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Greed and the Pain in Spain


Nobel Laureate economist Joseph Stiglitz characterizes the Spanish bank bailout as “voodoo economics” that is certain “to fail.” New York Times economic analyst Andrew Ross Sorkin agrees: “By now it should be apparent that the bailout has failed—or at least on its way to failing.” And columnist and Nobel Prize-winning economist Paul Krugman bemoans that Europe (and the U.S.) “are repeating ancient mistakes” and asks, “why does no one learn from them?”

Indeed, at first glance, the European Union’s response to the economic chaos gripping the continent does seem a combination of profound delusion, and what British a reporter called “sado-monetarism”—endless cutbacks, savage austerity, and widespread layoffs.

But whether something “works” or not depends on what you do for a living.

If you work at a regular job, you are in deep trouble. Spanish unemployment is at 25  per cent—much higher in the country’s southern regions—and 50  per cent among young people. In one way or other, those figures—albeit not quite as high—are replicated across the Euro Zone, particularly in those countries that have sipped from Circe’s bailout cup: Ireland, Portugal, and Greece.

But if you are Josef Ackermann heading up the Deutsche Bank, you earned an 8 million Euro bonus in 2012, because you successfully manipulated the past four years of economic meltdown to make the bank bigger and more powerful than it was before the 2008 crash. In 2009, when people were losing their jobs, their homes, and their pensions, Deutsche Bank’s profits soared 67  per cent, eventually raking in almost 8  billion Euros for 2011. The bank took a hit in 2012, but the Spanish bailout will help recoup Deutsche Bank’s losses from its gambling spree in Spanish real estate.

And, just in case you thought irony was dead, it was the Spanish housing bubble that tanked that country’s economy—at the time Madrid’s debt was among the lowest in the Euro Zone—and German banks (as well as Dutch, French, British and Austrian) financed that bubble. German Banks also financed the real estate bubble that crashed Ireland’s economy. Some 60  per cent of Deutsche Bank’s income is foreign based.

Consider this figure: in 1997 real estate loans in Ireland were 5 billion Euros. By 2007 they were 96.2 billion Euros, a jump of 1730 per cent. Real estate prices rose 500 per cent, the same amount that Spanish housing prices increased. The banks didn’t know they were pumping up a bubble?  Of course they knew, but they were making money hand over fist.

When the American financial industry self-destructed in 2008, the Irish and Spanish bubbles popped, and who got the bill? Irish taxpayers shelled out $30 billion to bail out the Anglo-Irish Bank—essentially the country’s total tax revenues for 2009—and in return got a 15 per cent unemployment rate, huge cuts in the minimum wage, pension reductions, and social service cutbacks.  Spain is headed in the same direction.

As Spanish economist and London School of Economics professor Luis Garicano told the New York Times, “Unfortunately, Spain did not manage to reach one of its main goals in the negotiations [over the bailout], which was to have Europe bear part of the risk of rescuing the financial sector, without letting it fall instead directly onto the shoulders of the Spanish taxpayers.”

Garicano went on to complain, “Those who lent to our financial system were the banks and the insurance companies of Northern Europe, which should bear the consequences of these decisions.”

But of course they will not. Instead, the banks got to go to the casino, gamble other people’s money, and get repaid for their losses. That’s sweet work if you can get it.

However, the “sado-monetarism” strategy is about more than just bailing out the banks at the expense of the vast majority of European taxpayers. It cloaks its long-term designs in coded language: “rigid labor market,” “internal devaluation,” “pension reform,” “common budgetary process,” “political union.”

A quick translation.

“Rigid labor market” means getting rid of contracts that guarantee decent wages, working conditions and benefits, all won through a long process of negotiations and industrial action. As the New York Times put it, the current rightwing Spanish government is attempting to “loosen collective bargaining agreements.”

The drive to scrap union contracts is coupled with “internal devaluation,” which, as Krugman points out, “basically means cutting wages.” If the working class can be forced to accept lower wages and slimmer benefits—and there is no better disciplinarian in these regards than a high unemployment rate—profits will go up. Sure, the vast majority will be poorer, but not the people who run Deutsche Bank.

“Pension reform” simply means impoverishing old people, who had nothing to do with the real estate bubbles that brought down Ireland and Spain. But again, someone has to sacrifice, and old people don’t have all that much time left anyhow.

“Common budgetary process” and “political union” means giving up national sovereignty in the service of keeping the banks solvent—in essence, the end of democracy on the continent. People could then elect any one they pleased, but no national government would have any say over economic policy. Want to do a bit of pump priming to get the jobless rate down and tax revenues up? Nope. But feel free to paint park benches any color you like.

The 100 billion Euro ($125 billion) Spanish bailout will fail for the average Spaniard, as bailouts have already failed the Irish, Portuguese and Greeks, and it will lock Spain into generations of debt. Italy is next (not counting the small fry like Cyprus and several Eastern European countries that may fall before Rome is finally sacked). The Euro Zone’s economies are predicted to contract 0.1  per cent for all of 2012, and the jobless rate for the 17-country bloc is 11  per cent, higher than at anytime since the Euro was established in 1999.

Spain’s right-wing prime minister, Mariana Rajoy, has tried to argue that the bailout was not as onerous as those imposed on Ireland, Portugal and Greece, but the Germans soon set him straight: “There will be a troika [the European Union, European Central Bank, and International Monetary Fund] and it will make sure the program is being implemented,” German Finance Minister Wolfgang Schaube told the Financial Times.

It is not unlikely that the Euro will fall sometime in the next year, but of course the debts will remain. The grasping hand of the past will lie on the brow of the living for a long, long time to come.

Financier George Soros puts much of the blame for the current crisis on Germany—indeed, he accuses Chancellor Andrea Merkel of trying to establish a “German Empire”—but that is simplistic. Germany has certainly led the “sado-monetarian” charge, but this strategy is not just about unleashing the austerity Panzers to establish a Fourth Reich. All over the world, capital is on the march, with the goal of rolling back the social programs of the post-World War II period and returning to the Gilded Age when the rich did pretty much as they pleased.

Weakening unions is central to this, as is privatizing everything capital can get its hands on, and the economic crisis is the perfect cover to try an accomplish this. For a fascinating analogy, pick up Indian journalist P. Sainath’s brilliant “Everyone Loves A Good Drought” that exposed how wealthy landlords in India manipulated a natural crisis to increase their grip over agriculture.

Former Deutsche Bank head Ackermann recently prattled on about the “social time bomb” of economic inequality, but so far he has not offered to share his 8.8 million Euro bonus. In the meantime, according to the International Labor Organization, youth global unemployment will reach 12.7  per cent this year and stay there for at least four years, creating a “lost generation” of workers.

So, the answer to Krugman’s question, “why are they repeating ancient mistakes?”

Because they are making out like bandits.

CONN HALLINAN can be read at and He is a contributor to Hopeless: Barack Obama and the Politics of Illusion.

Conn Hallinan can be read at 

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