SPAIN: NEO-LIBERALISM UNDER RAJOY

I am very puzzled about the focus on the part of some on Prime Minister Rajoy's choice of ministers and their geographical base. Equally surprised, I cannot explain the absence of discussion on policy that has an impact on peoples' lives. Let us assume that Rajoy chose everyone of his ministers from Catalonia, but that the policies they pursued were detrimental to the interests of the middle class and workers across Spain, would this represent a triumph for regional hegemony? Unless there is something about Catalans that would have meant Spain's salvation from the crisis, I cannot follow the logic behind such thinking.

What is a greater problem for Spain today, neoliberalism under Rajoy, or centralism, nationalism and separatism that only serve to distract and divide people from the common threat of downward social mobility, slashing of labor rights, and the imposition of finance capitalism's dictatorship?

If the issue is about the country's 17 autonomous regions that have very high deficits and are expected to ask the central government for funds that do not exists and are not expected to be forthcoming, then I understand the thinking behind regionalist politics on the part of some Spaniards who believe in regional loyalty as a romantic notion. However, is this not a case of all EU governments placing pressure on regional/local government to balance their budgets amid a struggle to satisfy the markets by bringing annual public debt deficit below 3% of GDP? How would a more diversified cabinet of minister save Spain from its current crisis?

Political responsibility for Spain's current public debt crisis rests as much with the Socialists more than it does with the current conservative (Popular Party) government. In fact, Spain, Portugal and Greece were all under Socialist leadership when the debt crisis erupted, and all governments went along with the EU and IMF, instead of putting the issue (stay with the euro or exit) to a referendum. 

In the case of Spain in particular, the Rajoy government has been straight forward with the citizens even before the November 20, 2011 election that he won (185 seats of 350), asserting that the country needs austerity and that it will mean hardship for the nation. In a recent statement, the prime minister noted that:  "What's ahead for Spain is going to be difficult ... exiting the crisis is not just the government's task but that of every Spaniard... It's complicated at the moment ... There are over 5 million people in Spain without a job, who are having a bad time, and this requires implementing another economic policy and explaining it properly."

Although very few if any analysts who have followed developments in Spain expect the unemployment rate currently at 23% to fall instead of rising even higher, the PP's economic plans are hardly a surprise, given that the EU under German hegemony decides monetary and fiscal policy for the bloc. The German-dominated EU demands fiscal consolidation, tight monetary policy, much leaner public sector, much stronger private sector, and a general trend toward neoliberal measures that will help strengthen the strongest economies within the EU, namely Germany.

Rajoy and his team of neoliberal private and public sector ministers will try to satisfy first and foremost the markets, the rating agencies the EU and IMF, and only lastly the needs of the unemployed. As the eurozone's fourth largest economy and third largest budget deficit, Spain is looking to lower its borrowing costs (6.78% on the 10-year bond) and at the same time restructure the costly public sector, especially the deficit-ridden regional governments that should not expect much help from the central government owing to pressure from the markets, IMF, EU on all eurozone members to reduce debt and create a much leaner public sector.

The people of Spain who elected Rajoy knew his position before they voted; they knew that he would likely introduce a wave of new austerity measures as debt markets drive Spanish debt yields to unsustainable levels, and that would mean downward pressure on living standards for the middle class and workers. But the majority voted for him, knowing that he would likely bring in government people like Luis de Guindos as economy minister, former head of the infamous Lehman Brothers in Spain, and an avowed neoliberal that markets and the IMF love. Luis de Guindos is an advocate of much leaner public sector, which means job losses and lower wages not just for the public sector that sets the pace, but across the board.

The new minister of the economy is also a well known anti-labor advocate who believes that Spain has rigid labor laws that prevent more favorable terms for foreign investment and private sector expansion. As Rajoy's connection to the world of finance capitalism, this former Lehman Brothers manager will be advising the prime minister to force the 17 autonomous regions to slash their spending and balance their budgets, translating into job losses in a country that leads Europe in unemployment.

The private sector, IMF, and Germany wanted a person like De Guindos to implement policy that is tailored made for Spain, including ending collective bargaining and untying wage raises to the inflation index, as it is for Portugal, Italy, Greece, Ireland, and the rest of the eurozone states, by Brussels whose chief concern is strengthening finance capitalism at any cost to the middle class and workers. Although responsible for the global recession of 2008-present, the wolves in Spain (and across much of EU) are now watching over the sheep, because the sheep have voted for wolves to watch over them.

My prediction is that the Rajoy government will satisfy the markets, the IMF and the German-led EU. However, the cost will be:
a) unemployment rate that may hit 30% in 2012;
b) living standards that will decline by at least 15% as indirect taxes rise, while wages and benefits decline - greater transition from social welfare to corporate welfare state;

c) contrary to IMF and neoliberal assumptions, fiscal consolidation and market-driven growth will come very slowly in Spain and across EU and it will only entail strengthening the strongest businesses in the private sector (vertical growth) at the expense of jobs-intensive (horizontal) growth. The beneficiaries will be the large domestic and foreign corporations; 

d) by early Spring 2012, Spain along with the rest of the eurozone may be seriously tested as Italy hits the market to borrow $200 billion, while Spain, Greece, Portugal, Belgium and Ireland are also waiting in the wings for greater borrowing. At that time, Germany will have to decide if it wants to let the printing presses roll so liquidity can be provided to the debtor nations, although at the cost of monetary inflation (euro value would drop by at least ten percent), or it could follow a different road - different options ranging from staying the course of relatively tight monetary and fiscal policy to leaving the euro.

e) the political cost for Spain's austerity, and this applies across to southern Europe, will be that people will have lost faith in the discredited two-party-dominated system with conservatives and Socialists taking turns in governing. Social unrest will hit new levels as much in Spain as across much of Europe. People will be looking to the smaller parties of the left, green, right wing, as well as an emerging new trend of anti-establishment parties that are based on greater honesty, transparency, democracy, accountability to the people instead of banks, and grassroots oriented instead of tied to political party machinery.