As Spain still waits for a formal declaration that the recession has finished, the Spanish government has been getting a lot of advice recently about what to do with the economy. On the international front the ratings agencies have been getting terribly worried about the debt of some countries. These are of course the very same ratings agencies that thought Bernie Madoff was marvellous, and which gave top ratings to some of the most worthless financial products which the world has ever known. Now they are busy telling "the markets" that the problem is one of the public debt which countries have. Could there possibly be any connection between this debt and the spending which has had to be done to bail out the financial system because those highly rated products turned out not to be quite as good as their ratings suggested? Don't go down that road, you might draw dangerous conclusions and we all know now that the crisis has been caused by simultaneously incompetent behaviour on the part of 150 different national governments. There is nothing else fundamentally wrong.
Meanwhile a loose tongued banker went very off message in Spain the other day and suggested that private debt could also be something of an issue as the construction sector owes a mere €325,000,000,000 to the banks and is not being very good when it comes to paying it back. Mortgage defaults are significantly lower than the defaults on the loans to the industry that built the homes. Better cut that public deficit now in case the bankers need more funds, at which point public spending suddenly becomes more respectable again. That's just what has been suggested by the governor of the Banco de España, who has temporarily abandoned his previous crusade to make sacking people easier.
There is no doubt that Spain's deficit has increased significantly as a result of the crisis, as has also happened in several other countries. Despite this, Spain's debt is not tremendously high by historical standards and even though it can be expected to rise further it's not a cause for hysteria. The main problem with the deficit is the over tight restrictions placed by the European Union on budget deficits, which were the product of another age when people thought that spending your way out of a crisis was just so 1930's. The EU's upper limit of 3% of Gross Domestic Product has been shattered in the recession, and given that several respected sources think that it's going to be necessary to carry on spending to avoid a relapse it seems crazy for people to be looking for massive spending cuts at this time.
Anyway, let's get back to sacking people. With some disastrous unemployment figures expected for January it's clear that unemployment is going to continue its rise in 2010 even if the economy stops shrinking. Bizarrely, it is still insisted by those who want to make sacking even easier (for which read cheaper) that this is the only solution to the unemployment problem! We still hear a lot about the two-tier labour market (a product of the last time it was reformed) where temporary workers get sacked and the rest don't. In reality, as the recession has advanced, this has become something of a legend and many workers with greater security have also been sacked. In fact, sacking people during the crisis has not been a problem at all for Spanish employers, they've done it very successfully. What they are now looking for is to come out of the crisis with even more advantage.
If it wasn't enough just to lose any job security at all, we have the head of the Spanish employers federation - the now thoroughly discredited Gerardo Diaz Ferran - telling us that everyone should work until they are 70. Coming from an employer who doesn't pay his employees or their social security contributions you might be tempted to ask what Gerardo thinks people will live on? Silly to ask. Pension reform is on the agenda and does need to be dealt with because of demographics. That, however, is no reason for us to be bombarded with suggestions on how long we can work from people who have almost certainly arranged very generous retirement pensions for themselves.
Then there is the question of the salaries. One of Gerardo's colleagues the other day suggested that the fundamental problem was the high salaries paid in Spain, and I have reason to believe that he wasn't talking about Gerardo or himself. On this issue we also have the IMF back to its old game with the mantra of making salaries more "flexible" (i.e. lower). Somebody slap me in the face, I think I must be dreaming! I was completely unaware until now that Spain had a problem of high salaries. Never mind the mileurista, if these people get their way we should prepare now for the bright future of the 75 year old ochocientoseurista - doesn't roll off the tongue as easily.
The government may lack ideas for the future of the Spanish economy, but at least they can claim something that their critics cannot; they have given consideration to options which don't just consist of greater insecurity, lower wages and a longer working life. Where the government most definitely went wrong is in their tax increases to try and rein in the deficit. Despite playing footsie for weeks with the idea of making those who can best afford it pay their contribution to dealing with the crisis, they opted in the end for a mostly regressive solution by putting the bulk of the tax increase on VAT. No extra increase at all for the barely taxed SICAV funds used by the super rich, and Cristiano Ronaldo continues to pay income tax at the same rate as those on the lower end of the earnings scale. I read a book about the crisis last year which I strongly recommend (The Gods That Failed by Larry Elliot and Dan Atkinson). It's hardly a radical manifesto but amongst many other things it does ask the question of just how unreasonable is it to ask that the very wealthy pay tax at the same rate as those who clean their houses?