After we had been in Spain for a while my view on life here changed from that of an average tourist with some special interest in the country to that of a person actually living here. My ex banker eyes were still clouded by a combination of my previous job and the Calvinistic way to judge things. Quite quickly I knew for sure that Spain economically would recover to levels seen at the start of this millennium: The crisis and the expansion of the EU led to the fact that the more limited funds now had to be divided over more countries and it was clear that previous governments in Spain had spent EU money in a foolish and rather consumptious way. From 2008 to 2012, despite frenetic stimulus spending, real per-capita income in Spain had plummeted by more than 18%.
However, ever more repeatedly I am wondering if I was wrong: from late 2011, the holistic all-out reform effort of the conservative government, led by Mariano Rajoy, managed a rise in real per-capita incomes of 3% last year, and this year will bring another 2%. The conservative leadership was inspired in its confident, almost heroic undertaking by the successful example of a previous conservative government — the Aznar administration of 1996-2004 — which overcame the deficits and mass unemployment left behind by the preceding Gonzalez socialists.
The risk premiums on Spanish interest rates have fallen (well below Italian levels) as market confidence has returned. Nevertheless unemployment has stayed extremely high, about 25%, partly because of public-sector sackings (yes!!), although private job creation has taken off, according to the Nat. Bureau of Statistic. To be honest, I haven’t seen any witness of that here in poor Andalucia.
As Spain’s unemployment benefits are time limited, many have to make do without government handouts. Those we know here in the village manage — poorly — with family support, in casual informal work. Many young professionals seem to be learning German and Chinese, although their English is still horrible. Many have turned their backs on the traditional major parties and barrack for populist extremists.
The government has curbed subsidies to solar farms and quixotic windmills, some of which have been abandoned by their disappointed rent-seeking owners. The life of nuclear power plants has been pragmatically extended. Some of the many infrastructure projects of the Zapatero era are mothballed; others are being pragmatically completed despite still complicating the budget. New controls on regional government spending reinforce the consistent message: “We need discipline and an enterprise-friendly order.” The task of turning the economy around has been made much harder, of course, by the fact eurozone membership has knocked out monetary policy. The entire burden of restoring the economy rests on domestic fiscal and labour market policies.
Some observers belittle the Rajoy team’s incipient success: new flexible service jobs are called inferior … “the recovery will not last”. Like the Thatcher reforms, Spain’s liberal policy is poorly understood by commentators. Though much is left to be done, one could already conclude that the Spanish turnaround will be called a miracle by people sharing the views of those who failed to understand why postwar Germany or East Asia boomed. Miracles are – we are in a Roman Catholic country after all – something that one need not explain, and from which one cannot learn.
I can only hope that I was wrong and the present road will be followed for some time to come and that voters in the next elections won’t turn to populist politicians who would happily- again – buy some temporary economic benefit at the price of ruinous long term debt increases and great damage to future generations. After all it is so easy to use J.M. Keynes’ quotation “In the long run we are all dead”.