France, Greece, Italy, Portugal, and—last but not least—Spain. A storm of anti-austerity protest has been sweeping through Europe.
This represents a very sharp change in the political temperature. For the past few weeks, the general tone of commentary was that finally the eurozone was getting its act together. In line with this, financial markets started rising.
The source of this optimism was the announcement at the end of August by Mario Draghi, president of the European Central Bank (ECB), that he was willing to buy Spanish and Italian government bonds.
This was important because the Italian and Spanish states were having to pay interest at punishingly high levels in order to borrow. After Draghi’s announcement, the spreads—the difference between their interest rates and those of Germany—fell substantially.
Of course, there was plenty of fine print. Spanish and Italian governments would have to agree on further neoliberal “reforms” with the troika—the ECB, European Commission and the International Monetary Fund.
Draghi’s plan has the backing of German chancellor Angela Merkel. But Jens Weidmann, president of Germany’s central bank, is campaigning against it. Weideman warned that pumping money into indebted states could generate Zimbabwe-style hyperinflation.
So far, however, Draghi’s plan hasn’t fallen apart. The really significant development is that Spain, the eurozone’s fourth biggest economy, is morphing into a situation similar to Greece—where austerity has produced economic depression, political chaos and social resistance.
Mariano Rajoy, Spain’s wildly unpopular right wing prime minister, is terrified of having to apply for ECB support. As Ewan Cameron-Watt of BlackRock fund managers put it, “He certainly can’t sell the men in black suits”—the troika inspectors currently forcing more cuts on Greece.
But Rajoy’s room for manoeuvre is limited. Spain’s banks are loaded down with bad debts built up during the property bubble of the mid-2000s. The latest estimates are that they will need around £48 billion in extra capital—and some analysts regard that figure as too optimistic.
Meanwhile the Spanish economy is shrinking. So Rajoy needs the European Union’s money. But austerity is widening the faultlines in the Spanish state.
The ruling Popular Party is the political heir of General Franco’s dictatorship, which systematically suppressed the rights of the Basque and Catalan nations.
The Catalonian regional government has just called a general election as a preliminary to a referendum on independence. The Catalan nationalists are already in conflict with Rajoy, who wants to reduce the powers of the regions. Now they are also furious about the cuts being imposed on them.
The Financial Times commented, “The eurozone crisis that has brought down governments across Europe’s periphery now threatens the survival of a nation state. The north-south fractures inside the EU are starting to open up within member states.
“When the Soviet Union and some of its buffer states broke up at the end of the Cold War, EU leaders on the whole regarded this exercise of the democratic right to self-determination as a good thing.
“But the idea that separatism could seep into the settled structures of western Europe is wholly alien to them.”
The Greek disease is spreading. But political and social fractures take different forms across Europe. Greece has a particularly strong workers’ movement and radical left—hence the scale of social resistance on show in last week’s general strike.
Spain too has powerful social movements, but suffers from a weak political left and the legacy of Francoism, so the situation is developing differently there.
But everywhere there are ugly signs of reaction—from the rapid growth of Greece’s Golden Dawn to threatening noises towards separatists coming from the Spanish military. Fortunately resistance is growing everywhere as well.