The bailout is here. Recent events made it predictable, but we are still a little incredulous. It is a psychological blow, and a landmark in our relations with the EU. In a country where the feeling of collective self-esteem has always run parallel with achievements in the European ambit, we fail see how it has come to this.
Certain underlying reasons made the bailout inevitable. First, it is clear that the Spanish banking system requires an injection of funds far superior to what Spain might manage by itself. Second, the instability of the debt markets is apparent in the continuing rise of the risk premium, which was becoming unsustainable. Third, the dim prospects of employment and growth, which make it hard for Spain to comply with deficit-reduction objectives, which would lead to a new round of cutbacks and structural reforms.
The government’s poor management of financial reform has done much to provoke the bailout. Its shortcomings in communication have been and still are obvious. It ignores the fact that the national political arena and the European one are inseparable, and that what is said here in Spain out of inter-party spite can have immediate — and costly — repercussions beyond our borders. Consistency between the messages sold to the Spanish public and those conveyed to the EU institutions, the markets and the international media, is as important as any practical political measure that might be taken.
The prime minister has delayed too long in turning to European policy. The disdain with which Rajoy at first dismissed the notion of eurobonds and other proposals, shows how long it has taken him to realize that, while the crisis has an undoubtedly Spanish aspect, the European dimension is far more important. Financial liquidity and stability are essential if the structural reforms are to take effect, but the structural reforms that the EU requires are more profound, more decisive, more difficult to achieve, and, for this reason, require as much or more dedication than the internal ones.
Nor has it helped that, instead of opting for correction of errors and a shift toward a more active policy in Europe, the government has repeatedly snubbed Brussels, Berlin and the ECB besides, trusting to the negative effects that a Spanish bailout would have for the whole euro zone, refusing to accept the necessity of being bailed out. To defy or directly blackmail the partner states whose aid is needed was not a very intelligent tactic, especially when the consequences of a bailout, or of a collision between Brussels and Madrid, would be so asymetrically distributed. A better, and less costly tactic would have been to admit that the public deficit figures, and the nationalization of Bankia, have eroded the country’s credibility, and that now it is time to rectify mistakes, pay more attention to coordination, and devote far more time to the construction of the EU that we all need.
The bailout may be positive in that it will help Spain to cope with its financial problems, but it poses risks. The first is that it will come with a package of profound structural reforms. Outside (and inside) Spain there are many who want the government to take advantage of the crisis to reduce the size of the public sector (firing public employees), and to reverse political decentralization. To do so with the excuse of an external crisis may seem a tempting option, but would open a spigot of discontent that would endanger the sustainability further reforms.
The destruction of the two major Greek parties as a result of cutbacks that disregard their social and political milieu, offer a clear roadsign in this sense. Precisely because the bailout represents a collective failure, it is very important to preserve the conditions in which it may turn out to be a success, and not a further aggravation of our problems.
This article first appeared in El Pais.
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