The ratings agencies continue to bash us. Standard & Poor’s has threatened Spain with a further downgrade after it dropped the country’s sovereign rating two notches last Friday from AA– to A.
Spain was among nine European nations that saw their ratings slashed on that bleak Friday the 13th. The agency says that Prime Minister Mariano Rajoy must move quickly to implement his job reform package or else face the consequences. Now Rajoy says he has a plan and will instruct the European Commission later this month about what it needs to do to ensure that the continent gets it finances in gear, and keep the euro from being defeated at the hands of a few financial analysts whose dream is to see the European currency collapse. The Partido Popular (PP) government hasn’t said what type of plan it has nor has it revealed the ace that we all hope it has up its sleeve to solve Spain’s economic problems. Yes, we do hope Rajoy has some secret plan that he has yet to unveil because, if not, he will make us all look like fools.
But on the bigger stage, there is a frightening warning from Italian Minister Mario Monti which seems to be an accurate forecast for Europe’s future. In an interview with the German magazine Der Spiegel last week, Monti cautioned that if Brussels – or better yet Berlin, because Angela Merkel is calling all the shots – doesn’t do its part to help financially-strapped nations get their economies in gear the threat of a populist movement could overtake the entire continent and shatter the European dream. Speaking specifically about his country, the Italian leader told Merkel that his own countrymen are losing patience with the sacrifices they must endure at Germany’s expense.
There does appear to be an anti-German movement growing in countries such as Greece and Romania where demonstrators in Bucharest clashed with police over the weekend over austerity measures while demanding early elections. It is true that Germany and France are at fault for not allowing the cash cow European Central Bank to step in and offer some relief to teetering nations such as Spain. But there are some problems within that marriage. While Merkel continues to insist on drastic public spending cuts for troubled EU members, France’s sovereign debt rating was also downgrade by S&P, which ignited anger among Frenchmen who believed their country’s sterling rating was protected.
Back home, the PP is telling local regional governments that they must cut their public expenditures but at the same time assuring them that Madrid won’t allow any of them to default. Any default, says Finance Minister Cristóbal Montoro, is a default for Spain. Rajoy’s principal auditor told regional financial and economic chiefs last week that the central government will come up with some measures to help bail out any region. In other words, Montoro suggested drumming up a type of Hispano-bond that could be issued by the Banco de España along the lines of the European-bond idea that Merkel refuses to take up. Where the central government will get this money to finance this scheme is anyone’s guess. But it seems to be a remedy that Rajoy could apply locally and show Brussels that it could work for the entire continent. Nevertheless, time is of the essence.
The main factor that comes into play is moving quickly to create jobs. Rajoy revealed over the weekend that 5.4 million Spaniards are out of work. At the same time, young people who are not active in the workforce are not paying into the social security system and stem to lose many months, if not years, of contribution quotas for their own retirement.
Yes, we are stuck in the middle of a chocolate mess. Europe is a democracy and its leaders should act like a mini-congress and put a range of proposed measures up for a vote rather than allowing Merkel and Sarkozy to run the show. The French leader, who hasn’t said whether he will run for re-election this year, is dropping in the polls while his main rival, the Socialist François Hollande, is beginning to look more appealing to voters. But at the same time, the French right is also gaining ground with the anti-euro Marine Le Pen climbing up in the polls. Whoever wins the race in the coming months will no doubt split the German-French decision-making process and divide the continent. Which side will Mariano Rajoy take?
Written by Martin Delfin, Martin writes for the English language version of El Pais
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