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The Next Greece? A Sketch of Spain

BARCELONA  —  Joan Miró’s farmhouse in Mont Roig, about fifty miles from here, is well known from the Catalonian artist’s own depictions of it. The best of them, a work he called La Ferme (the farm), was owned by his friend Ernest Hemingway, whose widow later gave it to the National Gallery in Washington. The house itself still stands today, but it is empty, rundown, and neglected. Its walls are peeling and what furniture remains is in bad condition; the cobbles in the front courtyard where Miró and his family often dined alfresco are hardly visible among the weeds.

The Spaniards tend to enshrine the homes of famous artists—Picasso’s in Málaga and Dalí’s near Cadaqués. So what’s behind this obvious disregard for the house of Spain’s third great artist of the last century? The answer provides a case history in miniature of Catalonia’s economic woes. And Spain’s, for that matter.

Miró’s heirs, who own the property, have had it on the market for three years, but they can’t sell it. The village of Mont Roig would like to buy it, but can’t afford it. Like many Spanish villages, Mont Roig (population sixteen thousand) has high unemployment and a huge deficit. The region of Catalonia says it already faces the challenge of maintaining one hundred and thirty museums during what Juan Pluma Vilanova, head of Catalonia’s Directorate General for Cultural Heritage, called “a moment of limitations,” and can’t find the money to add one more. The Miró Foundation, the artist’s museum overlooking Barcelona, says the two million euros needed to restore the place was doable, but not the ongoing financial burden of keeping the house open.

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Catalonian pride may eventually overcome the fiscal difficulties of saving an artistic landmark. But as of now, Miró’s house is an inadvertent symbol of good financial times gone sour. In Spain’s previous affluent decade, funding the conversion of this landmark into a tourist-drawing museum would have met with little difficulty. Today, it’s a different story.

As expressed in bricks, mortar, and money, the collapse of the real-estate boom that had fueled the Spanish economy for a decade equals 106,900 empty new residences in Catalonia (818,000 in Spain as a whole), and that’s not counting unoccupied older homes. At the end of 2011, Spain had outstanding mortgages amounting to $820 billion. Moreover, while empty homes nationwide were expected to drop to 693,000 by 2015, the numbers for Barcelona were actually set to increase to 131,000, because the building of new houses in the country’s most prosperous region went on for longer before developers hit the brakes.

Squatters occupy many of the thousands of empty houses and apartments around Barcelona—until police carry out one of their periodic raids to clear them out, at the same time recovering large quantities of stolen goods. Street crime has spiked in the city as a result of cutbacks in law enforcement. Barcelona police say some seventy people a day report being robbed in the streets, in stores, and in hotels. In the tourist season, the daily average jumps to as many as two hundred and fifty thefts. As the city relies heavily on tourism for its income (thirteen million tourists visited Barcelona last year), such crime levels are a serious problem. The Catalonians have become so security-conscious that El Corte Inglés, the large Spanish department store chain, now requires a photo ID for credit card transactions.

 

“Spain is not Greece,” has become the mantra Spanish officials repeat to foreign visitors. In fact, in mid-January borrowing rates for Spain, the third-largest economy in the eurozone, were lower than Italy’s, the second-largest—until, that is, Prime Minister Mariano Rajoy announced a higher deficit for 2012 than had originally been forecast by his socialist predecessor and declared, “This is a sovereign decision made by Spain.”

Considering that Rajoy had just signed a fiscal compact along with twenty-four other EU countries explicitly ceding budget sovereignty to Brussels, his comment left the markets wondering whether he had changed his mind.

Rajoy’s conservative Partido Popular (People’s Party) won the December election, ousting José-Luis Rodríguez Zapatero. The new prime minister faces the daunting task of rescuing his country from what is being called Spain’s second recession in three years, but which many economists see as really a relapse into the first one, from which the country never fully recovered. To achieve success, Rajoy will have to bring down Spain’s current deficit of eight and a half percent of GDP to the Brussels-required level of three percent by 2013. This is a tall order, and one he is not expected to achieve, so the name of the game is to figure out how close Spain can get in one year to the EU target.

Rajoy’s first austerity package consisted of $7.8 billion in tax hikes and $11.5 billion in spending cuts. The Rajoy government’s idea of social reform so far has been to make it easier for employers to dismiss their employees. The government’s logic is that they would then be more inclined to hire them in the first place.

In most of Europe, the entrenchment of employees in their jobs and the cost of firing them is seen as a reason why employers hesitate to add more workers. So new Spanish legislation, lowering severance pay and making it easier to let go of workers if the company has reported three straight months of dropping revenue, has some of the qualities of a continental trial balloon. But the strategy has backlashed: Spanish unions say the new laws are bound to increase Spain’s unemployment rate, not lower it. At twenty-three percent (or fifty-three million people), the Spanish jobless rate is already the highest in Europe. In late March, unions staged a general strike that turned particularly ugly in Catalonia, where demonstrators vented their frustration by smashing store windows in what could prove an overture to a summer of discontent. Hardest hit are Spain’s under-twenty-fives, almost fifty percent of whom are unemployed. A new class of jobless has emerged called nimileuri—“not even a thousand euro” (a monthly salary, roughly equivalent to $1,300, that graduates once scorned).

In reality, compared to Greece’s sovereign debt, which is expected to level off at one hundred and fifteen percent following the recent bailout, Spain’s public-debt burden of around fifty-three percent of GDP means its fiscal position is among the least worrying of all the economically challenged euro countries. In early March, Spain got a psychological boost when it received an imprimatur from German Minister of Finance Wolfgang Schäuble, Europe’s ex officio paymaster. “Spain has made great progress,” Schäuble said approvingly. “Financial markets also see it that way, but of course we’re all still on a tough path.” In January, Spain was able to sell $8.5 billion in bonds—more than expected, and at a better price, even though the country had been downgraded a few days earlier by Standard & Poor’s.

 

Spain is by no means out of the woods yet, and Spaniards—not by nature a cheerful people to start with—know it. According to a poll reported in the leftist newspaper El País, “72 percent of citizens still consider the political outlook to be bad, while on the economic front 96 percent of the country feels that things are downright dismal.”

Rajoy no doubt remembers that his predecessor, Zapatero, realized too late that what he insisted was a glitch in Spain’s booming economy was actually a full-blown global crisis, and that his subsequent attempt to resolve it by such unpopular measures as lowering public-service pay, freezing pensions (after promising that he would spare them), and slashing public spending conspired to do him in at the polls last December. But it’s the hindsight thing, as the senior George Bush would probably say. The truth is that Rajoy has little choice but to apply the strong fiscal medicine Spain now needs, regardless of the political consequences. Rajoy fits squarely in the Obama generation of leaders, the generation that inherited the debris of the 2008 financial meltdown and will be judged by how well they fare in rescuing their respective economies from its consequences.

The additional dimension to Spain’s problems is that the crisis has set off a blame game between the central government in Madrid and the seventeen highly autonomous regions that have run up huge debts of their own. Catalonia and the other regions gained autonomy following the end of the Franco regime in 1975. As such, the Catalonian government, like other regional governments, manages the most expensive and socially rooted programs in its own jurisdiction—health care, education, social services, public transportation, culture, and police, amounting to roughly fifty percent of public spending in the country, most of it channeled through the regions.

Rajoy has said that budget profligacy by the regions exacerbated the economic crisis—a claim that draws a sharp response from the regions themselves. In a recent letter to the New York Times, for example, Andreu Mas-Colell, the Catalonian finance minister (and incidentally a former Harvard economics professor) complained that the central government “placed excessive responsibility on the regions for the fiscal problems of Spain.”

The regions argue that as money became tight, the Zapatero government withheld financing from the regions, and then blamed them for having to borrow. The new government has extended a $10 billion line of credit to the regions to pay their bills—but with strings attached. There are new budget targets, and there will soon be penalties for regions that fail to stick to them. “I have no qualms about helping them, but neither do I have any qualms about being more demanding of them,” Spanish Finance Minister Cristobal Montoro said after his first meeting with all the regional economic ministers.

This raised new questions about whether Madrid was using the crisis to set back the political clock and regain more control over the regions. At present, the government has little ability to interfere. In Spain, where things are never exactly what they seem to be, such a move is likely to be perceived not just as a power grab, but as a throwback, however faint, to the bad old days of the Franco regime, when Joan Miró was enjoying his first success as a painter in his beloved and now empty farmhouse. In Spain, such ghosts are revenants.

Roland Flamini is a freelance journalist and former foreign correspondent and bureau chief for Time magazine in Europe and elsewhere.

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