Spanish Austerity Savage to the Point of Sadism
By Conn Hallinan
Foreign Policy in Focus
June 15, 2012
http://www.fpif.org/blog/the_pain_in_spain_falls_mainly_on_the_plain_folk

Nobel Laureate economist Joseph Stiglitz characterizes
the Spanish bank bailout as "voodoo economics" that is
certain "to "fail." New York Times economic analyst
Andrew Ross Sorkin agrees: "By now it should be apparent
that the bailout has failed-or at least on its way to
failing." And columnist and Nobel Prize-winning
economist Paul Krugman bemoans that Europe (and the
U.S.) "are repeating ancient mistakes" and asks, "why
does no one learn from them?"

Indeed, at first glance, the European Union's response
to the economic chaos gripping the continent does seem a
combination of profound delusion, and what a British
reporter called "sado-monetarism"-endless cutbacks,
savage austerity, and widespread layoffs.

But whether something "works" or not depends on what you
do for a living.

If you work at a regular job, you are in deep trouble.
Spanish unemployment is at 25 percent-much higher in the
country's southern regions-and 50 percent among young
people. In one way or other, those figures-albeit not
quite as high-are replicated across the Euro Zone,
particularly in those countries that have sipped from
Circe's bailout cup: Ireland, Portugal, and Greece.

But if you are Josef Ackermann heading up the Deutsche
Bank, you earned an 8 million Euro bonus in 2012,
because you successfully manipulated the past four years
of economic meltdown to make the bank bigger and more
powerful than it was before the 2008 crash. In 2009,
when people were losing their jobs, their homes, and
their pensions, Deutsche Bank's profits soared 67
percent, eventually raking in almost 8 billion Euros for
2011. The bank took a hit in 2012, but the Spanish
bailout will help recoup Deutsche Bank's losses from its
gambling spree in Spanish real estate.

And, just in case you thought irony was dead, it was the
Spanish housing bubble that tanked that country's
economy-at the time Madrid's debt was among the lowest
in the Euro Zone-and German banks (as well as Dutch,
French, British and Austrian) financed that bubble.
German Banks also financed the real estate bubble that
crashed Ireland's economy. Some 60 percent of Deutsche
Bank's income is foreign based.

Consider this figure: in 1997 real estate loans in
Ireland were 5 billion Euros. By 2007 they were 96.2
billion Euros, a jump of 1730 percent. Real estate
prices rose 500 percent, the same amount that Spanish
housing prices increased. The banks didn't know they
were pumping up a bubble? Of course they knew, but they
were making money hand over fist.

When the American financial industry self-destructed in
2008, the Irish and Spanish bubbles popped, and who got
the bill? Irish taxpayers shelled out $30 billion to
bail out the Anglo-Irish Bank-essentially the country's
total tax revenues for 2009-and in return got a 15
percent unemployment rate, huge cuts in the minimum
wage, pension reductions, and social service cutbacks.
Spain is headed in the same direction.

As Spanish economist and London School of Economics
professor Luis Garicano told the New York Times,
"Unfortunately, Spain did not manage to reach one of its
main goals in the negotiations [over the bailout], which
was to have Europe bear part of the risk of rescuing the
financial sector, without letting it fall instead
directly onto the shoulders of the Spanish taxpayers."

Garicano went on to complain, "Those who lent to our
financial system were the banks and the insurance
companies of Northern Europe, which should bear the
consequences of these decisions."

But of course they will not. Instead, the banks got to
go to the casino, gamble other people's money, and get
repaid for their losses. That's sweet work if you can
get it.

However, the "sado-monetarism" strategy is about more
than just bailing out the banks at the expense of the
vast majority of European taxpayers. It cloaks its long-
term designs in coded language: "rigid labor market,"
"internal devaluation," "pension reform," "common
budgetary process," "political union."

A quick translation.

"Rigid labor market" means getting rid of contracts that
guarantee decent wages, working conditions and benefits,
all won through a long process of negotiations and
industrial action. As the New York Times put it, the
current rightwing Spanish government is attempting to
"loosen collective bargaining agreements."

The drive to scrap union contracts is coupled with
"internal devaluation," which, as Krugman points out,
"basically means cutting wages." If the working class
can be forced to accept lower wages and slimmer
benefits-and there is no better disciplinarian in these
regards than a high unemployment rate-profits will go
up. Sure, the vast majority will be poorer, but not the
people who run Deutsche Bank.

"Pension reform" simply means impoverishing old people,
who had nothing to do with the real estate bubbles that
brought down Ireland and Spain. But again, someone has
to sacrifice, and old people don't have all that much
time left anyhow.

Oh, for ice floes to put them on.

"Common budgetary process" and "political union" means
giving up national sovereignty in the service of keeping
the banks solvent-in essence, the end of democracy on
the continent. People could then elect any one they
pleased, but no national government would have any say
over economic policy. Want to do a bit of pump priming
to get the jobless rate down and tax revenues up? Nope.
But feel free to paint park benches any color you like.

The 100 billion Euro ($125 billion) Spanish bailout will
fail for the average Spaniard, as bailouts have already
failed the Irish, Portuguese and Greeks, and it will
lock Spain into generations of debt. Italy is next (not
counting the small fry like Cyprus and several Eastern
European countries that may fall before Rome is finally
sacked). The Euro Zone's economies are predicted to
contract 0.1 percent for all of 2012, and the jobless
rate for the 17-country bloc is 11 percent, higher than
at any time since the Euro was established in 1999.

Spain's right-wing prime minister, Mariano Rajoy, has
tried to argue that the bailout was not as onerous as
those imposed on Ireland, Portugal and Greece, but the
Germans soon set him straight: "There will be a troika
[the European Union, European Central Bank, and
International Monetary Fund] and it will make sure the
program is being implemented," German Finance Minister
Wolfgang Schaube told the Financial Times.

It is not unlikely that the Euro will fall sometime in
the next year, but of course the debts will remain. The
dead hand of the past will lie on the brow of the living
for a long, long time to come.

Financier George Soros puts much of the blame for the
current crisis on Germany-indeed, he accuses Chancellor
Andrea Merkel of trying to establish a "German Empire"-
but that is simplistic. Germany has certainly led the
"sado-monetarian" charge, but this strategy is not just
about unleashing the austerity Panzers to establish a
Fourth Reich. All over the world, capital is on the
march, with the goal of rolling back the social programs
of the post-World War II period and returning to the
Gilded Age when the rich did pretty much as they
pleased.

Weakening unions is central to this, as is privatizing
everything capital can get its hands on, and the
economic crisis is the perfect cover to try an
accomplish this. For a fascinating analogy, pick up
Indian journalist P. Sainath's brilliant "Everyone Loves
A Good Drought" that exposed how wealthy landlords in
India manipulated a natural crisis to increase their
grip over agriculture.

Former Deutsche Bank head Ackermann recently prattled on
about the "social time bomb" of economic inequality, but
so far he has not offered to share his 8.8 million Euro
bonus. In the meantime, according to the International
Labor Organization, youth global unemployment will reach
12.7 percent this year and stay there for at least four
years, creating a "lost generation" of workers.

So, the answer to Krugman's question, "why are they
repeating ancient mistakes?"

Because they are making out like bandits.

___________________________________________

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