By Vincente Navarro*
One of the causes of the current crisis in Spain is the bursting of the housing bubble. The marriage of financial capital (banks, savings banks, insurance companies and other financial institutions) and real estate created this bubble. In the last ten years more houses were built in our country than the whole of France, Britain and Germany. And despite this huge building boom, which represented around 9% of Spanish GDP, prices soared 150%, rising much faster than wages. This was a result of speculation. There is no doubt that banks, savings banks ( cajas), the Bank of Spain and the public authorities, both Spanish, and European, were aware of it. A glance at a chart comparing the evolution of housing prices and wages (the vast majority of homebuyers derive their income from work) will show how the former grew much faster than the latter. The gap between the two prices was closed with credit. Hence the huge household debt.
All this was predictable. And it could have been avoided. But neither the Bank of Spain (despite the warning of the technicians in the institution) nor the Spanish government took any action. German Chancellor Angela Merkel was right when she recently indicated that the Spanish authorities had acted in an irresponsible way in the last ten years for not having prevented the speculation-driven housing bubble and its subsequent bursting.
But Merkel forgot one key detail, which enabled her to forget to include the German government and German banks in this critique of what happened in Spain. And what was forgotten was that German banks played a role in this real estate boom. Much of the money that fuelled it came from the German banks. And, that the real estate bubble burst when the German banks stopped lending to the Spanish banks, including the savings banks (cajas). German banks’ fear that they would be contaminated with toxic financial products from the US banks led them to stop the flow of all credit. And that’s when the Spanish housing bubble burst, creating the huge slowdown in economic activity and the precipitous drop in public revenues (both central and regional) that created the government deficit. This deficit was not created by the growth in public spending, but by the decline in revenues to the state. In fact, when the crisis began, in 2007, the Spanish state had a surplus. The government deficit in Spain is not the cause of the crisis, as Rajoy is saying, it is the reverse. The government deficit is the result of low economic growth and low state revenues.
All austerity measures, including cuts (representing a frontal attack against the poorly funded welfare state in Spain), are designed to pay debt to banks in Germany and other countries (France, Britain and Belgium), which made huge profits during the housing bubble, huge profits that continue. In fact, the banking crisis in the peripheral countries (Spain, Greece, Portugal and Ireland) is very good news for German banks, as there is an outflow of capital (ie money) from these countries, fleeing the crisis, towards the centre, and most notably, Germany. The figures speak for themselves. According to Josef Ackermann, chairman of Deutsche Bank, the profits of his bank reached a staggering 8 billion euros in 2011 (with 8 million in bonuses to certain Mr A.). In fact, while the unemployment figures were more than alarming in Spain (and other peripheral countries), with 50% of the youth jobless, and health and education suffering brutal cuts (there’s no other way to say it), the profits of Deutsche Bank rose 67% in three years (2009-2011), as noted by Conn Hallinan in Counterpunch (6/15/12) (“Greed and the Pain in Spain”).
All the data clearly shows that German banks benefited greatly from the Spanish (and Irish) housing bubble, as well as the financial crisis of the peripheral countries. Enormous sacrifices were imposed on the masses in Spain and other peripheral countries so that the German (among other country’s) banks could be paid. And the famous 100,000 million euros bailout to save Spanish banks is not to guarantee credit [to businesses and families] – that wasn’t even considered – but so that the Spanish banks can pay their debts, to German, among other banks.
And the instrument the German banks use to impose their policies is the European Central Bank, which, as I have indicated on several occasions (see my Economic Policy blog www.vnavarro.org) is not a central bank, but a lobby for German banks and the German central bank, the Bundesbank.
The bailout is the latest of many other interventions that the economists of the European Commission, at the service of the European financial system, led by German banks, are imposing on Spain. As German Finance Minister Wolfgang Schaube (contradicting Rajoy) said, the bailout will involve direct supervision by the European Central Bank, the European Commission and the International Monetary Fund, financial reforms, as well as reforms to Spanish macroeconomic and fiscal policies, thus turning Spain into a German colony. And all this with the help of Spain’s ‘patriotic’ conservative government.
But why does the government collaborate with policies that pose such a clear loss of sovereignty? The answer is clear. Because it is using this external mandate (arguing that there are no alternatives) to get what the Right has always wanted in Spain, that is, weaken workers and privatize the welfare state. This government agrees with the aim of the rescue which has been clearly expressed by the German Central Bank President, Jens Weidmann, who in statements to El Pais could not have been more clear: the reforms should deepen labour reforms (which means lower wages) and the privatization of services (which means the dismantling of the welfare state).
June 20, 2012
*Professor of Political and Social Science, Pompeu Fabra University, Barcelona, and Professor of Public Policy, Johns Hopkins University, Baltimore
Translation by Revolting Europe