Spaniards voted in a new conservative government yesterday on hopes that a change at the top could help save the country from its economic woes. But it's unclear if the country's new leaders can do anything to save a nation that is drowning in debt.
While the government has been fiscally prudent over the years, Spanish households and companies have been levered up like they were private equity takeovers. With limited growth prospects and an unimaginably high unemployment rate, those debts could soon become Madrid's problem, which in turn would become Frankfurt's problem as it spills over into the eurozone.
Spain's Socialist government, led by José Luis Rodríguez Zapatero, has governed the nation since 2004, during what was arguably one of the biggest economic booms for the country since Imperial Spain discovered the New World. But unlike the 16th century boom, which was fueled by gold, this one was fueled by debt. The boom, which lasted for most of the last decade, imploded in 2008 when the credit crunch cut off its life blood. Spain's economy now has to figure out how it will grow using whatever capital it has left.
The conservative Partido Popular (PP) party, led by long-time party boss Mariano Rajoy, has been chomping at the bit to get back in power for years. The party won a resounding victory on Sunday, claiming an absolute majority in the lower house of parliament. That gives it not only the prime minster position, but also a strong mandate to pass whatever legislation it basically wants.
To remain in power, the PP will need to undertake some bold initiatives to help pull Spain's broken economy out of the gutter. In October, the party released a thick document outlining some of its goals. It was heavy on conservative rhetoric – cutting taxes and ending big government – but light on specifics. It is believed that the PP will continue the austerity measures instituted by the Socialists, but will also move to cut taxes on small businesses. It will not raise taxes on the rich, as the Socialists had proposed, and will instead cut government subsidies and the like.
Getting people back to work as soon as possible is imperative if the PP and Spain are to survive. One of the PP's key proposals is to radically overhaul the nation's labor laws, making it easier to hire and fire people. The country's unemployment rate has continued to grow during the crisis despite all the massive government stimulus packages and bank bailouts. Unemployment tipped the scales in October at 21.2%, the highest in Europe. Its youth unemployment rate, meanwhile, hit a mind-bogglingly high 46.2%. To give some perspective, those unemployment levels are near where they were in the United States during the Great Depression.
But the Spanish are used to high unemployment; in fact, one could see the Spanish economy taking a debt-fueled round trip. Up until the mid to late 1990s, before credit and the euro, unemployment in Spain was normally around 20%. Young Spaniards would usually go abroad to find work and would send cash back home, giving a nice boost to the local economy.