Spain’s crisis: where we are now. Remarks to the plenary session of the AHGBI annual conference

I thank the organisers for inviting me. It is a particular pleasure to be on the podium with two friends: John Hooper and I shared, along with four other correspondents, one of the world’s scruffiest and least paperless offices in 1976 in Madrid. The latest issue of the International Journal of Iberian Studies has a long article about foreign correspondents during the Transition in which we both figure. Giles Tremlett is a colleague and neighbour in Madrid

In order to better understand where Spain is today, you need to be briefly reminded of where the country is coming from.

The best way to sum up the madness of the credit-fuelled construction boom and not only the building of houses – the massive price bubble burst in 2008 – is what happened at Castellón, one of several ghost airports. Carlos Fabra, a Popular Party cacique, opened the airport in 2011 even though it did not have all the permits to operate. He justified this 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.” The European Court of Auditors Union lambasted Spain last December for wasting EU cohesion policy funds on building so many useless airports.

There is a 24 metre high copper statue to Fabra at the entrance to the airport. The Popular Party leader Mariano Rajoy had lauded Fabra in 2008 as “an exemplary citizen and politician”, words he lived to regret after becoming prime minister at the end of 2011. Ryanair will began to operate the first scheduled flights in four years from Castellón in September. Fabra is serving a four year jail sentence for tax fraud: his case took a staggering 10 years to come to trial, illustrating another problem – the snail’s pace at which the politicized judiciary moves.

The number of housing starts in 2006, at the height of the illusionary boom, was 865,000 – more than Germany, France and Italy combined. The number last year had plummeted to 35,000. A typical example of the property fiasco was the Residencial Francisco Hernando near Madrid, which was intended to triple the population of Seseña in the dry plains of Castile with 13,500 flats. Billed as the Manhattan of La Mancha, the home region of Don Quixote, only around 2,500 had been sold by the time the property bubble burst. The developer was as deluded as Don Quixote.

Credit was cheap, thanks to Spain belonging to the euro zone. At one stage interest rates were even negative as Spain’s inflation was higher than the cost of borrowing. The one size fits all monetary policy of the European Central Bank was not appropriate for Spain.

At one point during the boom Spain accounted for one-quarter of the total number of 500 euro notes in circulation, although the Spanish economy only represents around 11% of the total euro zone economy. Spaniards referred to these notes, used in black economy transactions, as “bin Ladens” (in reference to Osama bin Laden), because everyone knew they existed and what they looked like but few had seen them or admitted to doing so.

When the lopsided economy went into a deep recession in 2009 jobs began to be shed almost as quickly as they had been created. The jobless rate soared from a post-Franco historic low of 8% in 2007 (a high rate by UK standards) to a peak of 26% in 2013 and today has inched down to around 23%. Of the 3.5 million jobs lost since 2008, 1.7 million came from the construction sector alone.

Not only is unemployment still very high, but around one-quarter of those aged between 15 and 29 are not in employment, education or training. These people – many of whom dropped out of school for the construction sector – form a “lost generation”. They are so poorly qualified that their prospects of finding meaningful employment are slim, and the creation of a more knowledge-based economy is something of a pipedream. Spain spends 1.24% of GDP on R&D compared to a EU average of more than 2%.

As the economy roared along, so more and more students dropped out of school at 16 when they completed their basic obligatory education to work in the construction sector. In 2009, 31% of those aged between 18 and 24 in Spain were early school leavers, more than double the European Union average. This figure is now down to 22%, still very high.

Take the case of Villacañas which became the door-making capital of Spain. At the height of the boom, this town of 10,000 inhabitants had 10 door manufacturing plants employing 6,000 people and producing 11 million doors a year, 60% of the national total. Hardly anyone stayed on at school, and those that did were regarded as gilipollas by those working in the door factories. One bright lad saw the writing on the wall and stopped working in one of the factories so he could complete his education. He did so well that he won a place at the London School of Economics and went on to work for the Bank of Spain.

Many of Spain’s 42 savings banks, known as cajas were mortally wounded when the property bubble burst. Regionally based, not listed on the stock market and run by boards packed with political appointees, they fell over one another to make loans. Their number has been reduced to eight today. The collapse of Bankia, the fourth largest bank and the product of the merger of seven ailing cajas, led to a €42 billion EU bailout, which was exited last year. The savings banks were culled: their number now stands at eight.

With the collapse of the property sector, loan defaults soared. The non-performing loans of all of Spain’s banks jumped from a negligible 0.7% of total credit in 2006 to a peak of 13.6%, and that figure excludes the toxic property assets of bailed out banks placed in the “bad bank” known as Sareb. Sareb made a loss of €585 million last year as the Bank of Spain insisted on massive provisions.

Construction-related corruption was rife among politicians, especially at the municipal level with re-zoning and building permits, fertile ground for greasing palms. More than 800 town halls (10% of the total) today are under investigation and several thousand people have been accused in corruption cases. In 2013, Spain slipped 10 places in the annual corruption perception ranking of the Berlin-based Transparency International to 40th position out of 177 countries, still much better than Italy. Spain’s score of 59 was six points lower. The nearer to 100, the cleaner the country. Spain improved a little in the 2014 ranking.

One way to launder ill gotten gains is to find someone who has won the lottery and buy their winning ticket for more money than it is worth, cash in hand. One Spanish businessmen, currently in custody as part of a corruption ring, claimed he won the lottery eight times in a 16-month period, beating all the odds.

Spain finally fell into line with the rest of the European Union at the end of last year when its first ever Transparency Law came into effect. The new law – almost 40 years after the end of the Franco dictatorship – only operates at the state level (it will be be extended to municipal and regional levels, where most corruption occurs, this December).

The construction boom lured more than 4 million foreigners to Spain between 1998 and 2008. No other country in Europe has received so many immigrants in such a short space of time. The number of Rumanians, the largest foreign community, rose from a mere 6,410 in 2000 to around 900,000 today.

When I first came to Spain in 1974 I was one of 165,000 foreigners. Today, I am one of 5 million, and that figure excludes naturalised Spaniards. Spain’s foreign-born population represents around 11% of the total population, almost the same as the UK, but Spain, to its credit, does not have a UKIP style party.

While immigrants continue to arrive in large numbers in the UK, in Spain they have been returning home because of the crisis. Spaniards are also emigrating, though most of them are naturalised and not native Spaniards. The population has fallen by 600,000 since 2012, according to the latest figures.

The Popular Party, which ousted the Socialists at the end of 2011, has implemented the severest austerity measures in Spain’s post-Franco democracy and raised income tax and VAT rates, in order to reduce the budget deficit. As in this country, spending cuts are weakening the welfare state. The annual rise in pension payments is no longer linked to inflation and the retirement age is gradually being put back from 65 to 67. This is a sensible reform: Spaniards are living longer (the average life expectancy is 83 years, one year more than we Brits).

The government introduced labour market reforms in 2012 in a bid to make it easier for companies to create jobs, particularly for young people, and less onerous to fire people. Youth unemployment is 55% and around half that including those in education and training which is the more accurate way to measure it.

Tourism, a cornerstone of the economy, is flourishing, but it does not create jobs on a sustained basis. The Canary Islands alone receive more than 10 million tourists a year (five times their population) and yet has an unemployment rate of more than 30%.

The economy is finally growing – by around 2.8% this year, higher than the UK though the pre-crisis GDP level has yet to be restored. The current account is in surplus, having notched up a deficit of 10% of GDP in 2009, and the budget deficit (11% of GDP in 2009) is painfully moving toward the EU threshold of 3%.

Average house prices rose marginally last year for the first time since 2008. Prices are around 35% lower than in 2008, and there are still around 500,000 unsold new homes, roughly the equivalent of two years’ shortfall in the UK. Perhaps a deal could be struck between the two countries, under which Spain would ship its empty homes to the UK in return for the UK returning Gibraltar to Spain. Incidentally, the government’s policy on Gibraltar is counter productive and going nowhere.

Unemployment is finally beginning to decline, but will remain above 20% until 2017, according to all the forecasts. 60% of the 5.4 million jobless have been without work for two years or more and most of these people are no longer receiving unemployment benefits.

This year will be a hectic one for the Spanish electorate. It kicked off last month week elections in Andalusia, which were won by the Socialists who have ruled the region for 33 years. This election confirmed the change in the mould of politics in post-Franco Spain, dominated at the national level by the Socialists and the Popular Party since 1982. Two new upstart parties, the anti-austerity Syriza-style Podemos and the centrist Ciudadanos, took away votes from both the Socialists and the Popular Party and gained 15% and 9%, respectively, of votes. The Socialists and the Popular Party gained between them only 62% of the votes, down from 80% in 2012. Spain’s economic recovery is bringing few political dividends for the PP.

I vowed not to steal Giles’s thunder on Podemos so will lay off this subject other than to say that this party did not do that well in the fertile ground of Andalusia where the jobless rate is 34% and the early school-leaving rate 29%, creating a large pool of discontent. Surprisingly, only 64% of Andalusians bothered to vote, the third lowest turn-out in the region’s electoral history. Ciudadanos did rather well in Andalusia for a party identified with Catalonia.

The Andalusian election will be followed by elections in 13 of the 17 Spanish regions in May as well as local elections, a snap election to elect a new parliament in Catalonia, which is moving ahead with its push for independence that would put an end to Spain, and a general election probably in December. Not only is Catalonia’s contribution, in terms of people and economic output, far greater than that of Scotland, but were it to secede from Spain it could have a domino effect, particularly in the Basque Country, traditionally the main focus of secessionist tensions in Spain.

There is a lot of anger in Spain and Podemos is successfully channeling it. Alberto Rivera, the leader of Ciudadanlos, says the difference between Ciudadanos and Podemos is that his party wants justice while Podemos wants revenge.

If the voter intention polls turn out to be correct at the general election then no party would be able to form a government on its own and the options would be a minority government, a coalition or gridlock which is what worries many people. Spain has had two experiences of minority governments in the last 32 years, but never a coalition.

One of the main defects of Spain’s democracy is the colonization by the two main parties of institutions, including the governing body of the judiciary and the Court of Auditors. This has deprived Spain of an effective system of checks and balances and led to a considerable degree of impunity.

Hardly anyone in Spain accepts their political responsibilities and resigns. My Spanish friends were gobsmacked when Chris Huhne, the former Liberal Democrat minister, resigned from the Cabinet and his seat in parliament after it was discovered that his then wife had taken his speeding points. Nothing remotely approaching that happens in Spain, and for far worse offences.

If you think I am too critical of my adopted country, you should listen to Spaniards. As the great poet Antonio Machado said, in the mouth of Juan de Mairena, “Hay que ser español para decir las cosas que se dicen contra España.”

Political reform is badly needed, particularly of the closed-list system in elections that gives so much power to a party’s apparatus at the expense of accountability, and makes politicians sycophantic. Under the closed-list system, as opposed to the open one, voters vote for the whole list and not a particular candidate. Candidates are elected to parliament in the order they appear on the list (as decided by the party) until all the seats have been filled.

The institution of the monarchy is also under scrutiny in some quarters. The abdication of King Juan Carlos last year triggered demonstrations in favour of restoring the republic that was defeated in 1939 at the end of the Civil War. Spain has far more important problems to resolve than the form of its state.

When I interviewed Juan Carlos in 1977 at a time when he was still referred to as Juan Carlos el Tonto (Juan Carlos the Stupid) and Juan Carlos el Breve (Juan Carlos the Shortlived), 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” (with his boots on).

Felipe VI, whom I know as he is the honorary chairman of the think tank for whom I work, is very well prepared and already we are seeing a different and more inclusive style and greater transparency in the royal household.

Some of you may be wondering what holds Spain together. To a significant extent, this is due to the extended family-based network, where parents and grandparents play a key role in times of crisis, and Spaniards’ tremendous capacity of resistance and innate common sense. A crisis of Spain’s proportions with a UK-style family structure would have produced considerably more social conflict than has been the case. Long may the family thrive in Spain.