“Spain has become an important testing ground for Europe’s austerity strategy,” notes the April 17 Wall Street Journal. “A failure risks undermining not only Spain’s economy, but the euro as well.”
Spain’s official unemployment rate is nearly 24 percent and rising. It’s more than 50 percent for those under age 25.
Spanish banks over the past several months have been bailed out by the European Central Bank, which since December has provided low interest three-year loans. The banks promptly used the funds to buy up Spanish government debt to stave off government default as the capitalist rulers seek to buy time to prepare to deal lasting blows to the socially accepted living standards of working people. But the loans are having less and less impact on the government’s ability to continue selling its bonds, which is leading to renewed calls, in particular from the German government, for steeper austerity measures.
“In the long run [austerity] is expected to boost productivity and stimulate new jobs,” the Wall Street Journal said. In other words, Spain will be able to attract job-creating investment to the degree workers are forced to work harder for lower wages.
Inevitable rise of class struggleIn the short term the measures are expected to accelerate economic contraction with falling wages, shrinking consumer spending, rising unemployment, lower tax receipts, declining production and increased government indebtedness. Among the rulers’ chief concerns is the inevitable rise of the class struggle. “Without a doubt [the measures] will bring more unemployment and more strikes,” the Journal said.
Spain, with the eurozone’s fourth largest economy, has seen industrial production fall at an accelerated pace over the past few months. In February it declined 5.1 percent after dropping 4.3 percent in January.
The Spanish government has announced plans to reduce its budget deficit from 8.5 percent of gross domestic product in 2011 to 5.3 percent this year, the largest reduction of any of the 17 countries that comprise the eurozone.
Towards this end, Spanish Prime Minister Mariano Rajoy last month presented his plan to slash $35 billion from the central government budget through spending cuts and tax hikes. Part of this package is what the government terms “labor market reform.” This proposal makes it cheaper and faster for bosses to lay off workers. It lifts restrictions on wages and hours, cuts costs in eliminating jobs, and facilitates the use of temporary contract workers.
As the Spanish government was preparing to announce its new austerity budget, hundreds of thousands of workers participated in a nationwide strike and street protests March 29, shutting factories and severely limiting mining, port facilities and public transportation.
“I’ve spent 45 years working for the same company and now they can get rid of me almost for free,” textile worker Jose Jimenez, 60, told the Huffington Post at the Madrid protest.
The government’s next move was to announce April 9 that funds for health and education will be cut by $13 billion. Spain’s 17 regions provide these social services, which are mostly financed by taxes collected by the central government. Legislation currently before parliament would allow Madrid to make automatic spending cuts in regions that exceed budget targets, as well as give the central government power to take over regional finances.
The European Commission—the European Union’s executive branch—applauded the new cuts in health and education, describing the 2012 budget as a “substantive package” of spending cuts, reported the Wall Street Journal. Leading the call for greater austerity is Berlin, the dominant economic power in Europe.
Housing bubble collapseSpain’s earlier period of economic growth was largely based on massive investment in housing construction. In 2006 at the peak of its decade-long housing boom, “Spain started 800,000 homes—more than Germany, France, Italy, and the United Kingdom combined,” noted a 2009 International Monetary Fund report. Construction workers represented one in eight jobs (compared to one in 18 during the height of the U.S. housing bubble).
Today, in a country of some 47 million people, “some 1.5 million unfinished, unsold or unwanted residential units stand scattered across the country,” reported the Journal.
Housing starts were down by 94 percent and new mortgages by 80 percent in 2011, and many who had construction jobs are now out of work. “The number of homes being foreclosed on is estimated to triple in Spain,” writes John Mauldin in his online investment newsletter. “About 120 evictions take place every day.”
Argentina seizes Spanish oil firm
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