Spain’s banking bailout, whatever the technicalities of the conditions surrounding the agreement, will be seen by many as a humiliating step for the Euro-zone’s fourth largest economy. Such a move would have seemed unthinkable just a few years ago. Spain was widely hailed as the very model of how to manage a successful transition from dictatorship to democracy. And joining the Euro was seen as the culmination of its modernisation project. As Carlos Closa and I argued in Spain and the European Union, the EU was itself the Spanish national project. By being in at the start of the Euro, Spain had achieved its long delayed historic destiny to be a central player within Europe.
Moreover, it is not as if Spain was seen as having a profligate and ill-disciplined government. Until the 2008 crisis, Spanish state borrowing was effectively non-existent as it ran a balanced budget and saw its debt-to-GDP ratio steadily fall (unlike Germany). Between 1999 and 2007, the economy grew by an annual average of 3.7%, and as recently as 2009, serious analysts could refer to Spain’s ‘outstanding economic development’.
And yet, despite the dramatic economic development and growth that Spain experienced, the country now finds itself in crisis with an economy in deep recession, massively high unemployment (especially amongst under-25s), significant pockets of genuine poverty, and a banking sector in very serious difficulty. How come?
In part, it is to do with a failure to address some of the key structural problems which have afflicted the country for decades: most notably, a fundamentally uncompetitive economy, which relied primarily on private borrowing to stimulate an unsustainable property boom as the main engine of growth, supported by an incapacity to constrain runaway spending in the autonomous regions. In addition, Spain’s very extensive ‘black economy’ has deprived central government of fiscal revenues at the same time as social security expenditure has sky-rocketed (especially on pensions and unemployment benefit).
The net result is that a country seen very recently as a signal success story has now lost the confidence of international markets that had been so ready to lend to Spanish banks in the first place. Yet this is far from the only seeming contradiction that characterises contemporary Spain. Here are five more.
- The regional and territorial dynamic of modern Spanish history makes it impossible to understand political developments in the country without analysing them through the framework of long-term and deep-seated regional cleavages, and these promise to become even more intense as the crisis deepens (and would become dramatically more so should a referendum result in Scottish independence from the rest of the UK). However, in spite of that, post-Franco Spain has so far held together remarkably well through its asymmetric, quasi-federal system of autonomous communities.
- Spain has enjoyed a reputation for consensus politics and pact-making since the transition to democracy, leading to frequent references to a neo-corporatist policy style. However, as I have argued in a recent article with Raj S Chari, core executive power concentration in Spain is more in keeping with liberal market economies like the UK or USA than co-ordinated market economies like Germany or Sweden
- Spain has now become a significant player on the international stage, involved in a host of both diplomatic and military initiatives. However, opinion polls have shown that the Spanish population on the whole does not want it to be, as reflected, for instance, in the hostility to the Iraq war and the ousting of the Aznar government following the 11 March bomb attacks in Madrid
- Spain has experienced real political modernisation and social transformation since the return of democracy. However, several senior figures in the governing Partido Popular are thought to be linked to Opus Dei, and the Catholic Church has in recent years sought actively to influence day-to-day politics. At the same time, racial tensions and immigration have started to become key points of friction
- Democratisation has brought about a radical political transformation. However, the weight of history hangs heavy, with a growing emphasis on issues of historical memory, the need still to come to terms with the Civil War, and the issue of responsibilities. This has been reflected most obviously in the controversies elicited by the campaign to uncover Francoist mass graves that started to gain momentum in 2002 and continues to generate tension following the Law on Historical Memory that was passed in October 2007.
I will be addressing all of these issues in more depth in the next edition of The Government and Politics of Spain, which I am currently working on.