Spain needs to snap out of siesta

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Spain’s new right-wing government faced its first large protests this week. Last May tens of thousands of ‘Indignados’ filled the Puerta del Sol in Madrid in support of the ¡Democracia Real YA! movement, progenitor of the Occupy movement which emerged later in the English-speaking world.

The square was the scene of protests again this week, which also took place in Valencia and Barcelona, but the current demonstrations are a reaction against specific government policies rather than the broader noises made last year.
Prime Minister Mariano Rajoy’s government recently unveiled a range of proposals to reform Spain’s absurdly inflexible two-tier labour market, as well as proposing tax hikes and swinging spending cuts in order to trim the country’s budget deficit.
The employed in Spain, which currently amounts to just 77% of the adult population, are split into two categories. Around two thirds are permanent workers on fixed contracts. Making these employees redundant is phenomenally costly as the maximum limit of severance pay is 42 months salary. These workers are largely insulated from recession, and some are even seeing generous pay rises through Spain’s centralised collective bargaining system. The other third are vulnerable workers on temporary contracts, disproportionately the young and the poor. They are easy to hire and fire, and employers expend little time or money training them.
This leads to a vicious cycle in which the two tiers drift further apart if the economy becomes weaker, and structural unemployment grows as employers refuse to take on new workers on permanent contracts while shedding the part-time workers.
José Luis Zapatero’s left-wing government, resoundingly swept from power last November, made some piecemeal changes. However, the system needs wholesale reform. The economic situation in Spain is diabolical, with the IMF predicting that GDP will shrink 1.7% this year. While Spain’s national debt is not yet as severe as in Greece or Ireland, it has doubled since the start of the crisis and is growing towards the critical level of 100% of GDP. As the twelfth largest economy in the world, Spain’s future is critical for the Eurozone and the world economy.
Aside from an international economic upswing it is difficult to see a way out of the current predicament. The key issue underlying the current Eurozone crisis seems to be that setting fiscal and monetary policy in different places is fundamentally inconsistent. The political will to keep the failing Euro project ongoing is proving resilient. The Spanish left ought to find a voice independent of the bellicose trade unions and accept the need for labour market reform, before fighting against  the gratuitous and undemocratic austerity reforms imposed by Brussels which are failing to help elsewhere. These vital structural changes must come about before arguments against Rajoy’s other reforms are taken seriously.

Spain’s new right-wing government faced its first large protests this week. Last May tens of thousands of ‘Indignados’ filled the Puerta del Sol in Madrid in support of the ¡Democracia Real YA! movement, progenitor of the Occupy movement which emerged later in the English-speaking world.

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The square was the scene of protests again this week, which also took place in Valencia and Barcelona, but the current demonstrations are a reaction against specific government policies rather than the broader noises made last year.

Prime Minister Mariano Rajoy’s government recently unveiled a range of proposals to reform Spain’s absurdly inflexible two-tier labour market, as well as proposing tax hikes and swinging spending cuts in order to trim the country’s budget deficit.

The employed in Spain, which currently amounts to just 77% of the adult population, are split into two categories. Around two thirds are permanent workers on fixed contracts. Making these employees redundant is phenomenally costly as the maximum limit of severance pay is 42 months salary. These workers are largely insulated from recession, and some are even seeing generous pay rises through Spain’s centralised collective bargaining system. The other third are vulnerable workers on temporary contracts, disproportionately the young and the poor. They are easy to hire and fire, and employers expend little time or money training them.

This leads to a vicious cycle in which the two tiers drift further apart if the economy becomes weaker, and structural unemployment grows as employers refuse to take on new workers on permanent contracts while shedding the part-time workers.

José Luis Zapatero’s left-wing government, resoundingly swept from power last November, made some piecemeal changes. However, the system needs wholesale reform. The economic situation in Spain is diabolical, with the IMF predicting that GDP will shrink 1.7% this year. While Spain’s national debt is not yet as severe as in Greece or Ireland, it has doubled since the start of the crisis and is growing towards the critical level of 100% of GDP. As the twelfth largest economy in the world, Spain’s future is critical for the Eurozone and the world economy.

Aside from an international economic upswing it is difficult to see a way out of the current predicament. The key issue underlying the current Eurozone crisis seems to be that setting fiscal and monetary policy in different places is fundamentally inconsistent. The political will to keep the failing Euro project ongoing is proving resilient. The Spanish left ought to find a voice independent of the bellicose trade unions and accept the need for labour market reform, before fighting against  the gratuitous and undemocratic austerity reforms imposed by Brussels which are failing to help elsewhere. These vital structural changes must come about before arguments against Rajoy’s other reforms are taken seriously.