The Club Med and the euro
Workers of Europe, protest!
A wave of strikes and demonstrations shows the pain across the region
Nov 17th 2012
MADRID
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THE first hints of optimism are appearing in Europe’s troubled Club Med countries. They are not to be found in unemployment or growth figures, but mostly in the mouths of ministers. “Spain is emerging from its crisis,” declared Fatima Bañez, the labour minister, even as unemployment rose above 25%. In Greece ministers are pointing proudly to their progress towards a primary budget surplus. Everywhere economists are welcoming rising net exports and shrinking budget deficits.
Yet ordinary voters and the unemployed are mostly unimpressed. On November 14th in Spain angry protesters took to the streets in the second general strike they have staged in less than a year of Mariano Rajoy’s People’s Party (PP) government. The strike, and a similar protest in neighbouring Portugal, brought most transport links, schools and many businesses to a halt. Police clashed with violent protesters in several Spanish cities, leading to 118 arrests and over 70 injuries across the country.
Millions of people turned out across Europe in the biggest day of union-organised protests since the crisis in the euro first broke out three years ago. Unions in Italy, Greece, France and Belgium joined the action, as workers rejected what they see as northern-imposed austerity. In Rome about 60 protesters were arrested, as civil servants and national transportation workers took to the streets. The strikes in Greece were the third to take place in the space of two months. In all, trade unions from 23 European countries joined in the day of action.
Yet the protests are unlikely to lead to any dramatic change in policy, if only because policymakers are still under huge pressure to reform. The latest European Commission forecasts make grim reading. For the euro area as a whole GDP is expected to shrink by 0.4% in 2012; it is forecast to grow by a mere 0.1% in 2013.
Industrial production across the euro zone plunged by 2.5% in September compared with August, the largest fall since January 2009. The figures for the Club Med countries are especially bad. Greece’s economy is forecast to shrink next year—the sixth fall in a row.
In Spain the commission predicts that the 2013 recession will be three times worse than the government’s forecast, repeating this year’s 1.4% shrinkage of GDP. The budget deficit could even rise again in 2014 unless supposedly “temporary” tax rises become permanent. Unemployment could surpass 26% next year. Mr Rajoy’s government does not envisage even timid growth until 2014. In the meantime, high borrowing costs are squeezing both the public purse and private businesses.
Spaniards dislike false optimism, which their Socialist former prime minister, José Luis Rodríguez Zapatero, dispensed for many years. Voters evicted his party a year ago, in favour of the greater honesty and realism of Mr Rajoy. Yet now as many as 2.5m Spaniards have been jobless for over a year. Hence the backing for this week’s protests.
It would help if Spain requested a soft euro-zone bail-out to trigger a bond-buying plan announced by the president of the European Central Bank (ECB), Mario Draghi. The announcement of Mr Draghi’s plan has already lowered borrowing costs and kept markets open. Even if bond yields are now gradually drifting upwards again, Spain has already raised almost all of this year’s mid- to long-term funding.
Mr Rajoy insists that he will ask for help from the ECB only when, and if, Spain needs it. That “when” now looks unlikely to be before next year.
.
.
The Spaniards also hope that the gloomier economic outlook, and perhaps the widespread protests and strikes, will produce a new dose of realism in the pro-austerity brigade. And on November 14th Olli Rehn, the European Union’s economic commissioner, said that Spain’s good record on reform meant that the country would be able to miss its deficit targets this year without triggering further austerity. The Swiss bank UBS puts Spain’s gross financing needs next year at €250 billion. Mr Rajoy may have escaped a bail-out in 2012, but the markets could yet force his hand in 2013.
Letting everyone know our view of austerity
THE first hints of optimism are appearing in Europe’s troubled Club Med countries. They are not to be found in unemployment or growth figures, but mostly in the mouths of ministers. “Spain is emerging from its crisis,” declared Fatima Bañez, the labour minister, even as unemployment rose above 25%. In Greece ministers are pointing proudly to their progress towards a primary budget surplus. Everywhere economists are welcoming rising net exports and shrinking budget deficits.
Yet ordinary voters and the unemployed are mostly unimpressed. On November 14th in Spain angry protesters took to the streets in the second general strike they have staged in less than a year of Mariano Rajoy’s People’s Party (PP) government. The strike, and a similar protest in neighbouring Portugal, brought most transport links, schools and many businesses to a halt. Police clashed with violent protesters in several Spanish cities, leading to 118 arrests and over 70 injuries across the country.
Millions of people turned out across Europe in the biggest day of union-organised protests since the crisis in the euro first broke out three years ago. Unions in Italy, Greece, France and Belgium joined the action, as workers rejected what they see as northern-imposed austerity. In Rome about 60 protesters were arrested, as civil servants and national transportation workers took to the streets. The strikes in Greece were the third to take place in the space of two months. In all, trade unions from 23 European countries joined in the day of action.
Yet the protests are unlikely to lead to any dramatic change in policy, if only because policymakers are still under huge pressure to reform. The latest European Commission forecasts make grim reading. For the euro area as a whole GDP is expected to shrink by 0.4% in 2012; it is forecast to grow by a mere 0.1% in 2013.
Industrial production across the euro zone plunged by 2.5% in September compared with August, the largest fall since January 2009. The figures for the Club Med countries are especially bad. Greece’s economy is forecast to shrink next year—the sixth fall in a row.
In Spain the commission predicts that the 2013 recession will be three times worse than the government’s forecast, repeating this year’s 1.4% shrinkage of GDP. The budget deficit could even rise again in 2014 unless supposedly “temporary” tax rises become permanent. Unemployment could surpass 26% next year. Mr Rajoy’s government does not envisage even timid growth until 2014. In the meantime, high borrowing costs are squeezing both the public purse and private businesses.
Spaniards dislike false optimism, which their Socialist former prime minister, José Luis Rodríguez Zapatero, dispensed for many years. Voters evicted his party a year ago, in favour of the greater honesty and realism of Mr Rajoy. Yet now as many as 2.5m Spaniards have been jobless for over a year. Hence the backing for this week’s protests.
It would help if Spain requested a soft euro-zone bail-out to trigger a bond-buying plan announced by the president of the European Central Bank (ECB), Mario Draghi. The announcement of Mr Draghi’s plan has already lowered borrowing costs and kept markets open. Even if bond yields are now gradually drifting upwards again, Spain has already raised almost all of this year’s mid- to long-term funding.
Mr Rajoy insists that he will ask for help from the ECB only when, and if, Spain needs it. That “when” now looks unlikely to be before next year.
.
.
The Spaniards also hope that the gloomier economic outlook, and perhaps the widespread protests and strikes, will produce a new dose of realism in the pro-austerity brigade. And on November 14th Olli Rehn, the European Union’s economic commissioner, said that Spain’s good record on reform meant that the country would be able to miss its deficit targets this year without triggering further austerity. The Swiss bank UBS puts Spain’s gross financing needs next year at €250 billion. Mr Rajoy may have escaped a bail-out in 2012, but the markets could yet force his hand in 2013.
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