For the past year, all the PIGS have been made to squeal that they are unlike the others. We have heard that Ireland is not Greece (only later to be told that Greece is not Ireland), that Portugal is neither Greece nor Ireland, and that Spain is different. This is to miss the point. Every time another government is brought down, the European social democratic project takes a step backward. We need to stop pretending to know for whom the bell tolls.
The burden of the crisis continues to fall on those least able to bear it. The ongoing attempt to dismantle the fragile social protections of the European periphery undermines the realization of our shared social Europe. We are all Portugal. And the lessons of the Socrates government need to be absorbed.
First, austerity begets more austerity. The Socrates government was brought down attempting to implement a fourth round of cuts. Second, no one is being “rescued”. Bail-out is code for shock therapy. Finally, obedience does not pay. Portugal was a model citizen, and yet Socrates’ government was toppled in an act of breathtaking cynicism by the party of Barroso himself. The right will not permit social democratic governments to remain in power, even after they have been brought to heel.
This does not bode well for Spain, in spite of assertions to the contrary. When it comes to the sovereign debt crisis, it seems that the more strenuously an event is denied, the more likely it is to occur. Governments and institutions have been pretending that what they hope will happen is what will actually take place. Optimism is not a substitute for deleveraging.
In the Spanish case, no one has the luxury of imagining that it can be quarantined from the rest of Europe. Serious grounds for concern exist. The Spanish government is already being instructed to shore up its financial sector – and yet no consensus exists over the size of the hole left by the property crash.
At the same time as it is being encouraged to prop up its banks, the Spanish government is also being urged to target regional spending in order to meet deficit reduction targets. Approximately half of regional spending in Spain is dedicated to health and education. Serious cuts here mean that the pillars of the welfare state would be directly affected for the first time.
For now, difficult spending decisions are being postponed until after the May 22nd regional elections. Afterwards, incoming governments will cry poverty and insist they have found the books in a terrible state.
Zapatero’s lame duck administration will confront the task of negotiating with regional governments at the same time as PSOE will be distracted with his succession. And if the government does not meet its optimistic growth projections (the unemployment projection has already been altered to reflect dampened expectations), a further round of cuts will be required. This is a complicated panorama for a minority government heading into an election year against a Partido Popular that is even more shameless and irresponsible than its Portuguese counterparts.
Spain’s unemployment rate now sits over 20%. European institutions have mandated a restrictive fiscal policy for Spain while the European Central Bank is engaged in monetary tightening; even given that a first-year economics student would get a failing grade if he or she proposed this policy mix. A lost decade looms now on the horizon for Spain – and along with it, a mass exodus of the best-educated generation in the country’s history. Policy-makers naively hope to see an export boom during a time of rising oil prices in an economy highly dependent on foreign energy.
An export-led growth strategy that combined austerity, privatization, and liberalization was already tried out in Latin America in the 1980s and did not produce the desired productivity gains. It was only after countries were able to restructure their debt through the so-called Brady bonds that they were able to put their economies back on a more solid footing.
And yet today’s Europe is increasingly reminiscent of Latin America in the 1980s in terms of its economic management of a debt crisis. The ideological justification is the same. Voters are informed that there is no alternative. Governments of a more progressive bent fall into line and attempt to make the best of the situation by implementing austerity with a human face. To follow this failed model is the road to oblivion for social democrats.
Portugal teaches us that if we do not show some teeth, we face death by a thousand cuts.