In Spain, public distrust feeds economic meltdown
In Spain, misinformation and cover-ups have undermined Spaniards' trust in their government and its plan for economic recovery, with repercussions that could resonate all the way in Brussels.
Bailouts from Ireland to Greece have tested the eurozone's resolve to stay together, as has Germany's unwillingness to budge on its austerity-only recipe for struggling members. But the specter of a eurozone breakup transcends the travails of any individual country.Skip to next paragraph
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Spain's recent upheavals have underscored the bloc's main weakness: trust that leaders are not only acting wisely, but are also being transparent about their actions. Spain has become something of a test case for how public distrust can be a corrosive force as Europe scrambles to find solid economic footing.
The fate of Europe and the world's economy is at stake. Spain's cost of borrowing leapt to a record high of 7 percent in early June, despite a multibillion-euro rescue from Europe, because markets have lost the little faith they still had in its promises. Spanish authorities have warned that the situation was unsustainable. Markets have essentially shut their doors to Spain; and the consequences reach far beyond its borders, since Europe's bailout stash is unable to finance the needs of Europe's fourth-biggest economy, and a Spanish collapse could drag the eurozone down with it.
"With more credibility, things could have been different. But Europe doesn't have a clear solution and Spain has mishandled [the crisis]," says Rafael Myro, a professor at the Universidad Complutense de Madrid and an expert in foreign investment. "But the credibility problem is predominantly European. The fear the [European Union] will break up is bigger than the problem of any country."
Spain's crisis has been building for years, but it burst into the open when the government announced that its banking sector would need a rescue of as much as €100 billion (about $126 billion), revealing an unprecedented economic fragility. While the root causes are macroeconomic, the driving force behind this turn for the worse is the utter mistrust in Spain's leadership after a cascade of misinformation, contradictions, and coverups compounded by gridlock in the EU.
When the conservative government of Prime Minister Mariano Rajoy came to power in December with a landslide victory, he promised transparency and an end to false promises. He delivered harsh economic reforms demanded by Europe; and he insisted that, although Spain was in a recession, it could hold on until its reforms put the economy back on track.
But his government glossed over just how bad things were getting, using euphemisms (referring to the bank rescue as a credit line) and word-mincing that has left the international community – and markets – deeply frustrated.