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Thursday, 2 August 2012

Falling down – How a dropping flag represents Spain

This noon, the giant Spanish flag at Madrid’s Plaza de Colón fell down from its 50 metres flagpole. A broken suspension and a worn rope were responsible for the 294 square metres flag to drop on the square that was named after Christopher Columbus, right in the middle of Madrid City. With a length of 21 metres, a width of 14 metres, and a total weight of 25 kilograms, this flag is the biggest of all Spanish flags in the world and holds the record for all Spanish flags in the Guinness Book of World Records.

This flag’s sudden and unexpected drop is symptomatic for the whole Spanish situation, although Spain’s decline was neither unexpected, nor sudden. With a notorious decline of its economic performance, a constant rise of unemployment, and an increasing brain drain out of Spain, it seems that it is only a matter of time until the biggest country on the Iberian peninsula will suffer the same disastrous long-term effects of unlimited debts, permanent recession and deteriorating welfare system as Greece has been experiencing for years.

Spain is desperately seeking for more and fresh assets in order to rescue its economy, and it is having high hopes that the European Stability Mechanism (ESM) will receive additional funds through the European Central Bank (ECB). The very recent plans of buying bonds from crisis countries (such as Spanish bonds) at low interest rates in order to receive fresh assets from the ECB might give Spain the possibility to borrow money for very low interest rates. The ECB’s decision to lower the prime rate down to 0.75% in July 2012 makes it possible to get new loans for very little money. As a result, Spain would be able to refund the most urgent sectors, and support the government’s austerity plans.

It is in fact the current conservative government and Prime Minister Mariano Rajoy that are struggling to implement their strict and vigorous austerity programme. With severe and painful cuts in the public sector, this austerity programmes are having horrific consequences on the labour market, the health care system, and the entire welfare system. Spain’s unemployment rate has nearly reached 25%, nearly 50% of the young people. Although highly qualified and trained for every high level job sector, an entire generation of young professionals is being wasted and forced either to work on very little pay and on limited contracts, or to seek new chances and challenges outside Spain. Spain is not only ruining and losing its academic and technical offspring and young professionals, it is also losing its potential to find a way out of the crisis by its own.

Desperation in Spanish public is enormous. Of those Spanish high potentials who escaped the misery in order to seek for new happiness abroad, their voices scream out a high level of personal disappointment, desperation, and resignation. But above all, it is a massive disgust about the own government’s austerity plans and against Germany – which they claim to be the main cause for the on-going economic downturn. Especially Spanish emigrants blame the German government’s strict Europe wide austerity “decree” which – as they say – not only keeps on ruining Spain and Europe, but also their own personal prospects.

The reasons for Spain’s long and deep fall are manifold, but still have a relatively easy cause: it started with the real estate collapse by 2008, nearly identical to the US mortgage crash the same year, to which the Spanish real estate market was highly dependent. The Spaniards have heavily invested in real estates by large credit finances. There was no region in Spain that was not under wide scaled construction in terms of house building – one construction site after another, especially alongside the Mediterranean coast lines. Now, with the construction sector nearly non-existent, thousands of empty and unfinished apartments marking the landscapes, and thousands of people drowning in their own mortgages and debts (also because they cannot sell their houses and apartments without suffering painful losses), the entire Spanish economy was dragged down by the collapsed real estate and construction sector, with horrific consequences on all the other sectors. Also, similar to Greece, the Spanish public sector was overfunded for years, so was the agricultural sector through EU subsidies.

Spanish public is discussing how to rescue the Spanish economy and the labour market before the crisis gets from bad to worse. The Greek Sword of Damocles is hanging over Spain on a very thin string, and Madrid is desperately yelling for a European solution and aids from the Frankfurt based ECB. However, it is questionable how quickly and to which extent the ECB and above all the EU Member States are willing to grant more funds to Spain. Evidently, the current ESM budget of 700 billion Euros does not seem enough for all crisis candidates, and the others (Italy, Portugal, and Cyprus) are already calling for more funds – not mentioning Greece, by the way.

The flag at the Plaza de Colón was recovered by a group of the armed forces (strictly according to protocoled rules) and was hoisted back to its majestic place the same day, now waving again above the city of Madrid. However, Spain cannot be re-hoisted that easily, it only knows one direction: downwards. And the perspectives remain bleak.

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