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Spain's Pain is No One's Gain
Tears and fears as EU austerity takes Spanish unemployment to 25%
It’s hard to list the news from Spain in order of badness. It’s all awful. Just shuffle the stats like a horrible card deal. Wait for Italy to be dealt its cards next. Then watch the eurozone fall apart and the shudders spread worldwide.
Spain’s unemployment rate is nearly 25 per cent. And it’s not just the peak level that leaves onlookers horrified, it’s the speed of job loss. Fully 367,000 people lost their jobs in the first three months of the year alone. Half of young people under 25 are unemployed and in more than 1.7 million households no one at all has a job, the Financial Times of London reports.
Spain’s economy is expected to shrink 1.7 per cent this year and grow 0.2 per cent next year. Here’s hoping it’s as healthy as that.
On Monday, the American credit rating agency Standard & Poor’s downgraded its rating on 11 of the country’s biggest banks. Spain’s plan to isolate as many bad loans as possible in a state-run vehicle — something it is anxious not to call a “bad bank,” Irish-style — might or might not happen. Spain, a relatively fiscally well-behaved nation suffering from a housing bubble, is frantic to avoid EU “help” which would essentially mean eurozone financial rule from afar, i.e., German austerity.
As the Times wryly notes, German unemployment is at its lowest point since east and west reunited in 1990. Meanwhile Greece, Ireland and Portugal are enduring EU “help” that you would scarcely wish on an enemy.
There are gulfs of misunderstanding among the austerity extremists and the take-austerity-slowly middle ground and the this-is-no-time-for-austerity Krugmanites. It’s as if the EU has been turned into a giant experiment for economists. There they are pouring boiling water on the European anthill.
Only the best ants will survive, they say.
Not true. The anthill dies. At least it does when I pour boiling water on the anthills in my driveway. Haven’t we been through this?
As a clever Guardian headline said Tuesday, “Germany praises pain in Spain.” The austerity is Berlin-led and there’s a reason Germany’s finance minister, Wolfgang Schäuble, is so equable about it.
He has already lived through this, having previously worked on German reunification, blending poverty-stricken Communist East Germany with wealthy West Germany. He imposed tough love on the East in a manner strangely similar to what he’s doing now.
The fact that it never actually worked — to this day, Germany’s east is like your troubled cousin who still lives with his mother — isn’t relevant.
According to Der Spiegel, the Guardian reports, not one of Germany’s 100 largest industrial companies and 100 largest service providers has its headquarters in eastern Germany. That’s just one statistic of eastern failure.
Yet the ideology survived intact. The meme, the tattered dogma, of austerity imposed during recession is flourishing, for reasons that elude many economists.
Schäuble says tough love will work for the EU. Two things might change his mind. The pain will move from the peripheral EU — Club Med as it’s called — to the French and German core. And social unrest across the eurozone will go beyond demonstrations and into electoral politics. If violent riots on the streets of Europe’s capital cities don’t move rightist politicians, the electoral rise of the hard right — it has already begun — just might.
For the hard right in Europe is very hard indeed, as history has taught us.
I only write this as part of an ongoing series of disaster bulletins from the EU. Austerity during hard times is counterintuitive. We see it in Canada where clerks at EI offices watch their jobs disappear even as the demand for their help rises. It makes no sense.
The love of austerity is a habit of mind, a lazy crazy thing. It’s like easy-listening radio on the drive home. This sounds pretty darn nice, you think. No reason to change the station.
I have my own obsession. I’m in love with full employment. We won’t achieve it but it’s something to aim for. When did leaving half of Spain’s young people with nothing to do but cultivate rage become something economists thought was healthy?
Is anyone listening? Can we fix this before the damage flattens a generation? Can we change the station we’re listening to?