Posts Tagged ‘Spain’

Spain wages and total employees

According to those in charge, Spaniards should have been thrilled. After years of stagnation, the country has in fact been growing.

For example, earlier this year, IMF Chief Economist Olivier Blanchard admired the country’s “virtuous cycle”of confidence, investment, and consumption. For his part, German Finance Minister Wolfgang Schäuble applauded Spain’s “far-reaching reforms” as the reason for one of the highest growth rates in Europe. Meanwhile, the government of Prime Minister Mariano Rajoy was preening: “The contrast in growth is the result of this government’s economic policies. Spain is now a role model,” Economy Minister Luis de Guindos said in April.

Yet, Pedro Almodóvar’s country is actually on the verge of an economic breakdown—which is why the two ruling parties lost so badly in yesterday’s election.

Just as in the United States, the economic recovery in Spain has been fundamentally lopsided, with a tiny minority at the top benefiting from government-imposed austerity policies and everyone else falling further and further behind.

As Tyler Durden recently explained,

Amid all the singing and dancing over Spain’s miraculous recovery and Europe’s renaissance on the back of Draghi’s money-printing machine, it appears – just like in America – that below the glossy veneer of engineered equity and bond prices, all is not well. . .the average wage in Spain has fallen to its lowest level since 2007, according to figures released by the Spanish Ministry of Finance, and after peaking at 19.3 million in 2009, the number of workers is also collapsing. . .

The ministry says the fall was not so much due to salaries being lowered for people at work, but that newly created jobs now offer much lower pay than before the crisis.

However, the crisis has no effect on Spain’s biggest earners as those who earn 10 times the minimum wage saw their salaries continue to grow. The 127,706 people fell in this category earn an average of 148,824 euros in 2014.

The reason for those declining wages and employment is, of course, that unemployment rates—for all workers (25.1 percent, as a three-year average) and, especially, for young workers (53.2 percent, even higher than in Greece)—still remain extremely high.

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For years now, the country governed by, first, the Socialist Party and, then, the Popular Party, has been on the verge of an economic breakdown.

And, yesterday, Spaniards responded that the two ruling parties and their European supporters had their chance and squandered it. There was still time last year, earlier this year, even in recent months. “But now it’s too late.”

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The details of the agreement between Greece and its European creditors are now available. And there’s no doubt about it: this (as the top-trending Twitter hash tag puts it) is a coup. Greece has been forced to surrender (or, given the upcoming debate in parliament, to have the freedom to consider surrendering) a large part of its national sovereignty in exchange for a new European Stability Mechanism program bailout.

Alexis Tsipras [ht: sk] may or may not be a hero, “who fought like a lion against unfathomably large interests” and made it possible for Greece “to live to fight another day.” But that’s really beside the point. So, in the end, is Greek sovereignty—and, for that matter, the humiliating terms sponsored by Germany.

Because what we’re really witnessing is a coup in Europe as a whole. Merkel, Tsipras, Schäuble, and the rest are just the dramatis personae of a series of events that have turned the European project against its own people.

The dream, of course, was to expand democracy, eliminate national rivalries, and promote universal prosperity. But now the European project has become a nightmare of enforcing the conditions of creating and capturing profits—of large enterprises and banks—across an entire continent. And anything that gets in the way—whether existing pensions and state-owned enterprises or rehiring doctors, nurses, and cleaning women—will be sacrificed on the altar of those free-flowing profits.

And who are the losers? The hundreds of millions of workers, farmers, students, young people, and children who are being forced to endure extraordinary levels of unemployment, poverty, and economic insecurity in order to promote a post-2008 recovery that is benefiting only a tiny minority across the continent. And that’s just as true in Germany as in Greece, in England as in Spain. Not to the same degree, of course. But the current negotiations over Greek debt—in which all of their leaders and finance ministers have participated and to which they have given their assent—have demonstrated to the working people of Europe that nothing will be allowed to stand in the way of the interests of the free deployment of capital under conditions that are administered by the troika.

And if an entire nation has to be humiliated in order to serve as an example, so be it. . .

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Cartoon by David Simonds. Angela Merkel's hard line on debt threatens the euro project.

Most of the commentary on the ongoing euro crisis, especially the current Greek debt negotiations, has been couched in terms of a conflict between nations. This is particularly true of mainstream economists, whose nation-state-based models downplay or ignore class, even as the policies they advocate have tremendous class implications.

So, it’s fallen to—however ironically—financial strategist and professor of finance Michael Pettis to remind us the current conflict is not between nations, but between classes.

The whole piece, beginning with the French indemnity of 1871-73, is worth a careful read. But I want to focus here on what Pettis writes about the class conditions that led to and follow on from the current crisis.

First, Pettis makes the important point that the capital flows from north to south within the euro zone were based on important class changes within Germany (he uses his native Spain throughout as his example in the south but most of his analysis follows for Greece and other countries):

It was not the German people who lent money to the Spanish people. The policies implemented by Berlin that resulted in the huge swing in Germany’s current account from deficit in the 1990s to surplus in the 2000s were imposed at a cost to German workers, and have been at least partly responsible for Germany’s extremely low productivity growth — most of Germany’s growth before the crisis can be explained by the change in its current account — rather than by rising productivity.

Moreover because German capital flows to Spain ensured that Spanish inflation exceeded German inflation, lending rates that may have been “reasonable” in Germany were extremely low in Spain, perhaps even negative in real terms. With German, Spanish, and other banks offering nearly unlimited amounts of extremely cheap credit to all takers in Spain, the fact that some of these borrowers were terribly irresponsible was not a Spanish “choice.” I am hesitant to introduce what may seem like class warfare, but if you separate those who benefitted the most from European policies before the crisis from those who befitted the least, and are now expected to pay the bulk of the adjustment costs, rather than posit a conflict between Germans and Spaniards, it might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other.

This is a  conflict among economic groups, in other words, and not a national conflict, although it is increasingly hard to prevent it from becoming a national conflict.

Here, we can see that, while relative productivity in Germany was pretty constant, relative real wages were falling and corporate profits (in absolute terms) rose dramatically in the run-up to the crash of 2008:

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In other words, German banks managed to capture a large portion of the growing surplus created by German workers and, instead of seeing it invested domestically, lent it abroad (to a broad array of Spanish, Greek and other borrowers)—which was the flip side of Germany’s positive current account balance (since German capitalists, benefiting from lower unit labor costs, could easily outcompete potential exporters in the European south, while German demand for European goods dropped as wages fell).

Pettis’s second point is that countries don’t lend or borrow; different classes within countries create the conditions for and engage in large-scale capital flows between countries.

But didn’t Spain have a choice? After all it seems that Spain could have refused to accept the cheap credit, and so would not have suffered from speculative market excesses, poor investment, and the collapse in the savings rate. This might be true, of course, if there were such a decision-maker as “Spain”. There wasn’t. As long as a country has a large number of individuals, households, and business entities, it does not require uniform irresponsibility, or even majority irresponsibility, for the economy to misuse unlimited credit at excessively low interest rates. Every country under those conditions has done the same. . .

And this is a point that’s often missed in the popular debate. Over and over we hear — often, ironically, from those most committed to the idea of a Europe that transcends national boundaries — that Spain must bear responsibility for its actions and must repay what it owes to Germany. But there is no “Spain” and there is no “Germany” in this story. At the turn of the century Berlin, with the agreement of businesses and labor unions, put into place agreements to restrain wage growth relative to GDP growth. By holding back consumption, those policies forced up German savings rate. Because Germany was unable to invest these savings domestically, and in fact even lowered its investment rate, German banks exported the excess of savings over investment abroad to countries like Spain. . .

Above all this is not a story about nations. Before the crisis German workers were forced to pay to inflate the Spanish bubble by accepting very low wage growth, even as the European economy boomed. After the crisis Spanish workers were forced to absorb the cost of deflating the bubble in the form of soaring unemployment. But the story doesn’t end there. Before the crisis, German and Spanish lenders eagerly sought out Spanish borrowers and offered them unlimited amounts of extremely cheap loans — somewhere in the fine print I suppose the lenders suggested that it would be better if these loans were used to fund only highly productive investments.

But many of them didn’t, and because they didn’t, German and Spanish banks — mainly the German banks who originally exported excess German savings — must take very large losses as these foolish investments, funded by foolish loans, fail to generate the necessary returns. It is no great secret that banking systems resolve losses with the cooperation of their governments by passing them on to middle class savers, either directly, in the form of failed deposits or higher taxes, or indirectly, in the form of financial repression. Both German and Spanish banks must be recapitalized in order that they can eventually recognize the inevitable losses, and this means either many years of artificially boosted profits on the back of middle class savers, or the direct transfer of losses onto the government balance sheets, with German and Spanish household taxpayers covering the debt repayments.

Finally, Pettis reminds us that the winners and losers in the current crisis are not nations but classes within nations.

The “losers” in this system have been German and Spanish workers, until now, and German and Spanish middle class savers and taxpayers in the future as European banks are directly or indirectly bailed out. The winners have been banks, owners of assets, and business owners, mainly in Germany, whose profits were much higher during the last decade than they could possibly have been otherwise.

In fact, the current European crisis is boringly similar to nearly every currency and sovereign debt crisis in modern history, in that it pits the interests of workers and small producers against the interests of bankers. The former want higher wages and rapid economic growth. The latter want to protect the value of the currency and the sanctity of debt.

The lesson, as I see it, is that focusing on the conflict between nations, and ignoring the conflict between classes, only serves to postpone a resolution of the crisis and to invigorate right-wing nationalist sentiments across Europe. It also means that, even if and when the debt crisis is resolved (for example, by revising the terms of debt repayment for Greece, Spain, and other countries), the problem of class conflict within the existing system—in both the north and the south—will still have to be addressed.

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