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Sorry Troika, Spain's Economic Recovery Is "One Big Lie"

During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity “success stories” was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. Here’s the official line from the German Council of Economic Experts: 

The economic turnarounds in Ireland, Portugal, Spain and - until the end of last year - also in Greece show that the principle "loans against reforms" can lead to success. For the new program to work, Greece has to show more ownership for deep structural reforms. And it should make use of the technical expertise offered by its European partners.

As we’ve shown, the idea that the periphery has truly implemented anything close to “austerity” is absurd on some measures - like debt-to-GDP for instance.

Equally absurd to the 44.2% of Italian youths who are unemployed and, no doubt, to the nearly 23% of Spain’s population that are jobless, is the idea that the policies imposed by the troika in exchange for aid have done anything at all to engineer what Germany’s economic wisemen are calling “turnarounds.”

Here, courtesy of The New York Times, is what "success" and "recovery" looks like in Spain:

Spain, heralded by many as a success story for austerity policies, is on track for more than 3 percent growth this year and has created more than one million jobs since the beginning of 2014.

 

But for many Spaniards, the statistics are meaningless — even suspect.

 

Experts say that is not surprising because the vast majority of the new jobs are part-time — some lasting only a few days — and they pay poorly, doing little to improve the lives of the millions of Spaniards who lost their jobs during the global economic crisis.

 

In many ways, the crisis here was deeper and more sustained than the downturn in the United States. Spain lost about 16 percent of its jobs, more than any other eurozone country. Its G.D.P. declined by 7 percent. And for the poorest 10 percent, real income dropped by 13 percent per year from 2007 to 2011, compared with only 1.4 percent for the richest 10 percent, according to the Organization for Economic Co-operation and Development, based in Paris.

 

The desperation among job seekers is now so acute that many accept work contracts that pay less than the country’s reduced minimum wage — often by agreeing on paper to work two days a week, but actually working many more unpaid hours, experts say. And some, returning to their old jobs, are finding that they must take huge pay cuts.

 

(Job seekers line up at a job fair)

 

“A new figure has emerged in Spain: the employed person who is below the poverty threshold,” said Daniel Alastuey, the secretary general of UGT Aragón, a regional branch of one of Spain’s largest unions, with more than 1.1 million members. “For a lot of people, the ‘recovery’ just doesn’t feel like a recovery.”

With marginalization and desperation comes the desire for change - just ask Greece, whose voters thought they were electing a revolutionary Prime Minster in January. In Spain, a disillusioned populace has increasingly looked to Podemos and its leader Pablo Iglesias for hope, and although the party - which fared well in regional and municipal elections earlier this year - has at times been careful to distance itself from Syriza and Tsipras, there's no question that many see it as an ideologically similar movement. Here's The Times again:

Experts say that such new realities are already having a powerful effect on Spain’s political landscape, where, as in Greece, there has been growing support for populist, anti-establishment parties, many of them fielding candidates who have helped the poor and others who denounce rampant corruption among Spain’s political elite.

 

Campaigning for his center-right party recently, Prime Minister Mariano Rajoy talked of Spain’s recovery in glowing terms, at one point saying that no one was even “talking about unemployment anymore.”

 

But local and regional elections this spring were humbling for his Popular Party and for the center-left Socialist party, which lost control of cities throughout Spain, including Zaragoza and the capital, Madrid, though both parties have done better in recent polls.

 

Since then, Mr. Rajoy has curbed his optimistic language and promised change. But polls suggest that anti-establishment parties could still do well when the country holds regional and national elections this year.

All of this is important not only because of what it says about the degree to which the troika is in denial regarding the "success" of EMU bailout programs, but also because of what it portends for the currency bloc. Irrespective of whether the IMF succeeds in convincing Germany to write down Greece's debt in exchange for the Fund's participation in the new program for Athens, the battle lines between the periphery and what one might call the "German bloc" have been drawn and the further Spain's citizens sink into poverty, the more likely the next government will be to stage a repeat of Greece's recently concluded rebellion against the troika, only this time, Brussels and Berlin may have a tougher time coming out on top. And on that note, we'll leave you with a few final thoughts from The Times piece cited above:

The economy in Zaragoza, a city of about 700,000 in northern Spain, is doing relatively well compared with the rest of the country. Even so, recent elections brought in a mayor, Pedro Santisteve, whose party is affiliated with Podemos, the new leftist party. Mr. Santisteve bluntly calls Spain’s economic recovery “a big lie.” He says there are 25,000 families in Zaragoza living on less than €300 a month, and 31,000 who cannot afford the electricity they need. In the last year, more than 500 families have been evicted from their homes.

 

Angel Puyalón [who] used to be an interior designer [before losing his job] could not agree more. Before the crisis, he earned €5,000 a month and his wife, Maria Jesús Júdez, 53, earned about €1,100. They spent conservatively, buying an apartment with a mortgage of €1,100 a month. But then he lost his job and his wife’s hours were reduced. They now fear being evicted.

 

“The politicians in office right now,” Mr. Puyalón said, “are just not connected with real life.”