The Spanish case

Causes of the debt crisis

The neoliberal policies that have been applied since the entrance of Spain in the EU had a big influence in the creation of the present crisis. The removal of subsidies to key national industrial sectors, competitors to central European industries, was a condition for this entrance. After that, whole industrial ecosystems went bankrupt, cheapening labour, and leaving space for foreign firms to profit from that. As a result the economy suffered from important structural failures, relying too much on foreign firms exploiting cheap labour, tourism that also depended on inflows from abroad, and the housing and construction sectors which are prone to speculation and corruption if they are treated purely on a profit-seeking basis, as it so happened.

In the search for a source of economic growth, deregulation in the real estate and the banking sectors followed during the 90s and beginning of the 2000s, and together with the introduction of the Euro, they made possible the creation of a huge housing bubble. Spanish banks borrowed big amounts of money from German, British and French banks, and gave loans without good risk assessment to real estate developers and households, and the imbalances in the current account (as it happened in other states of the EU periphery) that this caused translated into huge amounts of debt accumulating all across the economy.

With the start of the global financial crisis, the housing bubble burst, leaving the Spanish banks on the verge of bankruptcy. The stoppage of credit seriously damaged the economy, destroying employment and businesses, and sending many Spanish citizens into poverty. Meanwhile, the state is socializing private debt through different types of public aid.

Public Aid to the Banking system (31st December 2012)

Instrument

 

Millions of

Percentage

Capital

59,130

4.1%

Asset Protection Scheme

28,227

2.0%

RECAPITALIZATION MEASURES

87,357

6.1%

Financial Asset Acquisitions

21,041

1.5%

Real Estate Assets Acquisitions

50,780

3.6%

ASSET ACQUISITIONS

71,821

5.0%

Bank Debt Guarantees

110,616

7.7%

Deposit Guarantee

795,135

55.7%

TOTAL GUARANTEES

905,751

63.5%

Liquidity line

3,099

0.2%

Convertible preferred stock

2,033

0.1%

European Central Bank Loans

357,293

25.0%

TOTAL LOANS

362,425

25.4%

TOTAL OF LIQUIDITY

1,339,998

93.9%

TOTAL AID

1,427,335

100.0%

Source: Carlos Sánchez-Mato

Public debt has risen rapidly from 40% of the GDP in 2007, to the present 105% in November 2013. By the figure of 2007 one can observe that the debt problem originated in the private sector, which now holds around 325% of debt with respect to the GDP: 126% non-financial firms, 113% financial firms and 85% households. The increase of the public debt has been the consequence of the socialization of the losses of the financial and real estate sectors.

Evolution of Public Debt (blue line) and Financial Debt (red line) in 2012 in millions of Euros:

Ev_deuda

Source: Bank of Spain

Other causes of public indebtedness are the poor taxation to firms and the wealthiest people that Spain has applied in the last decades, which have created a constant situation of under financing of the public sector and a poor development of the welfare state. Spain has been well below the average of the EU in terms of fiscal revenues as the following chart shows. With the crisis, under-financing was exacerbated, creating shortages in revenue that resulted in big fiscal deficits.

Fiscal Revenues in 2012 as a % of GDP:

fiscal revenuesSource: Eurostat

During the years of credit expansion the governing political parties have participated of the financial excess, acquiring credit to build infrastructures that were costly and unnecessary such as the high velocity train, regional airports or monuments, entertainment parks and museums that served the electoral strategies of many politicians. This has been a de facto subsidy to the big construction firms that have been granted megalomaniac projects paid with state debt. Spain has thus seen how a big part of its political class, dominated by capitalist interests, is corrupt and has turned its back on citizens.

Consequences

Interest payments represented in 2013 around 40 billion Euros, more than doubling since the beginning of the crisis. This fact, together with the shortage in public revenues that we mentioned before, has caused big fiscal deficits to the state. Arguing a so-called fiscal responsibility, the government has started to implement privatizations in the public sector and cuts in social services and public employment. It is necessary to underscore two features relating to that. First, to understand the big rise in public debt one has to take account of the bank bailouts, which amount to 1.4 trillion Euros. Second, it must be indicated that austerity measures are being applied with the intention of creating new profitable market areas for the private sector. This new model stretches the commodification of basic needs beyond what any could consider democratic.

Plataforma Auditoría Ciudadana de la Deuda (PACD)

The audit process proposed by the PACD (Spanish Citizen Debt Audit Platform) includes a general analysis of public debt at different levels of the public administration, as well as sector specific analyses (health, education, environmental, gender and energy) and their impact with respect to debt.

Our first goal is to divulge the work, facilitating the comprehension of the causes and consequences of the present debt crisis. An integral part of that is to demand the right to information and transparency in relation to public affairs, but paramount is the empowerment of the citizenship in political, economic and social matters. The PACD proposes a citizen project, open and collective, permanent and decentralized, in which the different work groups are constituted organically and decide by consensus. Although the work has a specialized component, we do not pretend to limit it to something that only experts can approach. All of us can demand information and explanations to public administrations, share what we learn and know or analyse, express a point of view, denounce irregularities and propose alternatives.

Some examples of the work done are reports on the impacts of the bank bailouts and the fiscal policies in the generation of the debt, published in October 2013; the presentation of citizen requests of information to certain local governments in Catalunya, which forced these administrations to increase their level of transparency; and the legal motions presented in certain local administrations, that resulted in the declaration of illegitimacy of a part of the interests paid on the debt by some administrations, an action which is currently spreading along the Spanish geography. The introduction of the concept of debt illegitimacy in the political debate has been a remarkable achievement of which we are proud, but we will not be satisfied until this becomes a general norm, and this debate spreads to all areas of society.

Step by step the anti-debt movement has taken consciousness of the importance of audits, in which it is the people who must decide democratically what is to be paid, who are generators of illegitimate debts and which of these are not to be paid in order to initiate a new order, more just, with a future in which abuses among humans and towards the environment don’t exist any more.

WE DON’T OWE, WE WON’T PAY!

3erEEPACD_jun13

This post is also available in: French, Spanish

Leave a Reply

Your email address will not be published.