The Pain In Spain

In my post below, I linked to Aaron at the Stopped Clock. Speaking of stopped clocks, here’s Clive Crook being right about Spain’s recession, and perceptive about its reaction to the EU:

In Madrid this past week I’ve been surprised and impressed to find little resentment towards the European Union and the powers (Germany) that direct its policy. There’s less ill feeling, I’d say, than in Ireland, for instance. It’s hard for a foreigner to judge on a brief visit, of course, but the mood of the people I’ve talked to has been one of grim resignation more than anger at Brussels or Berlin.

What makes this all the more odd is that Spain did not bring financial ruin on itself in the way that Greece did. Going into this crisis its budget was in surplus and its public debt was much lower than the EU average. With hindsight, Spanish governments were at fault for failing to lean heavily against surging house prices and private borrowing, for allowing the trade deficit to explode and for letting wage inflation push Spanish unit labor costs so far out of line. But I don’t know how many governments elsewhere would have avoided those errors if the same conditions had arisen. The housing boom was fueled by a wall of easy money from abroad–easy to interpret as a vote of confidence in Spain’s long-term economic prospects, and a difficult thing to turn back. Also, if the borrowing was excessive and irresponsible, so was the lending. EU creditors are deeply implicated too.

When you consider the severity of the fiscal contraction now under way, the depth and likely duration of the recession, and the fact that the EU has so far been barking instructions rather than helping to cushion the blows, you’d expect more of a backlash. It’s not that Spaniards don’t understand what’s going on. The unemployment rate is 23%; one in two people under 25 is without work. At the beginning of the week Spanish newspapers carried reports of new IMF projections that show Spanish output failing to recover its pre-crash level until 2017. A lost decade, one of the worst outlooks in Europe–and this is assuming no new setbacks. Doesn’t Europe owe Spain a little more solidarity than this?

If Spain is slow to complain, it might be because membership of the EU is of surpassing importance to this country. It affirms a new political identity. It underwrites democracy and political modernity–in a way that Central Europeans find easy to understand, and Spain’s fellow Western Europeans don’t. It means there’s a deep reservoir of goodwill towards EU institutions and a determination to make a success of the EU project. All the more reason, I’d say, why Spain’s EU partners should do more to help it out.

ECB president Mario Draghi told the EU parliament today that Spain had made remarkable progress on fiscal policy. Effort, yes. Progress? That’s debatable. The fiscal contraction is far tougher than it needs to be. With EU support, a more moderate pace of adjustment would be feasible. That would be progress. The EU owes Spain more than words of encouragement.

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One Response to The Pain In Spain

  1. dedc79 says:

    Clive Crook being right? being perceptive? I am shocked. Seriously

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