Romney Was Wrong about Spain!
By Fátima Serra, department of foreign languages
Spain, well-known as the land of fiesta and siesta, started to get the world’s attention at the beginning of the 21st century. Spaniards’ capacity to enjoy themselves seemed to be matched by great economic success, as the following 2008 figures suggest:
Spain: Some Economic and Socioeconomic Realities (May 2008)
Global Ranking & Description
Top 10 Eighth-largest economy in nominal terms and seventh in purchasing power parity terms (ahead of Canada)
Top 10 Seventh-largest recipient of foreign direct investment
Top 5 Fourth-longest life expectancy at birth along with Australia, France and Sweden
Top 5 Second largest tourist destination in terms of visitors and receipts
Top 5 Third largest producer of cars in Europe after Germany and France
Top 5 World’s largest international manager of infrastructure
Top 5 Fourth in development of renewable energy
Top 5 Biggest producer and exporter of olive oil
Top 5 Biggest producer and exporter of sparkling wine (cava)
(Source: IMF, Economist Intelligence Unit, UN Human Development Report 2007/2008, World Investment Report 2008 (UNCTAD), ANFAC and World Tourism Organisation.)
However, four years later, in 2012, Spain is dealing with an economic crisis, record unemployment, protests over austerity measures and forced home evictions. What happened?
During the first presidential debate Governor Romney gave his answer to America and the world: “we don’t want to go down the path of Spain a country spending 42% of their total economy on government.” In other words, according to the former Republican presidential candidate, Spaniards ate far too many tapas on the government’s account and now the whole country is gone to the dogs. However, Spain’s government spending is lower than most European nations—Germany and Scandinavian countries level of spending is higher and have healthier economic prospects (Huffingtonpost.com 10/7/2012). Taking into account that salaries in Spain are much lower than in most European countries, the Spanish government collected less in taxes and Spaniards enjoyed fewer benefits than their neighbors.
If it was not Spaniards savoir vivre and the government’s unruly spending, then what caused the dire economic situation, the 25% unemployment rate, and tragic evictions?
A new law in 1998 was responsible for allowing construction in much of Spain’s rural land, areas that were formerly classified as for agriculture only. This caused the beginning of a construction boom never seen before. In 2005, Spain built more homes than France, Germany and Italy together. The construction boom created employment and demand for new construction, which caused an increase in prices. Spanish salaries still were not that high, but the prospect of abundant employment and easy credit made people embark in home purchasing they could not afford. While in Germany the limit of a mortgage was 60%, in Spain it was possible to find 80% or even 100%. Prices were astronomical compared with Spanish salaries and the banks lent money to people who could not afford to borrow it.
When the 2008 financial crisis in the US spread to the rest of the world, banks stopped lending, people got scared, and stopped purchasing consumer goods. The result was a contraction of the economy. Today there is enough housing stock to last for the next 15 years. This means that construction, which until now had been the main motor of the Spanish economy, will not be running for a long time.
Private sector debt, by individuals and by the banks, is what caused the bubble to burst, not government debt. In other words, this was not caused by extensive spending by an overprotective government of pampered, lazy Spaniards. It was the banks irresponsible lending that caused the crisis. The same wealthy people reluctant to extend benefits to struggling families are the ones who gave low salaries while making fortunes in real estate. They are the ones who granted unstable mortgages and paid low taxes. They are the ones who evict people from their houses, but still demand the mortgage payment for life (in Spain after losing your home you still owe the mortgage). They are the ones who beg to bail out the banks and ask everybody else to tighten the belt. They are the 1%.
Well, today there is no more belt to be tightened. Whole families are returning to their parents’ homes, because grandpa is the only one earning an income, a pension. Young educated adults are leaving the country and others are opting for suicide before facing an eviction notice (El País 11/9). Considering all of this, it should not be surprising that the ‘occupy’ movement started in Spain with the name Los indignados “the outraged ones”.
Image and Reality: Contemporary Spain by William Chislett 11/5/2008 Real Instituto Elcano
http://www.huffingtonpost.com/2012/10/07/mitt-romney-spain_n_1946468.html By Bradley Kappler10/07/12