Tag Archives: Spain

Europe’s internal adjustment

14 Feb

With all the talk of competitive currency devaluations and international currency wars, less attention is being paid on the arresting fact that some countries within the Eurozone are achieving what many thought they could not: an internal devaluation via wages and other production costs.

A consequence of this is that some Southern European economies are regaining shares in export markets, their products cheapened by a mixture of labour market reforms and downwards pressure on wages. The FT recently reported that in Portugal exports in 2012 rose by 5.8%, with exports to outside the EU rising 20% in this period. This was Portugal’s third consecutive year of plus 5% export growth. Writing about Spain, Tony Barber suggested that a similar phenomenon was occurring in the Spanish manufacturing sector. Car companies planning to reduce production in France and Belgium are boosting output in Spain. Nissan has committed 130 million Euros of extra investment into its Barcelona plant in order to raise annual production to 80,000 units. Ford, Renault and Volkswagen have all followed suit with their own investments. Barber explains that lying behind such decisions are changes in Spanish labour laws. A reform package last year introduced by the government has loosened up collective bargaining practices, making it easier for firms to negotiate favourable terms with workers.

The ability to boost export competitiveness by internally devaluing is not uniform across the Eurozone. France has enacted its own labour market reforms but labour costs remain significantly higher there than in Spain or Portugal. Monti in Italy has been less successful in pushing through labour market reforms. This unevenness has had the effect of exaggerating the competition between countries within the Eurozone. Unable to compete with one another via national currency manipulations, competition is realized via changes in the labour market. Accepting lower wages has become a matter of national duty in today’s Eurozone.

This development has various implications. The first is that it seems parts of the Eurozone are able to achieve what we thought was only possible in the olden days of the Gold Standard: internal adjustment where the burden falls upon societies, not currencies. This worked back then because there were far fewer public expectations about jobs and welfare to challenge the harsh assumptions of Gold Standard supporters. When such internal adjustment became intolerable, it collapsed. We might have expected something similar today. In fact, the quiescence of European labour has made internal adjustment possible. In some places, it has meant hollowing out national democracy in favour of more stable, technocratic alternatives, but the single currency remains. Differences between the constraints imposed by Eurozone membership and those of the Gold Standard help explain some of the stability of the former but not all. Much is also due to weak labour militancy.

Another implication dovetails with a previous post on falling productivity in the UK. In some Eurozone member states, productivity figures have improved. In Spain, productivity is has risen by 12% since mid-2008. However, such increases have not been achieved via any labour-saving investments. There have been no marked technological developments that explain rising productivity figures. Rather, gains have been made through labour itself. This tells us a great deal about European capitalism: it is far easier to claw back price competitiveness via assaults on labour than it is to boost productivity through capital investment in research, product development and technological improvement. Paradoxically, we can say that weak labour militancy results in low incentives for firms to channel capital into labour saving technology.

The kind of internal adjustment taking place within the Eurozone is thus hardly a victory for supporters of austerity. Competiveness is boosted in short-term ways, via downward pressure on wages. There is no longer term gain in productivity that might actually leave a socially useful legacy for societies as a whole. Recessions and social upheavals in the past had the same human cost in terms of wasted lives but they came with great labour-saving inventions and other gains. European leaders are so worried about currency wars precisely because Yen and Dollar devaluations threaten to wipe away the marginal gains in price competitiveness their businesses have made. And they know that were this to occur, there would be nothing much left. Only the waste.

The end of insolvency

10 Jan

An arresting fact published yesterday in the Financial Times: the lowest rates of insolvency in Europe in 2011 were in Greece, Spain and Italy, the countries that faced the brunt of the Eurozone economic crisis. The newspaper continues: fewer than 30 in every 10,000 companies fail in these three countries, at the same time as nearly one in three companies is loss-making. There couldn’t be a clearler proof of the fact that Schumpeterian creative destruction has taken leave of Europe.

There are various explanations for this. For instance, the low level of corporate insolvencies is partly a reflection of government action: companies that might otherwise have gone bust have been able to borrow from their governments at very low rates, making refinancing of existing loans possible. Fearful of the political fall-out from lots of businesses going bust, governments have kept them alive. The broader climate of cheap borrowing, made possible by central bank action, has also played its part.

According to the FT, however, action by public authorities is only partly to blame. The real culprit appears to be the banks. Faced with so much pressure on their balance sheets, and saddled with bad loans, banks have been very reluctant to force businesses into insolvency or restructuring procedures. Rather than take the hit, they have preferred to hang on, letting the bad loans sit on their balance sheets. This has been the case particularly in Spain, but also elsewhere across the continent. Here we obviously see the underlying causes of the crisis working their way back into its resolution. Central to the debt-financing that occurred prior to the crisis, it is the same debt that prevents a more decisive resolution of this crisis.

We should, of course, be wary of bullish talk about the constructive effects of insolvency. The FT quotes one company chairman who laments the fact that all the company’s revenues are being taken up by pension payments to retired employees. “We are unable to invest in new growth areas”, he complains, because of these pension obligations. One wonders what his solution would be: renegue on the payments and ask the pensioners to find alternative sources of income?

Clearly, the idea of creative destruction works less well in an age when corporations have welfare obligations. But is also rests upon an expectation that public authorities command enough authority to be able to weather restructuring storms. Evidently in Europe this is not the case. Alongside a fear of social unrest is also a fear and hostility towards change. In countries like Greece, Italy and Spain, and certainly in France, governments talk about supply side reform and a fundamental transformation of their economies but there is little idea of where they would like to go or of what they would like to do. This political impasse is matched at the corporate level. Creative destruction after all rests upon an optimistic attitude towards the future: something new can be built, new energies can be released if the old is torn down. Restructuring is often driven by hedge funds looking to buy up assets cheaply and sell them on for a profit. But in Europe’s current predicament, we also see hostility towards change present across the political and corporate elite. And the banks, supposedly the most gung-ho and reckless of the lot, are the most cautious of them all.

A note on the first round of the French elections

23 Apr

With one of The Current Moment editors based in Paris, it is difficult not to post on last night’s first round of the French presidential elections. And after the unedifying spectacle of different politicians talking over each other for hours on end on French TV, a few ordered thoughts will not go amiss.

François Hollande, the Socialist Party candidate, has come out on top, as most people expected. With 28.63% of the vote, he was a little ahead of Nicolas Sarkozy, the outgoing president, who secured 27.08% of the vote. What is surprising is how close these two scores were. There is some variation in the scores, depending on how you round them off, but there is little evidence of Hollande having pulled away dramatically from Sarkozy. Hollande’s victory in this round is far less decisive than Sarkozy’s was in 2007. Back then, Sarkozy won the first round with more than 31% of the vote, the socialist Ségolène Royal winning just under 26%. Watching the speeches each candidate gave after the announcement of the results, there was no obvious sense of victory either way. Sarkozy even appeared to upstage Hollande by challenging the socialist to three presidential debates over the next two weeks. A typically pugnacious gesture on Sarkozy’s part, Hollande seems to have refused which puts him in a defensive position vis-à-vis the ever combative Sarkozy.

At this stage, it is difficult to tell whether the anti-Sarkozy sentiment in France will be strong enough to sweep him out of power. The results suggest that contrary to many other elections that have taken place in Europe in the course of the crisis (e.g. here on the Spanish elections), the incumbent has managed to hold on to a good deal of support. Given the apparently ubiquitous dislike of Sarkozy, his score appears rather high. We are also seeing at this stage the limits of the Socialist strategy. Their slogan – Le Changement, C’est Maintenant (Change is Now) – highlights how much they have relied upon anti-Sarkozy feeling. Their claim to incarnate change is a weak one. Figures such as Laurent Fabius – a young prime minister under François Mitterand in the 1980s – hardly incarnate change. Rather, there is in the Socialist Party a sense that it is their turn to rule: out of power since the mid-1990s, their rightful place was usurped by a victorious Sarkozy in 2007. Now, their turn – long overdue – has come. It is this kind of sentiment – less evident in Hollande than it is in his entourage – that helps fuel support for the more marginal parties.

The first round result was noteworthy perhaps above all for the high scores of the far-right Front National and the left-of-the-left party, the Front de Gauche.  Much of the campaign had been taken up by this struggle between Marine le Pen and Jean-Luc Mélenchon, the populists of the right and of the left. Polls had credited the Front de Gauche with up to 15% of the vote but Mélenchon obtained on the night 11.13%. Marine le Pen, who had often been pushed back to fourth place in the polls, came a powerful third with 18.01%. It is difficult to assess what this means for the next round. Le Pen is expected not to give any clear sign that her supporters should vote for Sarkozy and many may not vote in the second round. Mélenchon called on his supporters to vote against Sarkozy, but held back on the night from openly calling on them to support Hollande – a tortuous position to hold if ever there was one. If we judge from the feeling that prevailed on the Sarkozyste right that “all is to play for”, there is no doubt some of that bullish sentiment comes from the hope that they can win over most of Le Pen’s supporters in the second round. Sarkozy’s speech last night – making much of patriotism, strong borders and economic protectionism – was an obvious pitch to Front National supporters. And the Socialists may find themselves in an uncomfortable position of trying to secure the votes of the virulently anti-FN Mélenchon supporters whilst at the same time sending conciliatory messages to the FN vote about understanding those who are suffering in the economic downturn. Here we see the problems of the Socialist Party: both a centrist and pragmatic (and largely middle class) electoral machine, and a party with a few remaining roots in the French working class.

It is unlikely that either Hollande or Sarkozy will upset the European crisis boat after one of them has been elected on May 6th. Hollande’s main policy on the Eurozone crisis is to reorient macro-economic governance in a pro-growth direction. This is a very general claim, easily satisfied by cosmetic measures such as affixing the term growth to new European agreements much as was done with the Stability and Growth Pact. It is unlikely that the Socialists would rock the Eurogroup boat by denouncing all existing measures and demanding a return to the drawing board. It is likely that the curious way in which Brussels-based policymaking is able to insulate itself from domestic political currents will continue. What will happen within France, however, is far from clear. The success of the FN might also spell the end of its marginal existence and its transformation into a more mainstream party. There is talk of changing the party’s name, for instance, part of a wider and longer-term exercise in rebranding. But for the moment, the focus will be on what will happen on May 6th.

Behind Europe’s employment figures

6 Jan

Recent unemployment figures released by the German and Spanish governments have bolstered the idea of a two-speed Europe. In Germany, unemployment has fallen to a 20 year low whereas in Spain it has risen relentlessly for the fifth month in a row. In Germany, there are 2.976 million people actively seeking work. In Spain, the number of jobseekers has risen to 4.42 million. Spain’s population, at 46 million, is only a little over half that of Germany’s 81 million. And yet there are almost twice as many unemployed in Spain. As a proportion of the population, German unemployment stands at 6.8% where as in Spain the rate is just below 23%.

As with the trade figures, where repeated deficits and surpluses consistently divided the Eurozone area, unemployment figures seem to tell a similar story. Those economies with the lowest levels are Germany, Austria, Luxembourg and the Netherlands. The so-called PIGS – Portugal, Ireland, Greece and Spain – have some of the highest unemployment rates.

These figures have bolstered those claiming that tough labour market reforms are the best route out of the Eurozone’s doldrums.This claim is misguided for two reasons.

The first is that the nature of the economic difficulties faced by the German and the Spanish economies are fundamentally different. They may share the same currency but they live in different worlds. For Germany, a more challenging export environment has pushed businesses to make savings in an attempt at managing the downturn. These incremendal responses are evident in the way some employers have exploited the flexible labour market, by making some workers temporarily part-time. In Spain, the experience has been one of a massive bubble followed by a crash. This has been most heavily felt in the construction industry, where a house-building boom has given way to empty, half-finished building projects. Much like in Ireland, there is no soft way out of such a crash. Without the demand for homes, construction workers are laid off. Spanish and German unemployment figures reflect not just different regulatory environments for labour but also fundamentally different national economies.

Secondly, it is far from clear, as already commented upon by The Current Moment, that Germany’s labour market reforms are the best way forward for Spain. Whilst unemployment may be low in these Northern European economies, this is because of much greater flexibility enjoyed by employers. Both Germany and the Netherlands have a very high proportion of contracted workers i.e. workers on fixed contracts that have to be renewed every 6 or 12 months. German businesses have also used various strategies – such as a reduction in working hours agreed upon by managers and workers, known as the Kurzarbeit scheme – aimed at maintaining employment levels whilst introducing savings on labour costs for businesses.

Rather than reinforcing stereotypes about successful Northern European economies and failed Southern Mediterranean economies, these figures should push to think about our goals are when we speak about employment. Is it better to maintain employment levels at all costs or should we also think about the quality of the job and the nature of the employment contract? To rely on contracted workers may provide employers with the flexility to cut working hours or shed labour when necessary and helps them escape costly social charges associated with granting indefinite contracts to workers. But if the value of work is to be judged by its connection to an idea of individual self-realisation, then the nature of the job matters enormously. The reliance on contracted labour reduces the incentive for the employer to invest in its staff. The subjective experience of overcoming difficulties, improving oneself and acquiring new skills – all of what produces the connection between work and an individual sense of freedom – is limited by more flexible kinds of working contract.

For employers, there is a downside to individuals realizing themselves through work. More confident and assertive workers are likely to be more militant and more likely to contest the authority of employers and seek better conditions and higher wages. As we have noted before, this fact help explains why jobs programmes as a way of boosting a recession-hit economy are not popular amongst many businesses and politicians. The nature of employment is therefore also a political matter, one that mediates the relationship between workers and business and that – over the medium to long term – goes a long way to shape the kind of society we live in. In the discussion about employment levels in Europe and beyond, what is important is not just jobs for all but also the kind of work that maintains a relationship between labour and freedom.

Specterless Europe: What is the problem to which Europe seeks a solution?

2 Dec

A crisis of confidence says ECB President Mario Draghi, and just about everyone else. Confidence is lacking in the ability of eurozone countries, especially in the south, to pay back their debts. According to Draghi, as quoted in the Financial Times, “the most important element to start restoring credibility” and confidence is…you guessed it, austerity. The outlines of the new “fiscal compact” includes, first and foremost, agreement on “strong rules on public finances,” and stronger European control and enforcement of national budgets. The nature of this enforcement, and the punishments it will entail, are still in formation. The differences between Merkel and Sarkozy over the amount of budgetary control to allow national governments are familiar, though increasingly appear as the narcissism of petty differences.

After all, the underlying agreement about how to ‘restore credibility’ is striking – more Europe, more technocratic control, more budgetary austerity. There is no serious threat of exit from any national leadership, no major political or social movement directly addressing itself to the constraints of the eurozone or the imposition of austerity. The Spanish indignados have faded, Greek protesters pushed aside, with both countries electing conservative or unity governments to push through cuts. The closest thing to a direct mass challenge has appeared outside the eurozone, in the form of the one-day national strike against pension reductions by public workers in the UK.

But in what way is greater technocratic enforcement, at the European level, of budgetary limits a means to ‘restoring credibility’? After all, balanced budgets here are not ways of increasing productivity and restoring growth. The underlying structural problems in the economy not only remain but will be made worse in the short run. The eurozone is already in zero growth. Greece, as it prepares another round of cuts, revised growth downwards. Italy was already running a balanced budget before the sovereign debt worries emerged. But given 5% real interest rates, it would now have to run a 5% budget surplus – a surplus increasingly difficult to maintain under contractionary fiscal policies. Contraction slows growth, creating new need for more cuts to please creditors. Overall, then, the two major obstacles to economic growth, and thus ability to repay debts, are being reinforced: the monetary union, and fiscal constraint. From whence comes the ‘restored credibility,’ the new confidence?

What we are seeing is not what one might call ‘economic’ confidence, based on restoring economic fundamentals, but ‘political’ confidence. Measures, implemented by ostensibly neutral technocrats, are aimed at creating a new supranational political technology of social control, wherein investors in debt are given greater confidence that their claims will be given priority in any struggle over the stagnant or shrinking pie. The flash in the pan, halcyon days of the bubble, when a rising tied lifted all boats are gone. This is a struggle over a stagnant surplus. The new confidence is in who will control political apparatuses, both at the state and European level, and creditors have clearly won this round. They have barely faced a challenge in spectreless Europe.

Spain: predictable results in uncertain times

21 Nov

The most remarkable thing about yesterday’s election results in Spain is how unremarkable and predictable they were. For weeks, the opinion polls had been predicting that the incumbent Socialist government would be trounced and it duly was. The opposition Partido Popular (PP), lead by a seasoned PP politician, Mariano Rajoy, won 186 seats in the 350 seat assembly. The Socialist Party, the PSOE, won 110 seats. In terms of percentage of the vote, the PP’s victory was all the more striking: 44.62% of the vote for the PP, 28.73% of the vote for the PSOE. The scale of the PP’s victory was no doubt a reflection of the widespread disaffection with the governing Socialists. But beyond that, there was little in the results that indicated the scale of the economic and social crisis the country is facing. No new political formations have been thrown up by the crisis. The United Left party (IU) won 11 seats and 6.2% of the vote – not an insignificant result. But generally the smattering of small parties that won altogether 54 seats were an ideological mixture: left, right, Catalan and Basque nationalist. The Indignados movement, fueled by a widespread disenchantment with the ruling political class, did not prompt any mass withdrawal from the electoral process. Their slogan – They Don’t Represent Us! – did not seem to have much impact. The abstention rate was 28.3%: higher than in the two previous elections (2008 and 2004) but lower than in 2000.

Though unemployment stands at above 20% and the country’s ability to auction its bonds on the international market is looking shakier by the day, the prevailing sentiment in the course of the campaign was that of resignation. Rajoy himself did not propose any new ideas on how to tackle the crisis. His cryptic slogan that promised to transform Spain into the “Germany of the South” could be interpreted in a multitude of ways. His promises of fiscal rectitude and public sector reform was – in the absence of specificities – no more than a vague nod in the direction of both the markets and the EU. That an election at such a crucial time should throw up so few surprises is perhaps a fair reflection of how people are responding to the crisis. But in the case of Spain, it is surprising. After all, when the global financial crisis hit in 2008 Spain was performing well. Its government did not – contrary to Greece – run up large debts in the good times. Public borrowing was low as tax receipts from high growth rates ballooned. In 2007, its debt ratio was only 36% of GDP and from 1999 through to 2008 Spain ran a balanced budget on average i.e. its borrowing was equal to zero.

Spain’s problems today are in part the result of an asset price bubble. Whilst the government did not run up debts during the boom years, private borrowing in Spain rose rapidly as individuals were able to access credit easily via national and international channels. When the downturn struck, individuals found themselves saddled with extensive debts. Regional Spanish banks have also been left with a large number of bad loans, made to finance real estate projects that will never see the light of day. Repayment of these debts has cast a long shadow over the Spanish economy as spending power is squeezed and as banks refrain from financing the private sector.

However, this does not explain why the Spanish government is today struggling to find buyers for its bonds. That is to do with the common currency union. In a downturn, governments usually run up debts in order to pay for increases in welfare payments: with +20% unemployment in Spain, those payments are large but given Spain’s position at the beginning of the crisis it should be able to weather the storm. However, because of the common currency union, the use of automatic stabilizers is limited: Spanish government borrowing is judged not on its own terms as much as in terms of the wider dynamics of the Eurozone. The fact that these automatic stabilizers would have an inflationary effect which would reduce the debt burden in the longer term is also ruled out by the currency union. The disciplinary effect of monetary union is thus not neutral but specifically kicks in to restrain some policies rather than others. As already argued on The Current Moment, the effect is to structurally lock countries into internal adaptations through domestic wages and prices instead of adapting through a mixture of internal and external measures.

A measure of success for today’s protest movements should surely be whether or not they are able to challenge ruling orthodoxies in ways that impact upon electoral outcomes. The evidence from Spain is that up until now, protests have had no such impact.

Lessons from the European protests

17 Oct

We’ve posted before on the Occupy Wall Street protests (here and here). This weekend, the call for 15-O protests (Twitter-speak for 15th October, 2011 and named after the 15th May protests in Madrid, dubbed 15-M) saw protests organized across Europe, from Madrid to Rome, London and Amsterdam. A popular graphic shows the scale of these protests.

The ease with which the protests spread shouldn’t be taken at face value. Important specificities remain. For a start, the occupation tactic is not a new one in the present crisis. The moves on Wall Street and in other US cities were preceded by those in Puerta del Sol in Madrid and Syntagma Square in Athens. Over at Lenin’s Tomb, Richard Seymour makes the point that these protests have been dominated by occupations of public places, not of work places, suggesting that people are mobilizing not as workers but as citizens (for an example, see here). Seymour also notes that a tactic is not the same thing as a strategy. The protests have some of the former but much less of the latter.

Given the duration of the European protests, some movements are running out of steam. A feeling of disenchantment was recorded in Madrid this weekend in spite of the high numbers of those out in the streets. Mobilization without a clear message has been a criticism of the protests by the media and by governments but it may be beginning to affect the protesters themselves (see here for a report along these lines on the Spanish case). It might be said about the protests that something is better than nothing and that the significance of the protests is not in their critiques of contemporary capitalism but in their existence. As Sidney Tarrow put it, this is a “we are here” movement. But mobilization in the absence of real gains leads to disenchantment, which itself becomes a material obstacle in future mobilizations.

As far as the slogans of the European protests go, three different strands stand out. One is a protest against the immediate impact of government policies. It is no coincidence that the main protest movements have occurred in those countries whose economies are facing the most serious downturns and government-led austerity measures: Greece, Spain, Italy and Portugal. Protests in Ireland have been more moderate, a reflection perhaps of the self-reliance of the Irish population and its more limited dependency on the state compared with societies such as Greece or Spain.

The two other strands are more abstract: one about fairness, the other about representation. The attack on bankers and financiers reflects a frustrated sense of entitlement: why should so few have so much? This sentiment unites protests on both sides of the Atlantic. The “we are the 99%” slogan of the Wall Street occupation was taken up directly by the protestors on the steps of St Paul’s cathedral in London, UK. In France, this same slogan has been transformed into: “they have more, there are more of us” (Ils ont plus, nous sommes plus). This is less an accurate representation of the distribution of wealth (see our critique here) than a claim about where the interests of the majority lie. The concern about representation is based on the conviction that governments have been captured by the financial elite. The main slogans of the Spanish Indignados have been: “Real democracy, now!” And “no, no, they don’t represent us” (see here for a list in Spanish of the different slogans).

As we might expect from movements that draw on an eclectic mixture of participants, these different demands sit uneasily alongside each other. Demands about improving the current situation are directed at the state and rely entirely on the state to solve today’s problems. Yet the dominant sentiment that governments don’t represent the people any more begs the question of where a ‘people-centered’ state will come from. Richard Seymour puts the cart before the horse, resolving these tensions through the deux ex machina of the Franco-Greek Marxist, Nico Poulantzas. Others ignore them in the hope that the pressure of greater mobilization will force the protestors to refine their ideas. That is unlikely. The lesson of the European occupation protests, from Madrid to Athens, is that occupation is no substitute for a strategy. Transforming the energy of the protests into an understanding of our current situation is today’s challenge.




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