Europe's Debt Crisis Has Changed Postcodes


Just three weeks ago, Europe’s leaders assured us, the worst was over. The continent’s sclerosis had been cured. While things had certainly looked better, they couldn’t get much worse. "I am more optimistic than ever before," the head of the EU’s taskforce on Greece, Horst Reichenbach, told Austria’s Passauer Neue Presse last week.

That kind of optimism has been the European Commission’s key media message since an 85 per cent haircut on Greek debt was agreed in early March. Still, it seems that Europe’s financial maladies are still a long way from being cured. The European debt crisis has shifted postcodes. After a $2.5 billion payout to holders of insurance on Greek bonds was forced through mid-last month, the travelling debt crisis simply moved on to Iberia.

And this time it seems to be Spain that has no more fiscal options left. Like Greece, the country has unemployment woes, national mega-debt and social strife. Unlike Greece, which has been bailed out over and over again, there appears to be little money left for Spain. And even as newly elected conservative PM Mariano Rajoy struggles to implement industrial relations austerity, his European partners have made his job much more difficult in recent days.

Madrid will be cursing Italian numero uno Mario Monti’s statements on Spanish solvency last week. The Italian PM seems to have kicked off talk of Spanish default. Spain, Monti said at a commercial forum in Italy last week, "is concerning the EU because the rates [of interest on Spanish government bonds]are rising, and it wouldn’t take much to recreate contagion".

He was referring to a situation where investors flee the capital markets, forcing up the dividends that governments have to pay on their debts. When that dividend gets too high, then the governments are forced to turn to international institutions to finance their debt.

Monti — who has been threatening to quit in recent weeks if proposed labour market reforms don’t get through — may have decided to play "beggar thy neighbour". Both Spain and Italy are struggling as the spread between their interest payments on their debt and that of Germany widens. While the Spanish spread is at 367 points, the Italian gap is barely 20 points behind that. And "the gap between Spanish and Italian bonds has diminished from 40 to 22 points within a week", reported Italian news agency ASCA on Friday.

So with his government under pressure, Monti presumably decided that a diversion strategy was the optimal one. He made those remarks just days before a planned Spanish general strike went ahead.

The strike saw Spanish transportation and the public sector stop operating — although industry was affected to a far lesser extent. Eight hundred thousand turned out at demonstrations, according to union estimates. One hundred and seventy six were arrested, and there were 104 people injured. Whatever the numbers, it weakened Rajoy. Many are now asking whether he has the political authority to implement austerity measures announced during his first 100 days in office.

The general strike was the eighth called since the return of democracy to Spain in 1975. It concerned opposition to labour reforms. Rajoy, like the Italian prime minister, wants to make firing workers easier and cheaper. Unfair dismissal provisions that currently grant workers fired without cause a redundancy settlement of 44 days per year worked will be watered down, reports Spain’s Público. Rajoy’s new laws would see that class of workers receive just 33 days in payout. Meanwhile those fired with good cause will receive a 20-day settlement per annum worked.

Are the changes likely to solve Spain’s 23 per cent unemployment rate? That’s uncertain. Yet Rajoy is facing seemingly intractable economic problems. One hundred days into his four-year tenure, the Spanish leader "is already reducing to a minimum his public appearances", reported El País on the weekend. Rajoy, continues the paper, feels as if he has been trapped: "On the one hand, Brussels and the markets are pressuring him to further deepen the cuts. On the other, [he is facing]social malaise in Spain."

That social malaise has touched almost everyone in Spain, a country where the fourth most common word that children hear is "unemployment", according to French paper Le Monde. Hence Rajoy’s labour legislation; the Spanish leader has few other options. He is unable to loosen monetary policy, which is controlled by the European Central Bank, and cannot increase spending because of the country’s debt problems.

So, continues Le Monde, Rajoy may be aiming at a Spanish equivalent of a German idea, €400 mini-jobs. The jobs involve 15-hour-per-week contracts, largely exempting employers from paying health insurance and other social security obligations. Some credit the jobs with rescuing many Germans from permanent unemployment; many others blame them for entrenching poverty in Europe’s largest economy.

The European Central Bank has suggested that the ultra-low-wage, part-time jobs may be the solution for Spain. But, argues Le Monde, that sort of solution won’t work in the Iberian nation. Mostly because many young people are on contracts that accord them even less rights than those granted to 400 Euro jobbers in Germany: "They resemble the rubbish contracts in place in the US [labour market]much more than the German contracts."

Leaving many in Spain in a dreadful financial position. Germany’s Frankfurter Allgemeine Zeitung (FAZ) describes a country in where "people in their mid 30s move back in with their parents; graduates look for a €700 [per-month] job.

Unfortunately, opines the FAZ in an article that is not online, neither the strike, nor Rajoy’s labour market changes will solve the situation: "No strike will re-erect the pillar of prosperity … the unfettered property market." With that market having fallen over with the financial crisis, continues the paper, little can save Spain now: "The deeper truth about the fourth largest Eurozone economy is that has its back to the wall on the edge of the precipice. The squabbling between left and right is simply background music."

ABOUT BEST OF THE REST: It’s a big world out there and plenty of commentators and journalists are writing about it — but not always in English. And not surprisingly, ideas about big events of the day shift when you move away from the Anglosphere. Best of the Rest is a fortnightly NM feature by Berlin-based journalist Charles McPhedran. Charles reads the news in French, German, Spanish and Portuguese and reports on what the rest of the world is saying about the big stories.

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