Monday, May 23, 2011

Contextualizing the Socialist Loss in Spain

One of the polluters of the #WIUnion Twitter stream, @ronnocomot, actually posted something interesting yesterday,

Most of the time, when Tom tweets something, my reaction is to ignore it.  This reference to socialism and it's perceived failure in Spain could just as easily be a throw away, yet something piqued my interest.  There had to be more to this electoral loss than a simple "Socialism is stupid" slam from Tom.  I suspected that in this instance, throwing my #TwitterFoul flag was less for his trollish behavior and more for

Let's have a look-see at Spain and her political and economic landscape, shall we?  Let's see if there's an "Unexpected Conclusion" lurking in the weeds somewhere.
Spain's conservative opposition leader Mariano Rajoy applauds on the balcony
of the headquarters of the Popular Party in Madrid Sunday May 22, 2011.
So how can we contextualize Tom's statement?  Tom is empirically and objectively correct.  The Spanish People's Party did trounce the Socialists in a series of local and regional elections this past weekend.  There is no denying it.  The Socialists were handed their walking papers by the voters.

But how much of this has to do with an affirmative vote for the PP and how much has to do with anger at the Socialists?  After all, it was the Socialists who went along with IMF & European Central Bank (i.e. German) on extremely unpopular austerity measures which have contributed to the 21% unemployment (45% unemployment among young people) and have no chance of bringing Spain out of recession?  From the BBC:
With municipal votes counted, the centre-right Popular Party (PP) had a 10-percentage point lead, winning in virtually all 13 regions up for grabs.

Prime Minister Jose Luis Rodriguez Zapatero conceded defeat but ruled out early general elections.

Voting took place amid mass protests against high unemployment and the government's handling of the economy.

Young demonstrators holding sit-ins in Madrid and other cities said rallies would continue for another week.
To understand these electoral losses, we need to look at what's happened to the Spanish economy over the last 18 months.  Back in March of 2010, there was a lot of turmoil in the Euro zone around debt and GDP in the member nations. On March 18th, 2010, Bloomberg reported
As [Prime Minister Jose Luis Rodriguez] Zapatero tries to cut the euro area’s third-highest budget deficit, regional chiefs facing elections over the next year are refusing to trim spending. The European Commission said yesterday Spain may need deeper budget cuts to meet its deficit goals, and the regions’ performance is “an additional risk.” Zapatero’s room to maneuver is limited by the 17 regions that control 37 percent of public spending.

Zapatero is being hobbled by a 30-year shift in power to Catalonia, the Basque country and other territories that now control almost twice as much spending as the Madrid government. The risk is that Zapatero won’t be able to move fast enough on a deficit that climbed to 11.4 percent of gross domestic product last year. That may prompt investors to consider dumping Spanish bonds along with their Greek counterparts.
Combined with unrealistic austerity goals, the Spanish national government had very little control over the spend by the regional governors.  This is a recipe for disaster.  One important element in the failure of the Spanish economy is overheated and unbalanced growth driven by a huge housing boom.  It's estimated that 20% of Spain's GDP was committed to construction projects of one form or another.  5% is considered "normal."  As NPR's Tom Gjelten reported back in May of 2010
GJELTEN: Madrid during those [boom construction] years became a better place to live and work. There was huge demand for new homes. Spain was number one in housing starts across Europe. Mortgages were cheap, banks eager to lend. In fact, all this construction activity was itself driving Spain's economic growth and that was where Spain's problems started: There was too much construction.

Fernando Ballabriga directs the Economics Department at the ESADE Business School in Madrid.

Professor FERNANDO BALLABRIGA (Director, Economics Department, ESADE Business School): I mean, it's unsustainable. The construction sector got to something like 20 percent of GDP at some years, which is - yeah, it makes no sense.

GJELTEN: Construction more typically accounts for about five percent of a country's economy. When it's 20 percent of GDP, trouble follows. Here's why: If you make cars or grow olives, you can sell them at home or abroad, but once a new building goes up it stays right there, whether you need it or not. And in Spain the construction boom petered out about three years ago.
This sounds remarkably like the collapsed housing bubble we had (and continue to suffer from) in the United States.  Too much construction, too fast, funded by cheap debt produced unsustainable growth in an area of the economy that provides no export potential.  Someone would have to pay these mistakes and, as in America, it was the middle-class who would bear the weight of economic hardship.

The reaction from the Spanish public at high unemployment and horrific austerity measures was predictable.

"Throw the bums out!" 

But there are consequences in a two-party system like Spain (or the US) for precipitous electoral behavior.  The other party may not give you what you want either (can you hear me now, GOP / Tea Party?).  From Zero Hedge
"... The protesters have called on Spaniards to reject the Socialists and the center-right Popular Party, the main two political options in Spain." The problem is that when you overthrow socialists, it is unlikely that you will get more socialism down the road. Which, however, is what everyone in this country of 21% unemployment, and nearly 50% joblessness in the 18-25 age group really wants.
Understanding this electoral shift is to realize that this is not the people's expression of preference for the center-right People' Party, but a punishment for the Socialists for being insufficiently socialistic!  The Spanish electorate has fired a shot across the bow of the Socialist's boat, a warning that if they don't change course prior to the national elections scheduled for March, 2012, there will be dire consequences.

This echoes my analysis of GOP / Tea Party success in the 2010 elections.  I have argued that the Tea Party's success in 2010 was the result of the Democrats being insufficiently Democratic (commitment to progressive ideals and liberal policies that define the historical core of the post-Civil Rights implementation of the party).  Americans dislike the GOP / Tea Party (intensely), but they needed to find a way to punish the Democrats.  And in our "dualocracy," there is only one way to punish Party A: elect Party B.  If the Democrats ran more to the left than the center-right where they are now, they would achieve far greater levels of electoral success.

So the origins of Spanish discontent with the Socialists lies not in the the behavior of the Spanish government under the Socialists per se as much as in the behavior of Spanish banks when supplied with access to cheap credit under the Euro.  As Paul Krugman points out
After the creation of the euro in 1999, European nations that had previously been considered risky, and that therefore faced limits on the amount they could borrow, began experiencing huge inflows of capital. After all, investors apparently thought, Greece/Portugal/Ireland/Spain were members of a European monetary union, so what could go wrong?

The answer to that question is now, of course, painfully apparent. Greece’s government, finding itself able to borrow at rates only slightly higher than those facing Germany, took on far too much debt. The governments of Ireland and Spain didn’t (Portugal is somewhere in between) — but their banks did, and when the bubble burst, taxpayers found themselves on the hook for bank debts. The problem was made worse by the fact that the 1999-2007 boom left prices and costs in the debtor nations far out of line with those of their neighbors.
Like in the US, Spanish banks behaved badly and the taxpayers were on the hook to fix it.  This is what led to austerity measures for Spain.

The 2010 GOP / Tea Party electoral successes at the state and local level, much like the success of the PP in Spain now, have resulted in huge unintended consequences for voters.  In the United States, political disenfranchisement, union busting, and cronyism along with other stock-and-trade GOP fantasy-come-true policies (driven by the shadowy group ALEC) have produced a record number of recall elections in Wisconsin in 2011 and mass uprisings in several GOP controlled states.  The PP would be advised to pay very close attention to events at the state and local level in the United States lest they suffer the same impending fate of overreaching GOP politicians.

Meanwhile, Spain's financial markets are reacting poorly to the PP victory.
Spanish financial markets slumped Monday after voters angry about austerity measures dealt the governing Socialist party a painful loss in local and regional elections, raising doubts over the country's ability to enforce debt cuts.

Investors worried that the government of Prime Minister Jose Luis Rodriguez Zapatero had lost support in its drive to heal public finances and faced a period of political uncertainty. Daily protests against both the Socialists and the opposition conservatives, meanwhile, were spreading to cities across the country and expected to last for days.
In the end, austerity is, and has been, an economic policy failure across Europe.  As one political protester in Madrid put it,
The protests are not really anti-government, but rather anti-big political parties, both the one in power and the main ones in opposition.

It's an anti-capitalism, anti-market ruled society, anti-banks, anti-political corruption, anti-failed democracy, anti-degraded democracy and pro-real democracy protest.

It's a protest that wants a better, real future, not the future that the government or parties in opposition seem to be able to provide.

The manifestos and proposals are quite left-leaning ideologically, but not linked to any political party, because right now, most of us don't feel represented by them.
¡Viva la revoluciĆ³n!

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