Is Spain different? The political, economic and social consequences of its crisis.

I am honoured that the ACIS has invited me to their annual conference, and it is a pleasure to speak again at the Instituto Cervantes, which I am almost beginning to regard as a kind of second home, as this is the third time I have spoken here in as many years. The first time was about the exiled Spanish writer Arturo Barea, one of my heroes and the restoration of whose deteriorated tombstone in Faringdon near Oxford I organised with a group of writer friends, and the second time Michael Portillo presented my book on Spain.

Most of you will have heard, perhaps ad nauseam, of Spain’s tourism slogan in the 1960s. The Franco regime marketed the country under the slogan “Spain is different,” which was true in comparison to most other European countries. I am going to apply the slogan to the consequences of the country’s economic, political and social crisis since 2008. In other words, to what extent has the crisis in Spain been different to that in other euro zone countries? I will focus more on the negative legacy than on the modest economic rebound the government is trumpeting rather too optimistically.

I will start with unemployment. What stands out here is the disproportionate rise as compared to the degree of shrinkage of the economy. GDP declined by around 6% between 2008 and 2013, but the official jobless rate tripled to 24.5% (5.6 million people). The number of households with all adults unemployed is 1.8 million. No other EU country except for Greece has seen its unemployment rate soar to such an extent as Spain’s. Even in 2007, at the height of its illusory economic boom, Spain’s unemployment rate was 8%, a level regarded by some as full employment as employers complained they could not fill posts – but by UK standards a disastrous rate. Clearly, Spain, the euro zone’s fourth largest economy, has a dysfunctional labour market. Why has unemployment risen so much? An important factor is Spain’s lopsided economic model, excessively based on bricks and mortar, which has yet to be rebalanced.

When the property bubble burst as of 2008 jobs were destroyed as quickly as they had been created. The 762,000 housing starts in 2006 were more than Germany, France and Italy combined. Adapting the title of a novel by García Marquez, this crash was a chronicle of a collapse foretold. As construction and house building are very labor-intensive, the collapse reverberated through other areas of the economy and had a big knock-on impact. There’s a town near Madrid that became the main place for making most of the doors for all of Spain. The town’s kids dropped out of school at 16 in droves to work in this industry. As a result of the property crash, the door factories closed causing the town to move from almost full employment to high unemployment.

Between 2002 and 2007, the total number of jobholders, many of them on temporary contracts, rose by a massive 4.1 million, a much steeper rise than in any other EU country and more than three times higher than the number created in the preceding 16 years. Since 2008, more than 3 million jobs have been lost, over half of them in the construction and related sectors. In 2007, 2.7 million people worked in the construction sector. At the end of June that number stood at 970,000.

Another factor that tends to be overlooked when getting one’s head around the scale of Spain’s unemployment is the influx of immigrants. When I first came to Spain, as a young foreign correspondent in 1974, I was one of 165,000 foreigners. Today, I am one of 4.6 million (a figure that excludes naturalized Spaniards), up from 900,000 in 1995. No other EU country has received such an influx in this time span. Immigrants were particularly needed in the construction and agricultural sectors, as there were not enough Spaniards prepared to work in them. At the peak of the boom in 2007 more than half of the 3.3 million non-EU immigrants in Spain (mainly Latin Americans and North Africans) worked in the construction sector. When the economy went into recession, immigrants bore a large part of the surge in the unemployment, as many of them were on temporary contracts and were the first to lose their jobs. The jobless rate among foreigners today (37%) is much higher than that for Spaniards (24%).

Spain is now creating jobs in net terms for the first time in six years, largely thanks to a record tourism year, but no one believes the jobless rate will drop below 20% before 2017. The government’s labour market reforms in 2012 lowered dismissal costs and give companies the upper hand, depending on their financial health, in collective wage bargaining agreements. The GDP growth threshold for net job creation has dropped from around 2% to 1.3%, the rate at which the economy is forecast to grow this year.

There is a very long way to go before recovering the pre-crisis jobless rate of 8%. To do this, the number of unemployed has to be reduced by 4.5 million. In order to reach the structural unemployment rate of the last 30 years (14%), unemployment has to be cut by around 3 million. Growth in itself not sufficient to reduce Spain’s unemployment, due to its composition: 61% are long-term jobless; 42% over the age of 45; 55% have not completed their advanced secondary education; 15% are under the age of 25 and have no work experience. The dire situation is highlighted by the sharp drop in Spain’s employment rate – defined as those with a job as a percentage of the working age population – from 64.5% in 2008 to 54.8% last year.

How do people survive in this situation? My sociologist friend Víctor Pérez-Díaz calls it the “society of four squares” after a children’s game. People, especially the young, move between four points: a fixed-term, precarious job; the shadow economy; unemployment benefits and, if they strike lucky, a permanent job.

The education system is holding back the need to create a more sustainable and knowledge-based economic model. One in every four people in Spain between the ages of 18 and 24 are early school leavers, double the EU average but down from a peak of one-third during the economic boom when jobs were easy to find. Teenagers have no option but to stay on at school.

Even worse, almost one-quarter of 15-29 year-olds are not in education, training or employment, known as NEETs. The results in the OECD’s Pisa international tests in reading, mathematics, scientific knowledge and financial literacy for 15-year-old students and for fourth-grade children in the TIMS and PIRLS tests are poor; no Spanish university is among the world’s top 160 in the main rankings and R&D spending, at 1.3 percent of GDP, is way below that of other developed economies. In these conditions, the creation of a more knowledge-based economy is something of a pipedream. The brightest young scientists and engineers are emigrating. I will come onto this later. Some 70,000 of the graduates hired last year were in jobs for which they were overqualified and many were in jobs for which they required hardly any studies at all.

Spaniards, like we Brits, are also linguistically challenged. The chairman of Madrid’s bid to host the Olympic Games in 2020 responded to a question in English last September by the International Olympic Committee at its final meeting to decide the winner with the words, “No listen the ask”, a peculiar way of saying he did not hear or understand the question.

The impact of the crisis on banks has also been profound. Nine days after the collapse of Lehman Brothers in September 2008, the defining moment of the credit crunch, José Luis Rodríguez Zapatero, the former Socialist Prime Minister, told Wall Street that “Spain has perhaps the most solid financial system in the world. It has a standard of regulation and supervision recognized internationally for its quality and rigour.” Words he lived to regret.

The banking crisis was concentrated in the 45 regionally-based and unlisted savings banks, which accounted for around half Spain’s financial system and were closely connected to local politicians and their business associates. Their crony capitalism and spoils system caused immense damage. Today, the number of these banks has been reduced to seven as a result of mergers, interventions and take-overs. The European Stability Mechanism came to the rescue in 2012 with a €41 billion bail-out programme in return for sweeping reforms, exited last January. So far the state has only recovered 4% of the €61.5 billion of taxpayers’ money used to prop up banks.

The savings banks, in particular, made reckless loans to developers, including for two white elephant airports that have never been used, and they were massively exposed to the property sector when it crashed. Total bad loans (including those of the listed commercial banks) have soared from 0.7% of total credit in 2007 to 13% today.

The reclassification of land for building purposes and the granting of building permits created a breeding ground for corruption. The €150 million airport at Castellón in the region of Valencia was opened by Carlos Fabra, a long time cacique of the Popular Party in that area. Although it was not in use, because it did not have the necessary permits, he justified opening the airport on the grounds that “anyone who wants can visit the runway, the terminal and the control tower and walk around them, something they could not do if aircraft were taking off.” There is a 24-meter-high statue dedicated to Fabra at the phantom airport, crowned by an aluminium model aircraft. Fabra is on the point of serving a four-year prison sentence.

Probably no other country had such a surge in its “bankarisation”: the number of savings bank branches almost doubled between 1990 and 2008 to a peak of 25,000, while the number of branches of the more prudent commercial banks stood at 15,600. There was almost one bank branch (savings and commercial banks) for every 1,000 people in 2008, almost twice the density of the euro-area average. The total number of bank branches is now down to around 33,500 from a high of more than 40,000.

The scale of the banking crisis threatened to push Spain out of the euro zone, and it forced out the governor of the Bank of Spain, an institution that was asleep at the wheel, particularly over the creation of Bankia in 2010 from the merger of seven savings banks, which was then floated on the stock market. Thousands of small savers were persuaded to buy shares in the bank. Just a year later, their investments had been all but wiped out.

Bankia’s first president was Rodrigo Rato, a former managing director of the IMF and economy supremo in the last Popular Party government. Unlike in the UK, which has also had a banking crisis, very few executives in Spain have lost their jobs for poor management or worse. Spain is a long way from the situation in the City of London where nearly 6,000 bankers, brokers and financial advisers have been sacked or suspended for misconduct since the start of the financial crisis in 2008, according to the Financial Conduct Authority. In the case of Rato, he and 32 other Bankia executives appeared in court to face a fraud inquiry at the end of 2012, but since then little has happened, testimony to the snail’s pace at which the Spanish justice system works. Moreover, although under investigation (imputado in Spanish), Rato has been appointed an advisor to Banco Santander and Telefónica and director of a real estate company, something I believe would not happen in this country if only for ethical reasons. There has been one closed door parliamentary committee meeting on Bankia in 2012, despite Luis de Guindos, the economy minister, promising “luz y taquígrafos” (full and open transparency).

I have already referred to immigrants. I will expand more. The number of foreigners, based on the “empadronados” (those registered with their local town hall), and so the most reliable figure there is, remained pretty constant at 5.7 million between 2009 and 2011, as people hung in, and then the number dropped to 5.5 million in 2012, causing Spain’s total population to fall for the first time since the regular census started in 1996, and it fell further to 4.9 million in 2013. There are good reasons to empadronarse because of health and education benefits.

Spain’s total population fell by 200,000 in 2013 to 46.5 million. The foreigners’ share of the total population (excluding naturalised Spaniards) has dropped from a high of 12.2% in 2010 to 10%. The largest outflow of immigrants last year was that of Ecuadorians, 56,000 of whom left Spain last year, followed by Colombians (51,000) and Moroccans (45,000). 4,500 Britons also left: pensioners are finding it increasingly difficult to make ends meet because of the rise in the cost of living since they retired to Spain. Of the 547,900 emigrants, 23% more than in 2012, 52,000 were native Spaniards, 27,000 naturalised Spaniards and 468,600 foreigners. Until very recently, Spanish society has been immobile compared to many other countries.

Net migration (the difference between immigration and emigration) of native and naturalised Spaniards has risen steadily since 2008 and last year was 46,000, up from 1,800 in 2008 at the start of the crisis but less than 20% of the total outflow. Total net migration of foreigners and Spaniards was 80% higher at 257,000 compared to 42,600 in 2010 and net immigration of 12,800 in 2009.

The Real Instituto Elcano, the think tank for whom I work and royal because prince now king Felipe is our honorary chairman, conducted a survey among Spanish migrants which found that 54% were under 30 years and 40% aged between 31 and 45. Their main discipline of studies is engineering, followed by economics, management and business and social sciences. Interestingly, unemployment is not the main driver of emigration: 52% of respondents were employed prior to leaving Spain and 47% of them held a long-term contract. Unemployment was only cited by one-third of migrants as a reason for emigration. Other drivers of outmigration were: disappointment with the lack of meritocracy (the negative side of the importance given to the family which often involves nepotism); anger with the level of corruption and the failures of the political system and job insecurity. Talking of nepotism, the head of the Tribunal de Cuentas, the National Audit Office, had to explain himself to a parliamentary committee in July after it was discovered that around 100 of the 700 employees were related to the Tribunal’s current and former senior management and to its trade union representatives. And as for enchufismo, the PP’s boss in Orense, José Luis Baltar, another cacique, was disqualified in July from public office for nine years after he personally appointed 104 people to the Diputación Provincial which he headed for 25 years and which his son now heads.

As regards the impact of the crisis on living standards, per capita income dropped from $31,400 in 2009 to around $29,000 in 2013. This was the first sustained drop since the end of 1950s and the stabilization plan that ended autarky. That said, income is double that in 1982, though it dropped to 95% of the average EU income in 2013, the same level as in 1997, from a peak of 105% in 2007. That year Spain overtook Italy on this basis and an exuberant José Luis Rodríguez Zapatero, the former Socialist prime minister, boasted that Spain would surpass Germany in these terms.

Spain has suffered one of the largest increases in income inequality, as the poorest have born the brunt of the economic crisis. The Gini coefficient, the yardstick for measuring inequality rose from 0.313 in 2006 to 0.350 in 2012 (0 is perfect equality and 1 perfect inequality), making Spain the second most unequal country in the EU after Latvia. In 2011 (latest year), the income of the wealthiest 10% of the population was 13.8 times higher on average than the income of the 10% least wealthy, up from 8.4 times in 2007 and the third highest level among the 34 OECD countries after Greece and Mexico.

“Anchored” poverty – with the value of the threshold fixed in real terms at the 2005 level (when the Spanish economy was growing strongly) – increased by eight percentage points in Spain between 2007 and 2011 compared to a rise of two points in the whole OECD area. Caritas, the Catholic relief and social service organisation, helped 81,300 people in 2013 in the form of clothing, food or accommodation, 13% more than in 2012 and 30% higher than in 2007. Of them 57% were Spanish and the rest immigrants, reversing the trend of a couple of years ago when immigrants were the main people helped.

According to UNICEF, Spain’s relative child poverty was almost 20% in 2012, only surpassed by Latvia, the US and Romania. Investment in social child protection policies is far lower than the EU average, with spending of €270 per head compared to the European average of €510, according to the latest figures The budget of national and regional governments for children has fallen by 10.6% since 2010. Scholarships and financial assistance for meals and books, two key elements to reduce inequality in access to education, have been hard hit: investment in book scholarships or loan schemes has fallen by 45% since 2008.

Spending cuts led to a reduction of 28,500 in the number of public health workers between January 2012 and January 2014, and the average waiting time to see a specialist has risen from 58 days in 2007 to 67. The system to support the case of dependent people launched in 2007, which is supposed to guarantee state assistance for those who cannot look after themselves, is particularly under strain. There were 736,800 beneficiaries in May and 184,000 people with the right to assistance on a waiting list.

At the other end of the social spectrum, the number of Spaniards with net assets of at least US$1 million, excluding their primary residence and consumables, rose 11.6% in 2013 to 161,000, according to the latest world wealth report of Capgemini and RBC Wealth Management. The number dropped sharply in 2008, when the economy slowed down before going into recession, and since then has recovered the level of 2007.

Let’s now turn to politics. The impact of the economic, financial and banking crises that were superimposed on one another like Russian nesting dolls has been considerable on political life. Confidence in the monarchy, parliament, the government and political parties has plummeted to varying degrees. The political class is widely regarded as part of the problem: it has colonized state institutions, such as the governing body of the judiciary system. The rule of law has deteriorated. The Consejo General de Poder Judicial, the governing body of the judiciary, is a nest of political interests. Politicians are regularly ranked last in a league table of assessment of institutions and social groups.

In the words of Antonio Garrigues, one of the country’s most distinguished lawyers, Spain is suffering from “a politicization of justice and a judicialization of politics”. Spain is still a country where politicians only resign in the most extreme circumstances. Very few take responsibility for their actions. When Chris Huhne, the UK energy minister, resigned from the Cabinet and gave up his parliamentary seat, after he was accused and then found guilty of perverting the course of justice for asking his then wife to take three speeding points, Spaniards were gobsmacked to put it mildly. Nothing remotely approaching that happens in Spain.

If you are a regular reader of the Spanish press, you could be forgiven for thinking that corruption had reached African proportions. Nearly all of the more than 2,000 cases under investigation or tried in the courts refer to the period before the crisis. It is no coincidence that the bulk of the corruption cases are concentrated in the six regions where most of the construction and real estate boom occurred and where the same political party has been in power for years. They include:
• The salting away in a Swiss bank account of €48 million by Luis Bárcenas, a former senator and national treasurer of the Popular Party, and the creation of a slush fund for senior party members.
• The fraudulent use of millions of euros of public funds for severance costs by trade union and other officials in Andalusia, where the Socialists have governed for 35 years.
• The charging of Iñaki Urdangarín, the brother-in-law of King Felipe VI, and his wife with tax fraud and money laundering, among other offences.
• The jailing of a prominent PP politician in Valencia, ruled by the PP for 19 years, for appropriating millions of euros of public funds allocated for international development projects.
• The imprisonment of Jaume Matas, the former PP president of the Balearic Islands, for trafficking of influences. The PP and its forerunner AP have governed there for 26 years.
• Jordi Pujol, the Catalan president for 23 years and the father of modern-day Catalan nationalism, is under investigation after admitting he had kept undisclosed bank accounts outside of Spain for the past 34 years. He was stripped of his honorary title of “Molt Honorable”, having also been “Molt Intocable.”

Spain’s notoriously slow justice system, itself one of the most poorly regarded institutions, is finally cranking into action and cleaning out the Augean stables. I mentioned Carlos Fabra earlier on: it took 10 years for his case to come to trial.

Spain was ranked 40th out of 177 countries in the latest corruption perceptions ranking by Transparency International, down from 30th place in 2012 and 20th place in 2000. Its score of 59 was six points lower. The nearer to 100, the cleaner the country. Spain was the second-biggest loser of points, and only topped by war-torn Syria. The perceived level of Spain’s corruption, however, is still a long way off Italy’s.

As a result of the crisis, Spain has seen a huge change in public attitudes to corruption. This is a long overdue and healthy phase in Spain’s transition from Franco’s authoritarian state to democratic accountability.

When I was the FT’s correspondent in Mexico more than 30 years ago, the then corrupt president, José Lopez Portillo, coined a phrase, “la solución somos todos.” Mexicans quickly changed it to “la corrupción somos todos.” Something similar happened in Spain. While the economy was booming, Spaniards were generally tolerant of corruption, as it was spread fairly evenly if I may put it that way – everything from a plumber not charging VAT to the owner of an orange grove making a big profit following the re-zoning of his land for building purposes and selling it to a developer after greasing the palm of his mayor, to nepotism on a grand scale.

All of this is having a big impact on the political map. For the first time since the establishment of democracy after the death of General Franco in 1975, the PP and the Socialists captured between them less than 50% of the total votes in an election. This occurred in May’s European elections and stunned the political class. Podemos, a new party born out of the 2011 grassroots protest movement of los indignados (‘the indignant ones’), came from nowhere to win five seats in the European Parliament and 1.2 million votes (8% of the total). Podemos had been predicted to win two seats at the very most. You may remember that the most memorable slogan to come out of this movement was the one shouted in front of Congress when protestors waved loaves of bread above their heads: “There isn’t enough bread for so many chorizos!” A chorizo is a swindler or cheat and not just a spicy sausage, often sliced and served in a bocadillo.

It was no surprise that the PP, as the governing party that has implemented tough and unpopular austerity measures, did badly, though it still managed to win one more seat than the Socialists. It is a measure of the Socialists’ meltdown that the party has so far failed to capitalise on the PP’s reforms and spending cuts. Its result underscored the party’s lack of credibility. Spaniards have not yet forgotten that the crisis happened on the Socialists’ watch during their eight years in power, although the seeds of it were sown earlier. The party elected a new leader in July, the unknown Pedro Sánchez, who is 20 years younger than Alfredo Rubalcaba, stalwart of the “vieja guardia.”

Podemos is a fascinating social phenomenon, typical of a country in profound crisis. It is influenced by, among other things, the Bolivarian Revolution of Venezuela’s Hugo Chávez, with whom several of Podemos’ leaders worked. Podemos’ “boomerang discourse” has been very successful: this consists of listening to the discourse of the street and the slogans in protests, repackaging them, and sending them back. It is an effective strategy of empathy and connection with the most discontented segment of the population.

Podemos took votes from all the main parties including 100,000 from the PP, according to a post-election survey by the Centre for Sociological Investigations. Based on the voters in the 2011 general election, Podemos’ voters in May’s European elections comprised:
• 26% of those who voted for United Left in 2011.
• 16% of those who voted for the Socialists.
• 11% of those who voted for Union, Progress and Democracy.
• 5% of those who voted for the PP.

Podemos also won the votes of people who abstained or cast blank votes as a protest in 2011, and it was the most popular party for new voters – those too young to vote in the last general election. These figures show that Podemos has a wide support base that cuts across traditional party lines. According to the latest CIS barometer, Podemos would win 15% of votes in a general election, compared to 21% the Socialists and 30% for the PP.

It is too early yet to say whether Podemos will repeat its European success in next year’s general election. This depends on many factors, not the least whether it can field candidates around the country. One should not, however, underestimate its potential: its leaders are smart and media savvy and have successfully exploited the widespread view that the political class is a “cast.”

The monarchy is also going through a rough time. The abdication of Juan Carlos, brought on by the corruption scandal in the royal family, his poor health, rising republican sentiment, including within the Socialist party, traditionally republican but where the issue has been dormant, and the crisis in Catalonia over the region’s push for an illegal referendum on independence, has revived the debate on monarchy or republic. The long-running Catalan independence issue has been brought to a head by the crisis.

Spain has far more important problems to resolve than the form of its state. Furthermore, parliamentary monarchies are generally cheaper to maintain than republics. The budget of Spain’s royal’s household is £6.4 million, that of France’s Élysée presidential palace is £100 million. A Felipe González or a José María Aznar, potential presidential candidates, would not be above the political fray in very partisan Spain as much as a Juan Carlos was or Felipe VI is proving to be.

When I met Juan Carlos in 1977 at a time when he was still referred to as Juan Carlos el Tonto and Juan Carlos el Breve, he joked about himself. “Why was I crowned in a submarine? Because deep down, I am not so stupid.” The king showed his astuteness again by abdicating, although it can be seen as a humiliation as he had always insisted he would not do so, and, like Franco, die with “las botas puestas”. Felipe VI is very well prepared and already we are seeing a different and more inclusive style. For example, in July he became the first Spanish head of state to receive a delegation of lesbian, gay, bisexual and transsexual groups and no longer are new members of state institutions and minsters sworn into their posts in the monarch’s presence with the bible and a crucifix in front of them. This change seeks to comply belatedly with the principle of a non-confessional state set out in Spain’s 1978 constitution, although the Catholic Church still has a special recognition in it.

The government is promising long overdue measures in the autumn to “regenerate democracy”, including finally incorporating the illegal financing of a political party into the Penal Code, tougher sentences for the trafficking of influences and bribery, a ban on anonymous donations to political parties by companies, and greater transparency on the salaries of those in public office. Trade unions and employers’ organisations each receive around 400 million euros a year of public funds, but have yet to have their accounts audited by an external independent auditor. These long overdue reforms follow the Transparency Law adopted last December, amazingly the first of its kind since the end of the Franco regime in 1975.

The transparency law is, however, lacking in a number of areas; for example, it is ranked 72nd out of 96 countries as regards access to information laws, according to the RTI ranking of the Centre for Law and Democracy. In spite of the pressing need to tackle corruption and secrecy, this law will not be in force at the national level until December 2014, and not fully in force at the regional and local levels until December 2015. The scope of access to information is narrow and does not enshrine such access as a fundamental right: information regarding national security, defence, foreign relations, public security or the prevention, investigation and sanction of illegal actions is not public, and one article limits the right of access to information that harms economic and monetary policy or the environment in such a general way that if interpreted widely reduces the access to a minimum. Furthermore, the access is only to public documents and not to information in general: for example, there is no access to reports and internal communications used to take decisions. Lastly, the agency responsible for guaranteeing the right of access is not independent as its head is appointed and dismissed by the government of the day. It is to be hoped that the regulations for implementing the law will improve this situation.

The legacy from the crisis is profound and persists. As George Orwell once said, “To see what is in front of one’s nose needs a constant struggle.” Spain’s political and economic elite miserably failed to do so, and Spain paid a high price for this.

Given the rather bleak panorama I have painted, you are probably wondering what holds the country together. To a significant extent, this is still due to the extended family-based network, the cornerstone of the welfare state, and Spaniards’ tremendous capacity of resistance and innate common sense. Long may these factors last.