Unsustainable Spanish Practices

(Note that by 2015 many of the generous social benefits described below have been removed by the conservative government of Mariano Rajoy.) 

Like those “blood-red”, conservative Americans, South Europeans hate to pay taxes. The only difference is, they don't talk about it. Unlike US conservatives, South Europeans have never raised their anti-tax convictions to the level of ideology. When it comes to VAT, they just don't pay. Other taxes are shunned if possible. That's why Greek, Italian and Spanish practices are undermining public finance and becoming a threat to US investors and other international financial market operators that “decide” whether the euro survives.


Beyond this paradox, however, there is a truth to be faced by the South Europeans. Their generous welfare states are built on sand. Spain, probably the best organized of the three, proves the point.

Who wouldn't like to have free medication for all chronic illnesses and heavily subsidized prices for practically all medicine? What insecure 20-year-old wouldn't jump for joy at the chance of having a free nose job or breast implant? Who wouldn't love to have Spanish job security, with up to 45 days of severance pay for each year worked? Who indeed, except employers – who in turn survive by ignoring the obligatory value-added tax (VAT) on their sales.

For that matter, who wouldn't like to be a government employee in a regional government like that of Valencia or Catalonia, where mid- to upper level employees have an official car at their free disposal - on or off duty, including vacations? Who would be afraid to be unemployed in a country where (provided you have had a steady job until then) you have two years of unemployment benefits to the tune of 500 euros per month for a single person and 1200-1400 euros for a family? Where you can turn down a job offer from the employment office and still retain your benefits? And where you, after receiving your unemployment benefit, could buzz off to your black-economy job around the corner without a chance of getting caught?

Surely, all of this cannot be true? But as far as I can tell, it is.* Of course, the unemployment benefit will only keep you minimally afloat; you will need some other assistance or income. And, naturally, it happens that the VAT is paid. In larger companies income tax and social benefit contributions are regularly withheld by employers. But in the Spanish medium-sized town near where I live, only the cafés and restaurants and bigger stores seem to pay VAT. Very few of the other shops and businesses give you a receipt unless you ask for it. Plumbers and electricians never even mention VAT unless you ask. Gardeners, who are still among the busy people in Spain, apparently never ask for VAT. To pay by bank transfer is unusual.

Today 4,5 million Spaniards are registered as unemployed, and a general strike is on to protest their plight. A study published by the Spanish savings banks' association FUNCAS last year estimated that the Spanish black (unofficial or “submerged”) economy provides jobs for 4 million people, and stands for 17% of the GDP. The study was conducted by economists at the Universidad Rey Juan Carlos, near Madrid. (Source: Typically Spanish, March 3, 2011.) 

Of course, this is unsustainable. In an article entitled “Don't forget my invoice!” (la Informacion, March 12), the Federation of Municipalities and Provinces of Valencia was quoted to the effect that “practically all” the municipalities of the region were asking for the bailout offered by Madrid to cover their unpaid bills, money owed to local businesses and self-employed people. A printed version of the same story said more starkly that without this aid, 80% of the municipalities in the Valencia region would go broke during 2012. Pharmacies are no longer able to furnish many brands of medication because their bills have not been paid by the regional government. The city of Valencia has not paid its own electricity or gas bills in years.

The general strike that started March 29 (2012) protested the labor reform of the conservative Partido Popular government of Mariano Rajoy. His measure is (inter alia) to draw down the severance pay from 45 to an average of 33 days per year worked. If you have worked 5 years for your employer you get 5 x 33 days' extra pay when you are laid off. The EU standard is nowhere near that high. A welfare state like Norway offers no more than one month's pay in a similar situation.

When workers are neither paid nor dismissed because there is no money for either – and they continue to work just to maintain their salary claim (BBC World, March 29, 2012) – things are not what they seem. Something is fundamentally wrong. A glance at similar tendencies in Italy and Greece tell me it will not be easily corrected.

Am I too pessimistic? A Sunday last summer my wife and I stopped for coffee in a little town in Valencia's Ebro Delta and were puzzled by the sight of a big official car from the city of Barcelona (clearly marked) – far away from home – that tried to park at the curb next to us. The car, loaded with beach gear and children, was clearly not there on official business. Bystanders were not slow to react. In a flash, jeering locals told the driver what they thought of his audacious presence and chased him away. Some sense of moral obligation evidently survives, in other words, at least when it comes to conspicuous over-consumption of “public” goods. Let's hope it grows to a broader vision encompassing more of Southern Europe.

*Until the Rajoy government started its reforms.

European Union: Foundations Shaking

For decades the EU has had a history of existing in near-constant crisis. This makes it difficult to properly assess each new crisis that comes along. Given the long succession of previous crises the EU has survived, it is easy to dismiss the seriousness of the next one.

The first – and supreme - danger to the EU at present is, of course, the euro failing. But part of what could make it fail is not usually recognized as a euro threat – that danger is the lack of political legitimacy at the European center. Part of the problem now is that EU leadership seems more to be a German affair than a joint affair. The ability to make decisions hangs on what Germany wants, more than on any collective will to decide. As I have noted before, German leadership (usually masked as German-French) is good for Europe – up to a point. But it is not acceptable for the European integration project in the longer term to be dependent on one member dragging the rest along.

Moreover, when determined leadership entails severe friction and even sentiments of public rage between countries, this is deplorable, but needs to be overcome. More important than the fact of the rage is the need for the target to be the collective decisionmaking center and not this or that other member country. As seen from the streets of Athens now the EU is a multiheaded monster, manipulated by Germany. The extremity of Greek opinion may be due to a mentality common in Greece (see my previous blog), but it may also be that other countries would produce similar manifestations of public discontent if they were put under similar pressure.

The lack of EU legitimacy is widespread and serious. The Slovak parliament at first refused to endorse the second Greek rescue package because their average income is lower than that of Greece. Who could fail to understand them? As seen from Copenhagen, the EU has long been a barely tolerable creature that has to be kept at arm's length with a stack of legal caveats to protect remaining Danish freedoms. The spirit of resistance, though more tempered, resembles the Greek. In Sweden the EU Commission's intervention in national wildlife policy has a considerable part of the population up in arms, literally, to resist what they see as improper decision-making over the heads of the Swedish government, stipulating the number of wolves and bears to be kept in freedom around their country. Hungary has collided head-on with both the EU and many member countries in deciding to change their constitution in an illiberal direction. We may not want a return to authoritarian ways, but there is also a limit to well-meaning intervention. (It should be added that the Commission has its allies in all of these member countries, so it is not entirely a one-sided affair.)

The examples could be multiplied. Indeed, as a Norwegian I cannot help noticing that most of these cases of conflict between member countries and Brussels coincide with the sentiments that twice led the Norwegians to reject membership in the EU. These cases reflect the most basic conflict involved in international integration, that between the national and the supranational. If you appreciate national values and customs (without therefore being an ugly nationalist), then this conflict can be painful, even enraging. At the same time, if European integration is to succeed (and the euro to be saved), national resistance must ultimately yield on many significant points, many more, even, than we can see on the agenda today.

Spain and Italy have ignored the obligations and pressures of the EU as much as they can. France has been shrugging them off for more than a generation (the Common Agricultural Policy, the Stability Pact for the Euro). This, to me, is a South European posture. Garner the advantages as long as you can, postpone the fulfillments as long as you can. Indeed, Greece is not alone here.

But ok, so I'm biased. I believe the Northern member states have done lots more to fulfill their obligations than the Southern ones have. I look to the Finns to find inspiration for those who resist repayment of their debts, even unfair ones, such as the Finnish war debts to the Soviet Union, repaid at express speed by the victim of aggression to the aggressor. Finnish Finance Commissioner Olli Rehn is a good man to have in Brussels.

Am I biased because these are «my» people? Not at all. I'm just an old square who thinks the EU without unison attention to joint obligations is a hopeless project. There is no opening here for a compromise. The laggards simply have to be brought up to speed. My new home country, Spain, has to be one of the first to make that turnaround. But sooner or later, it will be France's turn. I can't wait to see that struggle.