A full rescue may help Spain to bit the bullet

Now that full rescue seems an unavoidable option, overtly accepted by Madrid, the main opposition party in Spain has found some way to deliver a scathing attack on government. For all its dismal delivery while in power, it managed to avoid such unpalatable scenario. The current cabinet, supposedly better equipped to bring Spain out of trouble, has already being forced into a €100 billion banking salvage package and now it heads towards a full rescue. Not a bad record if you consider it took office only nine months ago.

Is rescue a sound answer for Spanish woes? Markets having already discounted it, should Madrid hesitate now it would immediately come under fierce harassment by investors and untenable pressure from fellow Euro partners. There is no way to escape. The best thing the government can do is to sell the rescue as the only sensible answer to redress an economy badly mauled by the former socialist cabinet. And the opposition’s outcry for the cuts and sacrifices such a move will involve merely turns into political profit the bitter embarrassment the ruling party finds itself. Only a few months ago it boasted being capable to put things in order at no cost for citizens.

The deep-rooted crisis has shown that Spain’s woes are more severe than expected. The huge competitive gap can only be narrowed through a de facto devaluation involving a sweeping lowering in living standards. A hard medicine started being administered in doses up to now falling short of the right prescription. Labour reform stands as the only real step forward, for all its shortcomings. Cuts in public expenses up to now only affect the surface and have in many cases a merely temporary nature. They fail to be coupled with any major restructuring in idle spending or good-for-nothing tax benefits.

How can you justify that gig IBEX firms should be taxed at an effective 11% rate when SME are normally charged more than 20%? Is it reasonable that Spain should have double the number of universities the United Kingdom has, each one covering all potential disciplines? Does it make any sense that the top one university has as much administrative manpower as teaching staff? Isn’t it an utter pilfering of public resources to run a network of high speed trains that trebles in size that of France? How on earth regional and local authorities were ever allowed to set up fake embassies around the world, to run TV channels no one watches, to pay fat subsidies to airlines just to keep alive  artificial airports, to balloon their payroll by providing dubious jobs to relatives, friends or followers?

Reversing such profligate conducts involves the kind of political cost any government is eager to avoid. If only for that reason, rescue should be welcome. It would certainly involve harsh measures. But being mandatorily imposed by Brussels it would help Madrid in implementing them facing less disaffection and outrage from voters. Putting the blame on others always helps.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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