Shaken in Spain

The Euro 2012 champion can only wish that the European economy and the politics driving it have the exuberance, artistry and teamwork of its football.

Barcelona is an extraordinary city. It is obviously memorable for its fantastic architecture, dominated by the impressive, quirky, imaginative and joyful creations of Antonio Gaudi and other architects of the modernista tradition of the early 20th century. It was home to some of the most interesting artistic innovators of the 20th century from the artists Picasso and Joan Miro to the musicians Isaac Albeniz and Enrique Granados. It has amazing food, in which the glories of being near the sea are adequately reflected, and it is clear that in this city the manifold pleasures of eating and drinking are appreciated fully and indulged in.

The city has lovely avenues with charming walkways and other pedestrian spaces that make perambulation not just a pleasure but a sensory revelation. It has a culture that values the streets as points of social contact, exchange and intermingling as testified by the large numbers of people who stroll along them without any apparent purpose than to enjoy it, from early evenings to the wee hours of the mornings all through summer. Most of all, though, Barcelona has spirit: the intense, passionate celebration of life that can be seen not only as the Catalan way of doing things but as a broader Spanish response to all sorts of adversity.

But even this remarkable spirit seems to have been shaken by the economic crisis that continues to fester and threatens the material security of the majority of Spaniards. The economic decline in Spain is now several years old, but what citizens are being offered is nothing like respite: only several more years of material pain with no clear horizon of improvement other than a vague hope that eventually global and European recovery (that currently are nowhere in sight) will cause Spanish economic conditions to improve as well.

Years of excess

This dark picture is being presented as the punishment for the years of excess the period of debt-driven consumption and real estate spending that was then celebrated as the Spanish boom. And austerity is seen to be the unpleasant but inevitable medicine that must be swallowed in order to ensure the recovery of the patient, a sick economy.

But, of course, as elsewhere in Europe, this diagnosis is wrong. The crisis is essentially a banking crisis created and driven by mobile capital that sought to increase its own profits and thereby generated the wrong incentives to result in bubbles and unsustainable patterns of growth. It is foolish to blame individual greed as the original sin: the process has been systemic, reflecting the now familiar patterns created by unregulated finance capitalism, which is yet to be reined in.

The broader economic stupidity of arguments in favour of austerity is also increasingly evident. In Spain in particular, the government was a model of fiscal rectitude during the boom, even running budget surpluses. The fiscal deficit ballooned to enormous proportions because of the need to rescue the large Spanish banks that were on the verge of collapse. As the government took over the bad debts of these banks, what was the result of private capitals irresponsibility became the problem of taxpayers and citizens, who have been forced to endure repeated and severe expenditure cuts that reduce public employment and wages and increasingly deny them the rights and public services they had come to take for granted.

It is painfully obvious that this strategy is not working: not in Greece and Ireland, not in Spain and Portugal, not in Italy. As governments reduce their spending and increase taxes on ordinary people, they add to the recessionary forces, which make gross domestic product (GDP) stagnate or fall and thereby add to the debt burden. This makes the markets take fright as the indicators look worse than before. Soon private banks become less viable as more of their debtors cannot repay their loans. This forces the government to step in to rescue them. The latest financial institution to be so taken over by the state was Bankia, itself a hastily created conglomeration of small housing banks in trouble. The Spanish government had to apply for more funds from Europe simply to keep Bankia going.

This lock-step death dance of public finances and the banking sector can only end in tragedy. The peculiarities of the eurozone mean that any decision to end this must be agreed to by all (and especially the major players, in this case Germany in particular). The surplus nations within Europe must agree to provide resources and stimulus for growth in the deficit nations, much as the United States Marshall Plan did for Europe in the period just after the Second World War. Yet another moment that cries out for European solidarity (in everyones own interests) is being met by a reversion to nationalist chauvinism, fed by media that constantly portray stereotypical but wrong versions of the European economic reality.

So resolution of the crisis seems unlikely anytime soon and it is not clear whether the markets will wait much longer. Already, in the crisis-hit countries there has been a jog rather than a run on banking deposits. Without clear strategies for recovery and growth, this will continue and intensify until one country or the other is forced out of the currency union.

European leaders have reacted with a combination of denial, delay and dismay as their half-hearted strategies peter out over successive months and weeks. The much-vaunted European Summit of June 27 was originally thought to have produced some results, in terms of moving towards some sort of banking union and allowing the European Central Bank (ECB) to finance banks directly instead of going through governments. But perusal of the fine print makes it evident that little has really changed in terms of Europes policies in the coming year.

Open unimployment

Meanwhile, the social costs of this crisis are being borne as usual by those who did not really benefit from the previous boom. The biggest and saddest aspect is that of open unemployment, which has now hit nearly a quarter of the labour force in Spain. Among the youth under 25 years, 52 per cent, or every other young Spaniard, are unemployed. (It is true that this includes those who are in education, and so the real proportion is probably lower. But since those in higher education also have significantly reduced prospects of finding employment when they graduate, this too is a big problem.) In Barcelona, the sight of young people simply hanging about on the streets all day, alone or in groups, is common. What is more frightening is that there is little hope in the future. So the frustration and alienation that come from joblessness are compounded by despondency and despair.

Petty thefts are on the increase almost everyone has a story to relate of an incident with themselves or someone they know, and visitors are warned to take all sorts of precautions and be constantly on their guard. In some cities and along major highways street lights are being turned off to save money, leading to not just inconvenience but greater physical insecurity for people. Government-run schools have no money and are being forced to cut back on even essentials. For example, parents have to carry rolls of toilet paper for their children to use at school.

There are other social patterns emerging, with longer term implications. Fertility rates have fallen from 1.46 in 2008 to around 1.38 in 2011, a remarkable fall in such a short period, indicating the extent to which the economic bleeding has had direct social effects.

The Indignado (indignant) movement is now more than a year old. Its expressions may be less open and less violent than before, but people are still seething, and it may be that the anger will take more political forms (as it did in Greece with the emergence of Syriza) than fruitless expressions of rage on city streets.

The future is uncertain, but it may not be all gloom and doom if the public outrage does translate into politics that is directed towards changing the economic strategy in fundamental ways.

The blazing victory of the Spanish football team at the Euro 2012 final on July 1 was a welcome reminder that a team playing with exuberance, artistry and great teamwork can be a joy to watch and can also emerge victorious. If only the European economy and the politics that is driving it today were more like football!