Where is Spain Going? My talk at the Cervantes Institute, Dublin, and then NUI Galway

It is a particular pleasure to be here and I thank the organisers of this for inviting me. My friend Ian Gibson, the world authority on Federico García Lorca, who like me lives in Madrid, is fond of saying that Ireland is Spain with rain or Spain is Ireland without rain. Unfortunately I will not be here long enough to prove or disprove Ian’s romantic view.

The famous and very successful Spanish tourism slogan of the 1960s – “Spain is different” – which it was then as the country was the only dictatorship in Western Europe apart from Portugal – has come back to haunt Spaniards, but this time for very different reasons. The country has been without a proper government since last December 20: two inconclusive elections have still failed to break the dispiriting spectacle of political deadlock in the fragmented parliament. We are now headed toward a third election during the Christmas period if there is no agreement by October 31.

It is of little comfort, but a couple of years ago Belgium spent 541 days forming a government. Spain as of today has had a caretaker government for the last 290 days. This year has been a lost one: there are some pressing issues that cannot be tackled until a new government is in place. including the urgent need to finally meet EU rules on the size of the budget deficit and make the ailing pension system sustainable. The special reserve to help pay pensions, created during the economic boom will have been depleted by the end of 2017.

The political gridlock, the result of the weakening of the two-party system that dominated Spain for more than 30 years as a result of the emergence of two insurgent parties, the centrist Ciudadanos and the far-left Podemos, reflects the teething problems in adapting to a new political culture.

The two traditional parties (the conservative Popular Party and Socialists) are finding it very difficult to adapt to the new circumstances and cast off the ‘old’ political culture. In the much quoted words of the Italian neo-Marxist theorist Antonio Gramsci, ‘The crisis consists precisely in the fact that the old is dying and the new cannot be born.’

There is also a lack of democratic culture within parties and between parties: they are unwilling to make concessions. Without wishing to be flippant, it is worth bearing in mind that the Spanish language does not have a word that fully reflects the English word ‘compromise’. The nearest equivalent is pacto (pact), but that word does not convey the sense that concessions have been made on all sides, which is what Spain needs in order to form a new government. Those of you who know Spanish know that compromiso is a false friend and means commitment, which is not the same as compromise.

As still the two most voted parties, the main responsibility for forming a new government lies with the Popular Party and the Socialists. The Socialists are rudderless and engaged like Britain’s Labour Party in trench warfare, in the Socialists’ case over whether to facilitate a new Popular Party government by abstaining in a parliamentary vote or go for a third election, after their worst ever result in the June election. The PP, with 137 MPs, far from its absolute majority of 176 in 2011, is behaving in an imperious manner.

Pedro Sánchez was ousted as the Socialist leader earlier this month after a fierce power struggle and it remains to be seen whether this will lead this month to a new government, as many hope and I believe will happen. Sánchez’s mantra was “no is no”, which sounds a bit like Theresa May’s slogan “Brexit means Brexit”. The new Socialist slogan is “abstention does not mean support” which would allow the PP to be the next government.

While this unprecedented situation for Spain is the result of there now being four parties, opinion polls show that Spaniards do not want to return to the two-party system. There is thus a disconnect between voters who would welcome consensus policies and the party leadership.

Acting Prime Minister Mariano Rajoy is a master of what some call ‘strategic patience’, meaning that that he leaves it to the other political leaders to move and possibly burn themselves while he appears to stand still and do nothing. The enigmatic Rajoy is a Galician, the sort of person, Spaniards like to quip, you meet on the stairs and you do not know whether he is going up or coming down. Last week I was struck by something I saw in an exhibition commemorating the 100th anniversary of the birth of the Nobel laureate Camilo José Cela: a newspaper interview with him that proclaimed “En España, el que resiste gana.”

Personally speaking, the best solution for Spain and for the health of the country’s body politic would be a German-style grand coalition of the PP, the Socialists and Ciudadanos, but the cleavage between left and right in Spain, partly a hangover from the 1936-39 Civil War, is such that this is not going to happen, although the War ended almost 80 years ago.

Last, but not least, the political paralysis has prevented King Felipe from making some trips abroad, to his frustration. Like his father before him, he is more intelligent than he is given credit for. When I had a long talk with King Juan Carlos in 1977 he asked me why he had been crowned in a submarine. Because, he said, deep down I am not so stupid. En el fondo no soy tan tonto.

I will now turn to other matters, some of which will resonate with you as the Spanish and Irish crises have similarities.

Spanish society as a whole is not more corrupt than other Western societies, although regular readers of the Spanish press could be forgiven for thinking corruption had reached African proportions. Graft is very rare among the police or judiciary, for example. Corruption among the political elites, however, is perceived as being fairly widespread, particularly in the interface between local politicians and construction companies.

Spain’s latest score in the Corruption Perceptions Index of the Berlin-based Transparency International dropped from 65 in 2012 to 58 this year (the nearer to 100 the cleaner the country). The country was ranked 36th out of 174 nations. Spain, however, still has a long way to fall before it reaches the position of Italy, which is ranked 61st with a score of 44.

A novel study by two US academics published last year found that Spain’s billionaires owe 30% of their wealth to political connections, the highest level in Europe after Italy.

Corruption has been a major factor behind the erosion of the hegemony of the PP and the Socialists who colonised institutions such as the governing body of the judiciary and the Court of Auditors responsible for the comptrolling of public accounts, as well as the more than 40 savings banks (whittled down to fewer than 10 since 2012 as a result of a banking crisis). Not only did politicians invade new areas, but they abandoned their natural environment – parliament, one of whose functions is to demand accountability–.

Enchufismo (favouritism), clientelismo (patronage) and nepotism (the negative side of the otherwise admirable importance given to the family, and which has been the country’s saviour) were, in varying degrees, rife. For example the head of the Court of Auditors, had to explain himself to a parliamentary committee after it was discovered that around 100 of the 700 employees were related to the Court’s current and former senior management and to its trade-union representatives, while the Popular Party’s head in the province of Ourense, was disqualified from public office for nine years (at a time when he had already retired) after he personally appointed 104 people to the Provincial Council (Diputación Provincial) which he headed for 25 years and managed to hand over to his son.

Eliminating the political influence in savings banks, particularly at Bankia, which had to be nationalised after some appalling management and dubious practices, has already happened, as a result of the reforms linked to the EU’s bail out of some banks and moves by the Bank of Spain.

Rodrigo Rato, a former PP Economy Minister and chairman of Bankia and before that managing director of the IMF, went on trial last week along with 64 other senior executives and directors on charges of misappropriation and fraud related to the use of corporate credit cards.

Ciudadanos signed an anti-corruption pact with the Popular Party in August as part of a deal to try to end the protracted political. The pact includes a commitment to remove party officials accused of corruption, an end to the practice of handing down pardons to corrupt officials and the PP’s agreement to back a parliamentary committee of inquiry into its own 2013 slush fund scandal, known as the Gürtel case which went to trial this week.

The distinguished lawyer Antonio Garrrigues long ago denounced what he calls the ‘politicisation of the judiciary and judicialisation of politics’. This is one factor that has deprived Spain of an effective system of checks and balances and led to a considerable degree of impunity.

The 20 members of the General Council of the Judiciary, the governing authority, are appointed by parliament and the Senate by a three-fifths supermajority vote. As a result, they are largely beholden to the parties that appointed them and to whom they feel they owe their allegiance. This will be changed so that more of them are appointed by members of the judiciary.

The justice system moves at a snail’s pace, partly because it is severely underfunded. In one of the most notorious cases, it took 10 years for Carlos Fabra, a prominent Popular Party politician best known for promoting the building of the ghost airport at Castellón, to come to trial on charges that included tax fraud. Fabra inaugurated the airport even though it did not have all the permits to operate. Amazing as it may sound, he justified the opening on the grounds that ‘anyone who wants to 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-metre sculpture of Fabra outside the airport.

I will now turn to the economy. I have lived in Spain since 1986, after leaving the Financial Times and returning to Madrid, and I still can’t get my head around Spain’s whopping level of unemployment. Spain is out of recession and the economy is growing at 3%, around double the euro zone average, partly thanks to another record year for tourism and exports. You should bear in mind, however, that the pre-crisis GDP level (2008) will not be recovered until next year. And yet the jobless rate is still 20%, albeit down from a peak of 27% in 2013. This compares with a rate of 8% in Ireland. Spain’s youth unemployment is 44%; Ireland’s 18%.

Spain’s crisis decimated jobs, especially in the construction sector, one of the engines of a decade-long boom. The bursting of the real estate bubble (Ireland also experienced one) had a huge knock-on effect. Construction jobs were shed almost as quickly as they had been created: more than one million between 2007 and 2014. Job creation during the boom was at the expense of precarious employment contracts and increased duality between insiders (those on permanent contracts) and outsiders (those on temporary contracts).

The magnitude of Spain’s unemployment can be judged by comparing it with Germany. Spain, with around 10% of the euro zone’s GDP and a population of 46.4 million accounts for 28% of the zone’s total unemployed, whereas Germany (with a population of 82.5 million and accounting for around 30% of the zone’s GDP) accounts for 16% of the total unemployed.

Apart from the real estate bubble period (2002-08), Spain’s jobless rate since 1980 has been at least five percentage points above that in Germany, France, Italy, the UK and the US, 10 points higher in the early 1990s and 15 points in 2013 and 2014. Even in 2007, at the height of the economic boom, Spain’s jobless rate was 8%, a disastrous level by the standards of most developed countries including Ireland. Some companies complained during the boom they could not find suitable workers to fill posts, and so the 8% figure was regarded as full employment.

According to a former executive director for Spain at the International Monetary Fund, Spain is the most over-diagnosed country in the world in terms of the labour market. Here is what he told his colleagues six years ago, and very little has changed since then. ‘One could talk for hours and one could fill this room with labour law experts and economists, and they will have 150 solutions or 150,000 solutions for the troubles of the Spanish labour market. The Spanish labour market is a disaster in terms of efficiency. I have no trouble admitting this and neither do my authorities. It has produced a phenomenon that can be described in many ways, but basically, for the past 20 years, something between 40-50 per cent of the Spanish population has been either unemployed permanently or in precarious job conditions on fixed-term contracts’. This was quite an indictment of the dysfunctional labour market.

The most worrying factor behind unemployment is the large number of workers with low levels of education and hence a lack of basic skills, many of who left school early at 16 to work on building sites. Only 25% of those aged between 25 and 34 last year had completed their upper secondary education compared to 39% in Ireland.

The share of construction-sector jobs in total male employment increased from 14% to more than 20% between 1997 and 2006, and in the same period wages for unskilled work rose faster than those for skilled work. These low-skilled jobs in an economy excessively based on a labour-intensive but unsustainable sector were destroyed as soon as the economy ground to a halt and they may have vanished forever. Many of those who lost these construction jobs were on temporary contracts as they were cheaper to sack than those on permanent contracts. These poorly qualified young adults form a ‘lost generation’.

As I see it, Spain’s economic model is part of the problem. By this I mean that an economy based to a disproportionate extent on bricks and mortar and cannot provide jobs on a sustained basis. I know that it is easy to say this and much harder to do anything about it. At the height of the boom in 2006, the number of housing starts in Spain (865,000) was more than that of Germany, France and the UK combined.

The same goes for tourism. Spain this year will receive a record of more than 70 million tourists, the third highest number in the world, partly thanks to the loss of tourists to Egypt, Tunisia and Turkey because of political violence and security concerns. The Canary Islands, for example, will receive around 13 million tourists (six times the population) and yet the jobless rate is still astronomically high at 27%.

The construction sector is still far from recovering from its collapse, and it would be naïve to believe that new economic sectors will be created to replace it and create the same number of jobs. There are still an estimated 490,000 unsold new homes.

Spain has made considerable progress in educational attainment in the last 40 years, particularly when it is borne in mind that it was not obligatory to attend school (between the ages of six and 14) until 1970, much later than most other developed countries. The country has also done better than many other European countries as regards educational mobility: about 40% of adults have a higher of education than their parents.

The system, however, is in crisis, particularly at the secondary school level. During the economic boom, many teenagers came to the conclusion that education did not pay, and, sadly, they were right. They dropped out of school early at 16 (the age at which compulsory education ends) and flocked in drives to work in the construction and tourism sectors, buying their first cars when they were 18 or so.

Nowhere was this rifer than in 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. 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.

The early school-leaving rate peaked at 31% in 2009, double the EU average, and it has since dropped to 20%, which is still far too high. This is not the result of any government measure, but simply the fact that there are far fewer jobs to go to.

The Spanish education system and hence the labour market because the two are closely linked is a peculiar one: at one end of the labour spectrum there are poorly qualified people who left school early and whose jobs prospects are bleak and at the other end university graduates who often find themselves in jobs for which they are over qualified. We are back again with the nature of Spain’s economic model. This is not a problem exclusive to Spain, but it is fair to say that it is more accentuated than in other countries.

Even more worrying is the rise in Spain’s NEETs – those aged between 20 and 24 who are neither employed, in education or in training – from 13% in 2006 to 22% in 2015. Ireland’s NEETs rate over the same period went from 12% to close to 20%, so you have a similar problem.

Spain’s population rose from 39.6 million in 1996 to a peak of 46.8 million in 2012, an unprecedented increase of more than 7 million in just 16 years. Since then the population has declined as immigrants have been returning to their country of origin and more Spaniards have been emigrating (100,000 last year three times higher than in 2008).

Whereas between the harsh years of 1960 and 1973 more than one million Spaniards emigrated, Spain during its 10-year boom period that ended in 2008 became the favoured country in Europe for migrants in search of a better way of life. To Spain’s great credit this has not produced any relevant xenophobic, far-right, populist parties, and violent attacks on immigrants have been rare.

The foreign-born population reached 5.7 million in 2010, 12% of the total population, compared to around 800,000 in 1990 (2% of the population).

Today, Spain has 700,000 Rumanians, the largest foreign community. In 2012 there were close to 900,000, according to official figures. Some of these people became Spanish citizens and so no longer figure in statistics as immigrants. In 1996, there were just 2,258 Rumanians. The number of Irish in Spain is tiny at 14,432.

Immigration is a relatively new phenomenon in the history of Spain,
traditionally an intolerant and dogma-obsessed country that for centuries drove its citizens into exile for religious, political or economic reasons, as a result of, for example, the 1492 expulsion of Jews, the 1609 expulsion of Moriscos (the descendants of Muslims that converted to Christianity) and General Franco’s victory in the Civil War.

Immigration is not the only factor that has changed Spain’s demographics.
Rising average life expectancy –from 77.4 years to 83.2 since 1990, a testimony to the creation of an inclusive welfare state and Spaniards’ healthier life style– and one of the lowest fertility rates in the world (fertility rate of 1.3 children) are producing significant changes in the population pyramid. The share of the population over the age of 65 now stands at 18.5% compared to 13% in Ireland.

The ageing population, high unemployment and 1.8 million fewer social security contributors than in 2008 are straining the welfare system.

The first question you might be asking yourselves after listening to some of the gloomy statistics is why isn’t there a revolution in Spain. The quick answer to that is the extended and cohesive family-based network that looks after its own in times of crisis, much more so than in Northern European countries. I am convinced that Spain’s level of unemployment and other problems combined with a UK-style family culture would produce a revolt. If all of Spain’s grandparents, who play a major supportive role, went on strike the country would be in dire straits!

Spain is at a crossroads. The country has been politically paralysed for 10 months. It can either move forward in a spirit of consensus, regenerating institutional and political life and agreeing economic reforms, and so fulfill its potential, or it risks stagnating and become somewhat different again.