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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.

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"Rajoy lies about what's happening. One day he gives one figure, and the next he gives another," says Jorge Martínez, a retired office worker sitting a couple blocks from parliament. "Every day I trust our leaders less, regardless if they come from the right or left."

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Now Spaniards are grappling with the fact that the picture of a rising global power which their leaders invoked for years was a mirage, and that Spain may be more like a bigger and more dangerous version of Greece than they thought.

According to a June 13 survey by the autonomous government polling institution Centre of Sociological Investigations, more than 90 percent of Spaniards say the economic situation is either bad or really bad, and nearly 40 percent expect the economy to worsen in the next year.

That pessimism is feeding back to the political class, which Spaniards cited in the survey as the most pressing problem after unemployment and the economy. Concerns about corruption and fraud are also rising, with 9 percent of Spaniards giving top billing to that.

"We thought we were a rich country and institutionally stable. The crisis has highlighted that is not the case," Dr. Myro says. "The difference between what we thought we were and what we are is political, economic, and institutional."

The unraveling of Bankia

Spain's plight is not over unsustainable debt levels or unwillingness to implement the necessary economic reforms, as in Greece. It already secured most of its credit obligations this year and implemented painful austerity measures.

Instead, the problem is citizens' plummeting trust in Spanish institutions. A catalyst was the botched government takeover of Bankia, formerly the country's third-biggest bank. It was formed by a 2010 merger of seven savings banks, most of them indirectly controlled by the conservative Popular Party currently in power.

In his inaugural speech in December, Mr. Rajoy said the nation's troubled banks wouldn't need a bailout – a message he stood by until May 9, when the government abruptly nationalized Bankia, which subsequently revealed it would need €24 billion ($30 billion) to recapitalize.

For the next month, the government denied the banks would need a European rescue, but didn't say where it would get the money to save Bankia and the rest of the sector. Meanwhile, the International Monetary Fund announced that by its estimates, Spain would need at least €40 billion ($50 billion) to keep banks afloat.

Finally, on June 9, the EU offered Spain up to €100 billion – about 10 percent of its gross domestic product.

Rajoy waited a day before explaining the deal; and when he did, he insisted on calling the funds a line of credit, not the bailout they were. Worse, he described the rescue as a victory for Spain and suggested economic growth would follow as credit recovered – even though similar rescues in other countries were almost always followed by additional austerity.

'Spain is the problem and Europe the solution'


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