The Great Depression: Spain in 2013

New year celebrations promise renewal, optimism, better fortune. We wish each other a prosperous new year and at midnight on New Year's Eve, we will do so between munching on twelve grapes and engaging in the national pastime of the party.

The grapes are going to taste sour this time. The endless party in fact came to an end a few years ago. Not that everyone has wanted to admit this. While there's a fiesta, there's always hope. Or more accurately, an avoidance of reality. I don't much like having to appear to be a party-pooper but I am dreading 2013.

I have re-watched "The Great Spanish Crash" and this time I watched it with a growing sense of anger. Nothing that Paul Mason revealed was new. Most of it I have spoken about in the past. But when pictures are put to words, the story becomes more powerful. The pictures might be carefully chosen but they do not lie.

It is uncomfortable for a nation to be exposed by a foreigner, but if it is exposure which helps to shake off denial, then so be it. The chances are that it won't, because the defence is one of the reporter deflecting attention from problems in his own backyard or of affecting a superiority. And so the denial continues, except among those who understand the realities of where Spain is at the end of 2012: on life support with little sign of recovery. And this metaphor only deals with the economy. There is far more.

The UK Centre for Economic and Business Research has released its latest world economic league table, one which ranks countries by GDP. It is not terribly encouraging. Spain is set to slide by four places to seventeenth by 2022, which may not sound that bad when compared with other European countries but is when you consider that the country's GDP growth is set to be negligible over the next ten years; by far the lowest of any country currently in the top fifteen.

This very low growth would be far worse were the worst case to occur; the scenario in which Catalonia secedes and is then followed by the Basques. Spain would be plunged into a wholly different economic crisis; the country simply cannot afford to lose either or both of Catalonia and the Basque Country.

The economics are one matter, the politics a very different one. The nuclear option for Spain would be one which requires Spain to leave the Euro. Conceivably, this might bring advantages; it would certainly permit a badly needed devaluation rather than the current internal devaluation through looking to lower labour costs. But the consequences could be extreme. Spain exits, the Euro collapses along if not completely with the political momentum and will behind the European Union. The nuclear option would then turn to nuclear winter were Catalonia and then the Basques to press ahead. Just consider this, as an example. Through which two regions of Spain do the main transport networks to France and therefore the rest of Europe pass?

It is an imperative, as much as any negotiation regarding a bailout, that the Spanish Government finds a rapprochement with Artur Mas and Catalonia. It may be too late, especially now that Mas has got into bed with the altogether more independence-fanatic ERC, but it has to be found. Rather than playing hardball with Catalonia, Rajoy might have been wiser seeking to form some type of government of national unity which embraced Catalonia (and the Basques). Instead, the end game, one in which the European Union may have become marginalised, could be truly disastrous.

But even were this worst case to be avoided, what real hope does Spain have for a genuine recovery? Zapatero attempted to build Spain out of trouble with the so-called Plan E but succeeded only in creating debt. Construction achieves only so much, and as we now know can also bring a country to its knees. And it doesn't address a fundamental lack of competitiveness. Lower labour costs might be helping exports (and they have risen), but Spain, for the size of its economy, has relatively low levels of exports in any case. It also has an underperforming educational system, to which the government's reaction is diversionary - the language issue - or simply wrong; increasing school hours and class sizes will solve nothing. And after school, it has employment that owes more to favouritism rather than merit.

The boom years showed how well Spain can do, but the boom was ultimately built on sand. Literally built. Spain's on life support with potential multiple-organ failure. No amount of partying can disguise the fact. Happy new year.


Any comments to andrew@thealcudiaguide.com please.