in the 1960s, when after decades of isolation, he opened the economy to outside forces.

Though at first, uncompetitive Spanish industry was left exposed, Spain's economic dinghy rose in the waters of the 20th century's most prolonged worldwide economic expansion. By the end of the 1960s, Spain's economy had grown to rank among the richest dozen in the world.

Spain's economic growth of the 1990s and 2000s--also toasted in the business press--was remarkable in its own right. By the middle of the 2000s boom, Spain had become the eighth-largest economy in the world, jumping a number of places from the previous decade. Spain's corporations, like telecom giant Telefónica, became known around the world.

The conservative Aznar government pointed to regular annual economic growth and a double-digit drop in unemployment as vindication of its policies. In a 2007 report, economists from the OECD hailed the Spanish economy for its 13th consecutive year of growth. Spain was now one of the top 10 countries in the world in the total number of dollar millionaires.

Fueling the boom from the mid-1990s until 2007 was a real estate frenzy, particularly in housing. Property sales at inflated prices spurred investment in new construction, creating a demand for unskilled labor. Around 60 percent of all jobs created in the European Community for the period were associated with the Spanish economy.

The acute demand for labor led to a wave of immigration from Eastern Europe, Africa and South America. The numbers are staggering: In the mid-1990s, there were roughly 600,000 immigrants living in Spain; by 2008, that population had grown to 6 million. This huge influx, into a country of 40 million people, contributed to the growing consumption that fueled further growth.

Yet while the economy grew year after year, wages stagnated. When the bubble burst, many Spaniards--like so many people in the U.S.--were left owing much more on mortgages than what their homes were worth on the market.

Because of so-called "price propping" and the secretive nature of banking in Spain, the actual value of the homes is hard to determine. What is known is that 97 percent of mortgage loans were financed with variable interest rates, and in the boom economy, mortgages with terms of 30, 40 and even 50 years replaced the traditional 10- or 20-year loans. Private debt in Spain is the highest in Europe.

An worsening crisis in Spain is significant because its economy is so much bigger than those of the other faltering countries of Europe--Greece, Ireland and Portugal. Spain has the fourth-largest economy in the euro-zone and is five times bigger than the Greek economy.

Consequently, European leaders and financial institutions are that much more insistent that the Spanish government impose austerity measures--and the Socialists have obliged them. Along with massive cuts to the state budget, they have increased the regressive value-added tax (sales tax), raised the age of retirement to 67 years and legislated the erosion of collective bargaining laws, making it easier for employers to abuse temporary contracts as well as have greater "flexibility"--i.e., the freedom to lay off workers.

This is the context in which official unemployment has topped 20 percent--and youth unemployment is double that.

But are the cries for austerity necessary? According to political scientist Vicenç Navarro, a professor of public policy at the University Pompeu Fabra), the PSOIE government's strategy to satisfy financial markets through "socialization" of the debt in Spain is disingenuous. Navarro points out that unlike Greece, where most debt is owed to foreign banks, in Spain:

Most of the public dept is in the hands of Spanish financial institutions. This is very important because one hears that the Spanish government must take highly unpopular measures because of pressures from the financial markets. When people hear that, they think immediately of foreign banks in Frankfurt, London or New York.

In reality, the so-called market pressures are pressures from Spanish banks. Spanish banks hold the greater part of the debt. The same Spanish banks that caused the crisis are the banks that are demanding enormous sacrifices from average Spaniards (las clases populares) so that the bonds get paid, bonds with exaggerated and inflated interest rates.

What we are seeing (invisible in most of the media organizations) is an enormous transfer of public funds (including the social safety net) to the banks--all with the approval of the Bank of Spain and the European Central Bank, which in reality are less regulatory institutions and more lobbies for the national and international banking system.

As Navarro points out, the response to the crisis by the Socialists has been to socialize the debt--and meanwhile take the opportunity to rewrite collective bargaining laws to satisfy Spanish business. The consequences will be transformational for the next generation. Young Spanish people--in fact, all Spanish people--have every right to be "indignant."

NO WONDER voters abandoned the Socialists in May 22 municipal elections in which the PSOE took a drubbing. Though conservatives would like to think otherwise, it would be wrong to draw the conclusion from the election that Spanish people are shifting ideologically to the right. The PP did win more votes, but the real story is the 19 percentage point drop in the Socialist vote compared to four years earlier.

Like González before him, Zapatero's luster has faded. The writing was already on the wall last year when many of the Socialist Party's austerity measures were legislated. On September 29, 2010, Spanish workers protested the new labor "reforms" with the first general strike in eight years.

When the Egyptian-inspired protests of the "indignados" coalesced in the days prior to the May 22 elections, the political common denominator was a rejection of the entire political process in Spain, dominated by the PSOE and the PP.

Conservatives will go on claiming that their recent electoral luck is a matter of their own strength rather than the PSOE's weakness--and accompanying the electoral gains for the PP will be ugly scapegoating of the immigrants who helped fuel the economic boom over the last decade. But the truth is that the loudest voices in Spain now are coming from the indignados.

The movement has ended its occupations of the plazas for now, but it hasn't disappeared or dispersed like past occupiers. Instead, the indignados have taken their struggle from the central plazas into neighborhoods everywhere. A sign of their ongoing strength and popularity came again on June 19, when huge numbers took to the streets again to protest austerity.

This represents the real alternative to austerity with a "socialist" face.

Further Reading

From the archives