A general strike in Spain today looks as if it is being pretty well supported.
Flights, trains and bus services have all been widely disrupted, TV stations are off the air, factories including the big car makers SEAT, Renault and VW have stopped work.
Unions claim that 85% of workers in the food sector have joined the strike. Significant as this is, tomorrow is a much bigger day for Spain as the Government announces an austerity package that will dwarf even that of the Greeks in severity.
We may be about to find out just how much tolerance the Spanish people have for cuts on this scale.
Despite some swingeing cutbacks under the outgoing Socialist Government of José-Luis Zapatero, Spain has comprehensively missed it deficit targets as set by the European Commission under the new Fiscal Union Treaty.
It has a lot of catching up to do.
Tomorrow the Government is likely to announce budget cuts of around €50bn, maybe more.
- That will mean every Government department cutting its spending by 14-15%
- Some tax rises thrown in for good measure
- Deficit must be cut from 8.5% of GDP to 3% in just 2 years
- That may be setting a new definition of too far, too fast!
We are in uncharted territory as to what this might do to the Spanish economy. It has already slipped back into recession for the second time in three years.
It’s predicted that another million will soon join the dole queues, in a country that already has the highest unemployment in Europe at 23%, with more than half of under-25s out of work.
You don’t have to be called Cassandra to see that this may be a recipe for social unrest.
The Government of Mariano Rajoys Peoples Party is barely 3 months old, but the honeymoon is long over.
These budget cuts had been delayed in the hope that the conservatives might score a famous victory in the perennially socialist region of Andalusia at the weekend, but no such luck.
The Spanish people decisively threw out the last lot in disgust at where the Socialists had taken the economy, but it doesn’t mean that they are any happier with seeing conservatives pile austerity upon austerity.
Is any of this politically possible? The markets are beginning to doubt it, with the interest rate that lenders are demanding from Spain for 10 year loans rising again at 5.5% – much higher now than Italy’s.
It was reported, and then hurriedly denied, that the European Commission wants Spain to start taking European bail-out money. There is clearly a feeling that the country that first gave us Los Indignados may not have the stomach for cuts on the scale demanded.
And if they don’t?
The Rajoy Government is surely too recently elected to be deposed in the way that Silvio Berlusconi and Georgios Papandreou were in Italy and Greece.
Fines could certainly be levied under the new Treaty so recently signed, though its hard to see how that would make the situation better.
Or it could be accepted in Brussels that the vicious cycle of austerity followed by recession followed by collapsing Government revenues followed by more austerity… may not the way forward. But don’t bet you mortgage on that happening.