It was planned to be one of the final parliamentary appearances by José Luis Rodriguez Zapatero as Spanish prime minister, and we knew in advance that yesterday's session was likely to include some new economic measures. What we got was a mini bombshell. The decision, announced by Zapatero, to change the Spanish constitution to include a budget deficit cap was a well kept secret, or perhaps that should be well kept from the Spanish people. It's going to be an express change, pushed through parliament in a matter of days using the combined might of the PSOE and the Partido Popular.
Others were in on the secret in advance, we know that opposition leader Mariano Rajoy was told previously by Zapatero. The constitution cannot be changed by a simple parliamentary majority, which Zapatero doesn't possess anyway; the votes of the PP are essential to get the change through. So what was going on? The general consensus is that the measure forms part of a secret deal with Angela Merkel and Nicolas Sarkozy, in return for the European Central Bank intervening in the markets on behalf of Spain. We don't know whether this deal has been documented and nothing has been admitted by the government, but little else can be found to explain the apparent urgency of a measure which we are told won't even take effect before 2018.
This is no trivial measure, although it is in many ways a bizarre one. Enshrining deficit limits in the constitution is simply stupid, it's not the place for such a measure and almost more than anything else that has been done so far it represents beautifully the dogmatic, senseless policies that have already taken Europe back to the brink of another recession. The irony is that the lunatic policies of the Tea Party are having more success in Europe so far than they are in the USA. One country after another is being pushed into depression all so that a bought out political class can forget all the promises they made 3 or 4 years ago not to let it happen again. I used to wonder a bit how Europe stumbled into depression and war in the 1930's, the mystery has now been solved for me.
Countries need deficits, not all the time but they need them. The idea that a budget deficit should be legally banned is the dogma of idiot ideologues unable to learn anything from history. Unable to learn from failure either, as things get worse the only solution they offer is more of the same. The medicine isn't working, it must be because we haven't cut the other leg off. Pushing secret deals through parliament without any proper explanation and with half the country on holiday typifies the distance between the political class and the people they occasionally still claim to represent. A movement has already started to demand a referendum on the change, a logical and perfectly practical step with elections coming in November. 10% of the parliamentary representatives can force this to happen, but that seems unlikely to happen in the world of closed lists where dissent can mean no future.
But let's leave that aside and examine how the measure might work. Taking into account the recent history of Spain's Tribunal Constitucional let's ask what happens if the constitution is changed and the country exceeds the budget cap? Unless they're going to change the procedure too the next step is that someone (the opposition?) has to present a case to the Tribunal. Based on past experience they then sit on this for a couple of years, perhaps with a bit of inter-party wrangling over court membership involved to pass the time, before issuing a decision. By this time the deficit may be smaller or bigger, so what effect does it all have? None. That's why it's a pointless, ideological trophy. Of course changing the constitution back to stop wasting the time of the judges becomes incredibly difficult without PSOE and PP agreement to do so. There are some perfectly sensible constitutional changes which have been gathering dust for years because the PP refused to touch a document that they originally opposed but now regard as sacred.
One success of the announcement has been that the constitution issue completely overshadows quite a dramatic reduction in the already precarious rights of young workers in Spain. Employers are now going to be allowed to indefinitely string together temporary job contracts. Meaning of course that the contract is not really temporary at all, except as far as the protection of the employee is concerned. At the same time a "training" contract previously designed for employees aged 21 or under is now extended to those aged 30. I'm waiting to hear the loud cries from those who constantly bemoan the two-tier labour market as this is a significant widening of the gap. I'll wait in vain, because we know what the solution proposed for that problem will be.
20 comments:
Great article, Graeme.
The sheer ineptitude and stupidity of politicians everywhere, normally something that merely makes me laugh, is deeply worrying. I wonder how we'll look back at this summer in five years time.
The sad possibility is that in 5 years time, when some of the wrecked economies have finally touched bottom, those responsible will attempt to use any feeble signs of recovery as vindication of the tough love that was needed. We already know they don't do history. The rest of us will probably be too busy trying to survive to look back.
There's a few things I can (and probably will) say about this, but first of all I'd like to observe that there's a category I call "people calling for things, in the name of businesslike efficiency, that businesses would never do", and this is the most spectacular example of this - among many such - that I've ever come across.
No successful business would ever contemplate having to operate on a fixed level of debt, let alone no debt at all. Obviously debts can and do get out of hand - as much of Spain's super-efficient business class can tell us, especially that section of it running football clubs - but they simply could not operate if they were subjected to such a thing.
Moreover the amount of debts businesses are prevented from taking on relate not to their income, but to their assets (simplifying a little, your debts shouldn't exceed your assets). And that's "not exceed", not "not exceed a percentage thereof, and a fairly low percentage at that". As for the idea of always balancing your budget - as I say, business couldn't operate under such a constraint, and nor for that matter could individuals, unless people insanely believe that houses, flats, cars and so on are always (or generally) bought out of money you have left over each month.
It's a nonsense: it only exists because of the equally nonsensical idea that the crisis drives from vast overspending by the Zapatero government and can be address by drastically cutting it, neither of which propositions are true. And even if they were, enshrining that in the Consitution is worse than stupid, it's an outrage.
Yet I reckon most people will probably go for it, because it's common sense to them. Truly, this is a stupid age we're living in.
Much of that seems to be predicated on the notion that people might practise what they preach. Deficit hawks tend to do the opposite - the worst deficits since Reagan's time in the US have been run up by Republicans who then use them to batter Democrat administrations too scared to reverse the tax cuts that caused part of the problem. Likewise, the PP in Spain calls for zero deficit at the same time as it runs some of the most debt-ridden administrations in the country. The cowardice of the left in standing up to them permits huge cuts in welfare services to be done in the name of financial control.
As I understand the proposal it is not simplistic and does not imply a fixed level of debt and will take account of the business cycle.
However taking ejh's analogy a step futher Spain Inc compares with General Motors, loss making with lots of unfunded future liabilites. A spell in Chapter 11 is called for.
Or like a football club it can await an egoistic saviour with deep pockets ...German taxpayere, the Chinese....
Andrew
Really Andrew, to talk about the "business cycle" as if this lurching from one avoidable financial crisis to another is somehow just one small step away from normality doesn't seem to fit the circumstances we find ourselves in. Nor does setting an arbitrary deficit target for the year 2020, when literally anything could happen in between. Nor does any of this amount to an explanation of why it should be in the constitution. If it's all so logical let's have it explained properly with time and put to a vote.
On the subject of stringing together temporary contracts, this change will be a huge positive. I know a hotel cleaner (actually a secretary, but you know how things are) who is forced to look for a new job every six months because the hotels don't want permanent employees. Can you think of a single person who is benefited by this system?
If it's so good let's put everyone on temporary contracts because of employer short-sightedness. The benefits for consumer spending and long-term planning ahead have to be extraordinary.
The temporary contract model was obviously broken... the only result was additional job insecurity from having to switch jobs all the time.
I don't think there's an obvious solution to this problem, short of getting rid of contracts entirely or making them cost exactly the same to a business in terms of social security, taxes, etc.
Of course, then more people would probably work for cash with even less protections, so the end result is always that the people who need the protections the most, don't have them.
For a broken model you have to say it's been pretty popular. What surprises me is how little interest those who talk constantly of "reforms" have in actually changing the employment culture in Spain away from short-term "you're a qualified secretary but you'll do as a cleaner" type of employment. I don't buy the tax burden on employers argument either, studies by Hacienda's inspectors have repeatedly shown that Spanish companies pay far less tax in tax than the nominal rates suggest. And I'm talking about the ones that pay tax at all.
There's a tax too many in the previous comment, more than can be said for the economy in general.
However taking ejh's analogy a step futher Spain Inc compares with General Motors, loss making with lots of unfunded future liabilites. A spell in Chapter 11 is called for
Somebody seems to have missed the point here, perhaps because they didn't want to see it. Perhaps the difference between "a spell" and "a permanent situation" is too difficult to see.
This is good, by the way, on the question of business, and economics. And this too should be looked at.
Meanwhile, my seconfd point on this is how stupid it is, fro mthe point of view of anybody who supports PSOE (or just doesn't want the PP to win the election). Because this seems to me to absolutely guarantee it. It's not often a good idea to adopt the other party's policies: it just runs the risk of making them seem right and your not only wrong, but weak.
This, it does. But worse than that, in the specific situation it deprives PSOE of their own chance, it seems to me, which is to offer a different economic policy to cuts and more cuts. This makes such a policy unthinkable. I don't know what Rubalcaba thinks about this, and if he told me I wouldn't believe him, but if I were him I'd be less than chuffed.
[Odd, by the way, that we say "PSOE" but "the PP". Or at least I do.]
Re the temp contracts: the lady in question is in her fifties and trying to support her husband who is in his eighties and their daughter who is a full time student. You seem to be implying that she would be better off in a system that has some work interspersed with periods of unemployment, but great theoretical protection than in one that offers longer term work with the risk of needing to move around every once in a while. Given the international economic emergency and that tourism is and always will be a cyclical and seasonal business, how do you propose that the hotels handle fluctuating demand? It's not like the public sector which can (temporarily) ignore consumer preferences.
I know that there are some kinds of work that are seasonal and that there will always need to be a type of contract that caters for this. The problem is one of generalising from a single case, there are millions of different situations and it's also true that chaining together temporary contracts can become yet another means for employers to disguise what are effectively permanent positions.
I absolutely agree, but I fail to see how that would be more of a problem than the current mess. It would be nice if we didn't have to start from here but...
Just when you think that there can't possibly be any more reasons for the Unions to protest ...
Fairly agree with everything said really.
Just would like to comment on the state of benefits in Spain. Unlike in the UK, some of our benefits are not very generous. Yes some pensions aare good, but there incapacity benefits that are not 100% are really not enough for people to live. Also state funding for medications for people under 65 is not as generous as in the UK. What i mean is that some countries can socially cope with this adjustments because the benefits their citizens have acquired are already extensive, but Spain is still expanding these benefits, so cutting them has a huge effect on population.
I would also like to say that Spain ( and this may be also teh situation in Greece, I am not sure) had a huge population of women over 50 who had never worked and went to live on a meagre widow pension when their husbands die. These women over 50 would look after the elderly and children in the family saving the state millions in health care and have never been recognized. Is people like them who will suffer...
I couldn't agree more. There are still some dogmatic folk who try to blame the crisis on supposedly over generous welfare provision in southern European countries but it's clear to anyone who bothers to make the comparison that Spain's welfare system is a significantly smaller percentage of its national product than in most other Western European countries.
Post a Comment