Economists and their bursts of pseudo-empiricism often say that economic memory lasts 10 years. The great crises, however, leave deeper scars, which after those 10 magical years are still there. Western liberal democracies, worth the double or triple redundancy, are intrinsically aseptic and tend to cauterize wounds well, no matter how deep, but those scars are an infallible reminder of the damage suffered and the associated discomfort. Spain and its rescue more than demonstrate it.
10 years ago, the thriller The existential crisis of Lehman Brothers translated in Europe into an oceanic crisis that devastated Greece, Ireland and Portugal until it reached Spain. Zapatero denied that crisis until the biggest bubble in the North Atlantic exploded. With the markets on the prowl, that was about to take the entire Spanish financial sector ahead (and the PSOE, after that “whatever it costs me” of ZP, but that’s another story). Rajoy won the elections in 2011 with the promise of the biggest tax cut ever, but he approved the biggest tax increase in history (his successors have been promising the same thing although everyone knows that this is not going to happen, but I am afraid that that’s another story too). “We will not spend a single euro in the banks”, Rajoy and Guindos said at the time: the truth —that elusive and elusive beast, even more so 10 years later— is that Spain has already spent 73,000 million in its financial sector.
In those came June 9, 2012. And Rajoy, who had sworn and perjured himself that he would never ask for a ransom because he was convinced that with him the markets would regain confidence by the art of birlibirloque, he was forced to request up to 100,000 million. “Rescue a España”, headlined El PAÍS, despite the fact that Guindos delved into that executive’s fondness for the milongas and, faced with the filth of the facts, called it “credit in advantageous conditions”. “It is not a rescue, it is financial support”, he came to affirm with the risk premium on fire.
Those were busy days in Brussels. The European capital is a kind of three-ring circus in which if you are not careful you lose the lions, the clowns and the trapeze artist risking their necks. Spain was the three numbers in one. And the bailout came with hemlock: harshness for the banks, and macroeconomic conditions that were like a toothache.
The two blades of the German scissors, adjustments and reforms, were somewhat softer than in Greece, Ireland and Portugal, because Spain was too big for a complete rescue and because the technocrats already saw that the supposedly expansive austerity, an error of economic policy sponsored by Berlin to be studied in the history books, did not quite work. But Merkel had her own plans of her own. “Airports without planes, highways without cars, continuous cases of corruption: what have you done with European money?” She asked herself furiously those days before a group of stunned correspondents. The Zapatero government, the Bank of Spain and later Guindos had screwed up with prophylactic measures for the savings banks, and the financing needs, with the markets closed to the bone, ended up forcing Rajoy to bend the knee, with Brussels and Frankfurt playing to raise the fire of the risk premium to force that decision.
Once the money was requested, Spain was a kind of guinea pig. Holders of poor-quality debt were forced to checkout for the first time: the preferentistas paid part of the duck, in a first test of what has later been the European model of bank resolution. Germany and its interests, of course, were behind this novelty: “Finland, Austria and the Netherlands pressed, but it was Germany who imposed the conditions because it wanted to protect its big banks, which came from the broken one left by the US junk mortgages” , according to the economist Carlos Martínez Mongay.
He knows in depth all the sides of the coin.
The morality with Greece had been brutal: the spendthrifts had to purge their sins, and there Berlin took its pound of meat. Then the moral tale gave way to self-interest. The Germans had spent years recycling their huge trade surpluses in Irish finance, in US subprime, in Spanish mortgage bonds, in almost any bubbling market. In the US they had to scratch their pockets: Washington commands more than Berlin. But in Ireland and Spain, Germany imposed its law: the bailout saved its banks’ formidable exposure to Spanish brick. “The euro is an economic competition from which Germany has emerged the winner”, settled Jean Pisani-Ferry in The awakening of the demons.
The very forgettable José Manuel Barroso, the ultra-orthodox Olli Rehn (now recycled into central banker Paloma, life gives you surprises), Jean-Claude Juncker and later the supposed Social Democrat Jeroen Dijsselbloem, at the head of the institutions in charge of protecting that rescue, They followed Merkel’s diktat and her powerful minister Wolfgang Schäuble, a kind of Moriarty from home, closely. Schäuble was perhaps the toughest in public, helped in the engine room by technocrats like the Austrian Thomas Wieser, with the knife between his teeth in the Euroworking Group (a work cell even darker than the Eurogroup), and the envoy of the IMF, Paul Thomsen, a sharp-tongued Dane, the blackest of the men in black. Servaas Deroose, with experience in the purge of Greece, was chosen by the European Commission. Those types of hawks were rampant back then: Declan Costello was the head of the Greek rescue and he starred in several tremendous episodes; today, eye, he deals with Spain with the funds of the Next Generation.
But the Wiesers, Thomsens, Deroose and company followed instructions: nothing that happened would have been the same without a German Finance Minister who was actually an ordoliberal lawyer (Schäuble), without a weak and skittish President of the Commission (Barroso), without an ECB that during the Trichet era was a complete disaster and without a Eurogroup in which everyone looked out for their own.
nothing to brag about
The end result is full of chiaroscuro. Spain ended up fixing its banks, but neither Brussels nor the IMF nor the government at the time have much to boast about. The economy accumulated two decades of strong imbalances despite Aznar’s Spain is going well and ZP’s denialism, and it took years to get out of the hole, with an internal devaluation that left political and social shocks. “A good part of my task consisted of explaining what we had gotten rid of,” Guindos wrote in Threatened Spain. Spain, it is true, got rid of the complete bailout, but in reality it had to undertake a banking reform, a pension adjustment and a very harsh labor reform, in addition to a sharp cut in the deficit and a reduction in wages: the equivalent of the happy complete bailout without full ransom money. Even with the aid granted, only that whatever it takes de Draghi avoided greater evils. The historian Adam Tooze leaves the occasional dart about the Spanish management in his imposing Crash: “Rajoy was not exactly a visionary”, and “Schäuble was reluctant to support Guindos” despite a desperate visit by the minister to Berlin. Guindos rewrote that story in his own way before going to the ECB: “Schäuble is admirable personally and has been a support for Spain in difficult times.”
Ten years later, well, memory may fail, but the scars—and the notebooks of this former correspondent—are still there. And there are three lessons that should not be forgotten. One: that debt gluts caused by credit superbubbles often end badly. Two: that a country can be subjugated in two ways, with the sword and with debt, but despite all the rules written in bronze it is always possible to find a way out if there is political will. And three: that from an abstract point of view a debt can always be paid, but there is a threshold of political, moral, even social pain, beyond which that option becomes unacceptable. Some German minister should have that phrase tattooed on him. Those who patented that milonga of “credit in advantageous conditions”, also. The phrase is from Jack Boorman: one of the intellectual leaders of the design of the IMF rescue packages.
Exclusive content for subscribers
read without limits