Daily Israel Report

Spain Gallops Headlong Into Austerity As Riots And Strikes Mount

Despite massive demonstrations and some violence, the Spanish government says there is no choice but severe belt tightening.
By Amiel Ungar
First Publish: 4/1/2012, 3:42 PM

Deputy PM Santamaria
Deputy PM Santamaria
Reuters

The Spanish government has produced the largest budget cut in 30 years. It is the equivalent of performing an economic act of cold turkey.

Having inherited a budget deficit of 8.6%, the government of Mario Rajoy is trying to bring it under 5.5%, and by next year, will have to meet the 3% EU deficit guideline.

The first leap has lopped off over €36 billion from the budget. The Popular Party is going through with austerity in the teeth of mass demonstrations, that in some places turned violent-  and with the knowledge garnered from the regional elections in Anadalusia, that although it has only been in power for four months, the Popular Party's honeymoon is over. Voters squeezed by the austerity are migrating - not to the Socialist party, but to points further to the left.

There is a huge difference between the 1982 austerity and the current one. In 1982, Spain could count on backing from the European Union (then the European Economic Community) to ease the pain. Spain was transitioning from dictatorship to democracy and in 1982, the left in Spain took power for the first time since the Spanish Civil War (1936-39).

The support of the European Union in weakening the Franco dictatorship and the economic assistance to help Spain through its economic rough spots during the 1980s, made Spain one of the most loyal members of the European Union.

The European Union was also considered, particularly by the left, a counterweight to NATO. The Americans were accused of propping up the Franco regime in return for naval bases in Spain.

Today. Europe cannot provide financial comfort; on the contrary, it is cracking the whip, although it displayed some understanding, given the knowledge that no government could survive going from an 8.5% deficit to 3% in one year.

Europe cannot afford to let Spain run a big deficit without calling into question the financial arrangements it instituted to control the debt crisis. The contagion that the Europeans wanted to contain, would break out even more virulently because Spain, as opposed to bailout recipients Greece, Ireland and Portugal, would breach the economic firewall that Europe has assembled with difficulty.

The Spanish strikes and demonstrations have already put pressure on the euro against the dollar.

So far, despite the strikes and demonstrations, the government is justifying the austerity on the grounds that there is no other choice. With unemployment already up to 23%, and more pain on the way, some young people (the unemployment rate is much higher for the young) are considering emigration. Others are hoping that a socialist victory in France in this month's election and a weakening of Angela Merkel's position in Germany, will lead to a change in the EU's policy that will blunt the thrust on austerity and restore an emphasis on growth.