By Borja Bergareche
MADRID—Antonio de la Calle, a 46-year-old priest who runs the church of the Patrocinio del Señor in the Vallecas neighborhood, has been playing God to avoid his neighbors’ descent into hell. In this working-class neighborhood of more than 300,000 people, the most extreme consequences of the economic crisis roiling Spain are transforming day-to-day life. The door of the church is never locked.
Last Easter, a man came in, heated and nervous. “Antonio, I can’t stand it any more. You have to help me. For two months I have heard my kid complaining that he is hungry. I’ve been unemployed for a year and a half. I’m no longer entitled to unemployment payments and my wife isn’t eligible for the emergency subsidy. Either you help me or I will start selling drugs at the corner. I cannot take it any longer.”
For weeks, Father Antonio used his own cash to keep this father of a hungry child away from crime. A few months ago, the man found a temporary job.
“It’s been a tough winter,” the priest explains. “People can’t get enough to eat. The worst is seeing kids evicted because their parents can no longer pay their rent.”
In Spain, 4.69 million people—20.3 percent of the workforce—were unemployed in 2010, according to figures published by the National Statistics Institute. The December 2010 average for the European Union was 9.6 percent, just above the 9.4 percent posted in the United States. Spain, with a population of 46 million, has lost more than 2 million jobs in the last two years— 623,000 in 2008, 1.21 million in 2009, and 238,000 in 2010, according to government statistics. Most of these losses occurred in the Spanish construction sector, which was largely responsible for the country’s financial and labor boom—and the subsequent bust.
“For historic reasons, the consensus among Spanish business owners is that economic adjustment must happen through layoffs and productivity gains,” says Fernando González Urbaneja, a well respected economist and president of the Press Association of Madrid. “It happened in the 1970s, when Spain ceased being an archaic economy with 20 percent rural employment and a million migrants abroad. And again in 1992 to 1994, after the Seville Universal Exhibition was over, when a million jobs were destroyed very quickly. But today the euro prevents us from devaluing our currency, so unemployment and lower salaries are the only options left.”
Of course, Spain is hardly the only European country struggling through a profound economic crisis. Greece and Ireland both experienced spectacular economic failures requiring bailouts that threatened the very foundations of the Eurozone. Portugal may be on the brink of a similar scenario. (Both Iberian nations are said to be the next targets of bond vigilantes who prey on weakness, real or imagined.)
But Spain’s influence and impact on Europe’s economic health is far more consequential than those countries’.
Its economy is the fifth-largest in Europe, more than four times the size of Greece’s and more than six times the size of Ireland’s. Its industries, agriculture, financial sector, and consumer markets are integral to the overall European economy—prompting fears that the effect of a Spanish collapse would be less like a ripple and more like a tsunami.
Just as troubling is the sense that Spain’s problems might stem from deeply rooted flaws in contemporary Spanish society, and could prove harder to address than the problems that have bankrupted other European nations. It’s a fear fed by anxiety over the current employment crisis. To get a sense of just how grim Spain’s employment picture has become, consider four figures.
First, in 2010 in Spain, there were 1.3 million families—comprising roughly 8 percent of the population—in which every working-age family member was unemployed. Second, 45 percent of jobless people are long-term unemployed, meaning they have been looking for a job for more than a year. Third, Spain has Europe’s highest youth unemployment. Some 42 percent of those between 16 and 24 are out of work, more than double the 17 percent unemployed in 2006. Finally, nearly a quarter of those who consider themselves employed only have temporary employment.
Stark as they are, these statistics are merely a pale reflection of a reality that is all too palpable in Father Antonio’s community. One of his parishioners is Petra, an 88-year-old widow who lives in a home she owns in Puente de Vallecas. She receives a pension of €800 a month—enough to sustain her under normal circumstances. But in the last two years, 12 of her relatives have moved into her house. Three jobless generations—her sons and daughters, in-laws and grandchildren—live under the same roof. The cooking is done on the cheap to feed everyone, while shopping often involves trips to a host of public and Catholic institutions providing aid, money, and basic necessities. Every now and then, someone finds a petty job and earns some cash. One of her grandsons just found a job cleaning dishes in a restaurant for €500 a month. He recently accompanied Petra on one of her regular visits to Father Antonio. “You and your girlfriend should stay at your grandma’s and help her out with your salary,” recommended the priest.
Families like Petra’s are still the exception. But for others, the duration of their unemployment is creating a similar sense of desperation. By the end of 2010, 2.2 million people had been looking for a job for more than a year.
Half of those have been jobless for more than two years. The crisis is corroding the very character of the nation.
“It is a huge pocket of disconnected people. We are destroying the most valuable human capital, we are losing the experience all these people enshrined,” says Florentino Felgueroso, a leading economist at fedea, a non-profit economic research center in Madrid.
Within Father Antonio’s parish, the archetypal hard-luck story goes like this: a couple owned a small local business, but sales dried up, suppliers stopped paying, and government agencies delayed payments for 12 or even 18 months.
One day, the van broke down and there was no money to repair it. The business was shut down. More and more bills went unpaid, until the rent became too much of a burden and a court official came with an eviction order.
Some are lucky enough to move in with their parents or grandparents. Many end up broke, following a pattern familiar to Antonio and other priests and social workers on the frontlines of unemployment and poverty. “He’s depressed, she’s depressed; he’s drinking, she’s drinking,” laments Father Antonio. “And the rest roam the streets for a year, two years or more, especially if you are a woman—seeking work, any work for pay.”
Felgueroso believes Spain is not only struggling through a crisis, but also missing an opportunity. “If we were using this moment to recycle the active population and redirect skills to innovating sectors, it would be positive in the long term for the economy,” he says. “But we’re not doing that. Active employment policies are not targeted towards the most needy population. It is much harder for an aged, non-qualified worker to receive training than for a recent graduate.”
Before the crisis, Spain was the world’s ninth-largest economy and was hoping for permanent seats on the G-8 and G-20. The former prime minister, the conservative José María Aznar, dreamed of transforming Spain into a globalized brand and leading the country away from its “consignment to a corner of history.” When he left office after eight years in 2004, it seemed like a potentially attainable goal. Indeed, his successor, the current Socialist prime minister, José Luis Rodríguez Zapatero, bragged in 2007 that Spain had reached the “Champions League of world economies.”
But that dream became a nightmare when Zapatero slept through the early warnings of the current global financial crisis. In July 2007, the usually cautious Zapatero promised that in his next term, “we will reach full employment.” Barely two months later, his finance minister, the widely respected former European Commissioner for Economic and Monetary Affairs, Pedro Solbes, observed, “I do not see the construction sector affected in a specific way. It is business as usual, with a slight downshift that allows the sector to adjust to reality.”
THE LOST GENERATION
But the crisis and the government’s denial turned that “slight downshift” into a free-fall—one that has been particularly devastating for Spain’s youth. In Spain, 42.8 percent of those under 25 are unemployed. Youth unemployment is 8.2 percent in the Netherlands, 8.6 percent in Germany and 10.5 percent in Britain.
Felgueroso notes that a “last in, first out” mentality is penalizing Spain’s young people. “It is the last ones arriving in the job market who are the first ones to be kicked out,” he says. “Unemployment becomes a targeted phenomenon that hits specific groups, young people being one of them.”
This potentially lost generation has been labeled the “ni-ni generation,” short for ni estudian, ni trabajan—“they don’t study, they don’t work.” Fifteen percent of those between 16 and 24 neither work nor study, according to statistics from the Organisation for Economic Co-operation and Development (OECD). The EU average is 9.9 percent, and Italy is the only EU member state with a slightly higher rate of ni-nis than Spain. According to the latest Active Population Poll, 562,000 people aged 20-29 are “inactive:” they do not study, nor work, nor actively look for a job. (Since that figure includes many people fulfilling domestic tasks or social work, or people with disabilities, some experts put the number of ni-nis at a much lower level.) And the ni-ni lifestyle is only available to those whose parents are willing and able to foot the bill, so it’s not likely that the phenomenon extends into every social class.
But whatever their true number, and however widespread the phenomenon, there is no question that the emergence of the ni-nis is a defining feature of Spain’s economic and social crisis. It has transformed the problem of unemployment into a tear in the moral fabric of the country—one that is eroding the nation’s ability to face the future.
Ni-nis were the first generation of latchkey children. With both parents working, many were raised by their grandparents. But instead of experiencing this as a form of neglect, or feeling compelled to grow up more quickly, the stereotypical Spanish ni-ni became accustomed to having his every material desire fulfilled. Many of them have never worked a day in their lives—literally. “They lack any idea of a future, and spend the day in slippers,” says Paulino Castells, a psychiatrist and professor at the Universitat Abat Oliba.
According to recent studies, more than half of all Spanish youngsters claim not to be involved in any engaging future project. Among those age 14 to 25, 40 percent do not read books because they “don’t like them” or “are not interested,” according to one national survey last year.
One of these is Alejandro Lucas, 21, who does nothing. He quit studying four years ago and shows some remorse, realizing he now could be finishing up a college degree. “But it doesn’t bother me,” he says. “I’d still be unemployed even with a degree.” Lucas attended a good school in Madrid and was raised in a happy family. There was nothing “wrong” with him, except that he often cut class. “I have a record in school suspensions, yes,” he admits with no sign of guilt. These days, Lucas spends a lot of time online. “I could not live without the Internet,” he says. And that’s as far as it goes for passion and commitment.
“For two decades, a permissive education has created very vulnerable and confused youth who have lived comfortably with the help of their families, delaying the moment of self-responsibility,” explains José Antonio Marina, a respected philosopher and educator who in the past two years has explored Spain’s unmotivated youth in such books as The Education of Talent, Failed Cultures, and Getting Back Authority. “We have a university population that only seeks social advancement, not training or excellence, and we live in a culture that fosters mediocrity, passivity and a certain ill will against merit,” Marina argues.
This is a subjective argument, of course, and plenty of high-acheiving young Spaniards would dispute it. But Marina’s ideas are supported by some data. Among Spanish college degree holders between 25 and 29, 44 percent have jobs requiring a lower qualification than the one they hold. (The OECD average is 23 percent.) In 2008, only 38 percent of 17 and 18-year-olds graduated from a professional or practical school, compared to an EU average of 52 percent and an OECD average of 44 percent.
The reality is that Spain is turning out too many university students for too few jobs. It’s a situation that, in some respects, harkens back to an earlier era in Spanish history, when the country was a net exporter of labor. The specter of a return to those days was raised by a recent German initiative that shook classrooms and unemployment bureaus across the country. Even the ni-nis paid attention when, at the end of January, the German weekly Der Spiegel reported a proposal from German Chancellor Angela Merkel to create a program to invite qualified young Spaniards to work in Germany, specifically in health care, engineering, teaching, restaurants and tourism. The idea reminded many of the 1970s, when Spain sent more than a million blue-collar migrants to Germany, Switzerland and Belgium. (Gastarbeiter, guest workers, the Germans called them.) The phenomenon was the subject of a popular 1971 Spanish film, Come to Germany, Pepe.
The program makes perfect sense from a German point of view. Berlin claims its economy needs 800,000 more qualified workers than its population can provide, and, as a member of the German parliament put it, “in Southern and Eastern Europe there are many unemployed young people looking for a job.” In the 10 days after Merkel’s proposal was announced, the German embassy in Madrid received 1,000 calls from young people asking for information.
PRESSURE FROM ABROAD
Throughout 2010, foreign governments and international financial institutions kept a watchful eye on Spain, and eventually began to pressure Prime Minister Zapatero to enact major reforms and prevent a total economic collapse. In May 2010, Barack Obama called Zapatero to insist on the need for reforms. Two months later, the American president called him again to ask for “resolute action.” Ultimately, Zapatero—considered an ideologically pure social democrat—was forced to accept that the system was failing and needed shock therapy.
Obama had specifically expressed support for a freeze on pensions and a salary cut for civil servants—the first in Spanish history. Zapatero announced both “painful” measures the very next day, under added pressure from the EU and International Monetary Fund.
The G-20 summit in Canada was just a few weeks off, and the anti-deficit focus of the German-led European “exit strategy” forced Zapatero to shed many of his progressive policies, such as the €2,500 cheque bebé (a reward for producing a child before December 31) and a planned €426 additional subsidy for the unemployed.
Zapatero’s second front was labor reform. In June 2010, the government proposed a reform of labor legislation that would make layoffs easier to carry out. Congress approved the law in early September, leading to the first general strike of the Zapatero era on September 28. Pension reform, the prime minister’s third endeavor, turned out to be an even tougher target. Merely touching retirement benefits has been a political taboo for years.
The “right to pension” is a cherished benefit in Spain, and the government’s retirement fund has generally been well-managed. But given Spain’s aging population and massive youth unemployment, EU demographic analyses suggest the system might collapse by 2030.
International pressure closed the circle. In early February, the government, trade unions, and representatives of the business community agreed to yet another historic reform—postponing the retirement age from 65 to 67 for most Spanish workers. (This still leaves Spain’s retirement age at five years later than France’s, which was recently raised to 62 from 60 in the face of tens of thousands of workers protesting in the streets of Paris.)
Many experts question whether this reformist wave will be enough. “Active employment policies are crucial, but the Government has remained unclear in this matter,” says Felgueroso, the analyst at fedea, which two years ago published an influential report on labor reforms, calling for a unified single model for labor contracts and the prioritization of company-level agreements over general industry contracts. “We do not know when the economic engines will run again, but it is very important that we tie ni-nis and the unemployed to the job market until recovery comes,” Felgueroso continues. “The problem is we do not know how activist policies work because we have never properly deployed them, nor have we evaluated them consistently. We know passive policies and subsidies do not work, but we don’t know how to tailor our training programs, our labor tutoring system, which is much weaker than in Northern Europe.”
The critical front, however, is financial reform. Spain’s banking system is among the healthiest in the world, and Spain’s debt-to-GDP ratio is far lower than in Greece or Ireland. But two weak points still shed serious doubts on the long-term viability of the banking system. Unsold and devalued real estate weighs heavily on the books of most financial institutions. And the balance sheets of saving banks, known as cajas, are much more problematic. Cajas have a dual function, serving as credit institutions that offer lower borrowing rates than conventional banks, and also acting as providers of social services. The government already forced mergers in the sector last year, slashing the number of cajas from 45 to 17. Fearing that was not enough, the government recently adopted legislation establishing higher reserve ratios and forcing the cajas to split their social operations from their financial functions, moving them toward a structure comparable to conventional banks by September 2011. Many investors remain skeptical despite the reform effort, fearing that the problems of the cajas may be deeper than has been disclosed, possibly leaving the government with another big bill in the future.
BLOOD, SWEAT AND TEARS
Spain’s political traditions and economic structures were never terribly liberal. Francophile and Anglophile urban liberals always remained a minority compared with Catholic-oriented conservatives and worker-affiliated socialist parties. Only in the past 20 years has EU legislation pushed the liberalization of Spain’s economy, following 40 years of a heavily state-dependent production system under the authoritarian rule of Francisco Franco. Reforms in the 1990s opened the country’s economy and forged the emergence of prosperous and dynamic multinational corporations such as Telefónica, Repsol and Acciona.
In the context of this process, Zapatero’s sudden conversion to economic reform was breathtaking, and polls suggest he will be punished for it in the 2012 presidential elections. But despite the blood, sweat and tears, fundamental aspects of the treatment are not yet in place.
“This reform process will leave us with a different landscape, there is no doubt about it,” says Urbaneja, the economist. “Such a gigantic transformation frees so much energy that it will probably boost the country’s GDP by 1.5 points.” But like many others, Urbaneja thinks it will not be enough. “We still have a messy network of collective labor agreements and collective bargaining that needs to be dismantled; we still regulate labor conditions under an almost socialist model.”
A solution was, once again, suggested by Angela Merkel. During a press conference with Zapatero in Madrid on February 3, she pointed to the challenge of competitiveness and specifically mentioned another taboo topic in Spain—the end of pegging salaries to inflation. Germany has already accepted the need for a wave of reforms addressing Europe’s lack of competitiveness on a global scale. But Spain’s trade unions, still shocked by concessions made in the first wave, are shivering. The next day, Expansión, the leading Spanish economic newspaper, analyzed Spain’s position in an editorial. “Solving…competitiveness is Zapatero’s new homework until his exam during the next EU summit in March. And it does not look like he accepted it enthusiastically. On the contrary, he seemed very reluctant, in particular regarding collective bargaining.”
But even if Spain finds a way to navigate through its difficult labor politics, will it be able to compete? What would be the engines of a truly competitive Spanish economy? “The engines are in expectations,” suggests Urbaneja. “If innovators lose their fear, then entrepreneurs will invest and imagine.” And a genuine light at the end of the tunnel might start shining for the unemployed. There is a lot of talk of innovation and a new economy today in Spain and across Europe. Improved infrastructure and renewable energy are praised by politicians and pundits.
But politicians seem more focused on electoral calculations and addressing the short-term requirements of their local constituencies.
Meanwhile, a corroding nation is not likely to be capable of assembling a bipartisan national consensus on reforms, so the political toll is likely to be quite heavy. Already, it seems at least one original sin will not be forgiven—Zapatero’s inability to confess and tell his citizens, back in 2007, that the crisis was already upon them. National elections will be held in the spring of 2012, and polls show Zapatero’s conservative opponents, the Partido Popular, are currently ahead by 10 to 15 points.
Outright unrest seems unlikely, even if conditions don’t improve much, thanks in part to two of Spain’s bedrock strengths—faith and family. “As long as churches and grandparents look after the weaker ones, there will not be a social explosion,” assures Father Antonio.
Still, for a real path to prosperity and jobs for the growing numbers of unemployed youth, a more profound social mobilization will be essential. “The lack of initiative or excellence, the social prestige of mediocrity, the success of speculators, the tolerance of corruption and a generalized pessimism will lead to Spain recovering later and shallower than other European countries,” says Marina, the education expert. “The only solution is a cultural transformation, from a culture of comfortable helplessness to a culture of innovation and effort.”
Zapatero will be buried beneath the reforms he was forced to spearhead against his deepest instincts. But the true Spanish drama is that, right or left, no party or current or emerging leader has proven to have the moral nerve the situation requires. Many are hopeful that, despite social, regional and political differences, Spain’s collective virtues will prevail. On that thin reed may rest the future of Europe itself.
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Borja Bergareche is the digital editor of ABC, one of Spain’s three main national newspapers.
[Illustration by Kap]