Yves here. Somehow the title of Wolf’s post reminded me of The Persecution and Assassination of Jean-Paul Marat as Performed by the Inmates of the Asylum of Charenton Under the Direction of the Marquis de Sade, but I suspect the Spanish aren’t there quite yet.
By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
Spanish Prime Minister Mariano Rajoy has a singular problem for a governing politician: 84% of all voters have “little” or “no” confidence in him. Even 62% of the supporters of his own conservative People’s Party (PP) distrust him. The fate of Alfredo Perez Rubalcaba, leader of the opposition Spanish Socialist Workers’ Party (PSOE), is even worse: 90% of all voters distrust him, as do 77% of the supporters of his own party! Those are the two top figures of the two major political parties, and the utterly frustrated and disillusioned Spaniards are defenestrating them both.
It has been a short honeymoon for Rajoy, who came to power on December 21, 2011. During the campaign, he lambasted the governing socialists for their mismanagement of the economy and tarred them with the catastrophic unemployment situation. He, the moderate, would be able to do better, improve the image of Spain with its international creditors, slash expenditures, and wrestle the ballooning deficit down to 4.4% of GDP by the end of 2012, a smidgen below the number Spain had committed to in 2010, and way below the 6% that had been forecast for 2011. The cuts would continue into 2013 to force the deficit down to 3%—the upper limit imposed on the European Union, theoretically, by treaty. The world was in awe.
He remained vague about the details, however. Not a word about the favorite social programs that would have to be gutted, or about the onerous tax increases that would have to be inflicted on the citizenry in order to get to these numbers. Instead, he talked about efficiencies and other platitudes. But tax collections kept diving, the economy kept getting worse, and unemployment kept rising, and even during the campaign, rumors surfaced that the deficit for 2011 wouldn’t be 6%, but 7%, and some evil tongues even said 8%. People gasped. Such levels would require that future cuts would be much deeper than those that had sunk socialist Prime Minister José Luis Rodríguez Zapatero. Nevertheless, to win the election, Rajoy remained vague about the spending cuts—instead of going for a mandate.
It worked. The PP won 186 of the 350 seats in the lower house of Parliament, a resounding majority (by Spanish measures). And the new Council of Ministers took only nine days to come up with its first austerity plan of cuts and new revenues.
Alas, none of the numbers thrown around during the campaign were based on reality. The actual deficit for 2011 wasn’t 6% as forecast, or 7% as feared, or even 8% as the evil tongues had predicted, but 9%! Well, 8.96%. And Rajoy’s promise of 4.4% for 2012 was revised to 6.3%. But the actual deficit, said Bank of Spain Governor Luis Maria Linde last week, will likely blow past that as well—hence more cuts.
And so the Spaniards vented their frustrations. If an election were held today, Rajoy’s People Party, which had so handily won the election, would obtain 29.9% of the vote, a 16.5-point plunge from its January peak of 46.4%. And the PSOE would only garner 23.9% of the vote, 4.8 points below the historic low of 28.7% of last November. Never before had the combined vote of the two major parties been so low (53.8%). It’s the punishment, ineffectual as it may be, of the political class by the people.
Disillusioned and disappointed, they have taken to the streets with near daily waves of protests, demonstrations, and occasional street battles. Ignore them, Rajoy told a business audience in New York, and instead count on the “silent majority.” Turns out, that silent majority must be rather smallish as 77% of the people support the protesters.
The challenges are huge—even if there is political consensus on how to tackle them. Banks and some of the Autonomous Regions, which are teetering on the brink of financial collapse, need to be bailed out by a central government that also needs to be bailed out. With unemployment of nearly 25% and youth unemployment of over 50%, desperate Spaniards and foreigners alike are leaving the country, taking their skills, knowledge, experience, and purchasing power with them. The political system is in turmoil. And the autonomous region of Catalonia is threatening to secede.
“Poverty is returning to Europe,” said Jan Zijderveld, head of Unilever’s European operations. The third largest consumer products company in the world was adjusting its commercial strategy to this new reality, he said, by redeploying to Europe what worked in poor countries of the developing world. Other stars of the industry affirmed it. “The logic of pauperization,” L’Oréal CEO Jean-Paul Agon called it. Read…. The “Pauperization of Europe.”