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    Spain is one of those places in Europe where Austerity has been in full swing. Budget cuts, downsizing, trimming government services...how well has that worked anyway?

As Spain enters another year of recession, Europe's politicians offer only one remedy. It must swallow more of the harsh medicine of austerity. But will it survive the cure? And will the spiral of decline really come to a halt towards the end of the year, as Prime Minister Mariano Rajoy promises?

Already the country's social fabric is tearing. Family networks keep the working class going as unemployment hits 26%. Fewer than half of those aged under 25 find work. Anecdotes of misery abound. Grandmothers with memories of the "hungry" 1950s cook up large pots of lentils to feed unemployed grandchildren. At night, small crowds gather outside supermarkets in poorer neighbourhoods of Madrid, seeking thrown-out produce. In middle-class neighbourhoods ghostly figures wander the streets rummaging through bins by night.

Surely the conservative Popular Party politicians pursuing policies of privation perceive the pain they're producing, right? Maybe not. The BBC has news of a scandal rocking the Popular Party, from the Prime Minister on down.

More below the Orange Omnilepticon

        The Spanish economy is another victim of the flaws in the European Monetary Union, where the collapse of a housing bubble in Spain sent the economy into a downturn and the government running deficits as a result. The response has been to impose austerity measures: lay off public sector workers, cut government spending, raise taxes, and the rest of the usual remedies. And as has been noted, contractionary policies are...contractionary.

   Prime Minister Mariano Rajoy announced tough new austerity measures back in July on top of measures already taken. Part of the logic behind them is to make Spain more competitive to boost exports, by lowering labor costs. But...

Fresh data from the OECD show that Spain has narrowed the gap in “unit labour costs” with Germany by 5.5% over the past year alone. It has clawed back 4.6% against France and 6.6p% against Austria since late 2011, as it slashes pay and pursues a scorched-earth policy of “internal devaluation”.

Luis Maria Linde, the Bank of Spain’s governor, says that within two years the country will have recovered “almost all” the ground lost during the first disastrous years of euro membership. The total gain in competitiveness against the EMU bloc since 2008 has been 10%.

Yet economists say it is far from clear whether Spain is chasing the right target or even whether it can recover within EMU. Deflation has pushed the numbers out of work to 26.2%, with 55.9% youth unemployment.

“This has come at a massive cost. If you put a whole generation out of work, you damage your trend growth rate for a long time,” said Marchel Alexandrovich from Jefferies Fixed Income.

emphasis added

       The cost of bailing out the Spanish banks has been to throw people out of work wholesale, put an entire generation permanently behind economically, and generally make a bad situation worse.

    Which is why it is a particularly bad time for this story to break about Rajoy and the other leaders of the Popular Party.

Spanish Prime Minister Mariano Rajoy has strongly denied media claims that he and other members of the governing Popular Party received secret payments.

"I have never received nor distributed undeclared money," he said, stressing that he would not resign.

El Pais newspaper published photographs of ledgers showing payments to Popular Party figures on Thursday.

It said Mr Rajoy had collected 25,200 euros (£22,000; $34,000) a year between 1997 and 2008.

Mr Rajoy and his party were elected by a landslide in November 2011 on a promise to reduce the high public deficit.

But wait, there's more.
El Pais said the photographs it had published were of ledgers kept by former [Popular Party] treasurers Luis Barcenas and Alvaro Lapuerta between 1990 and 2009.

Money was allegedly paid by firms via Mr Barcenas, who stepped down in 2009 and is currently under investigation for money-laundering.

Investigators recently revealed that Mr Barcenas held a Swiss bank account which at one point held as much as 22m (£19m; $30m) euros.

Until 2007, Spanish political parties were allowed to receive anonymous donations.

      The sad thing about this is, from a U.S. perspective, we're talking about chump change comparatively (by just one example). Meanwhile, millions of Spaniards are suffering to atone for the sins of the bankers and the politicians.

       And the deficit hawks in the United States think that's just what we need here.

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