Monday, October 1, 2012

Feeling the Pain in Spain

My wife and I just returned from a week in Madrid.  We had a marvelous time - Spain's capital city is beautiful.  We loved walking around the city, and seeing the wide variety of neighborhoods and cultural sights.

Our trip was not without drama, however.

In response to conditions imposed by the European Central Bank, Prime Minister Rajoy's government has proposed a very austere fiscal program. 

These cutbacks will impact nearly every segment of Spanish society, as the New York Times explained this morning:

And then there was Spain, where last Thursday the government of Prime Minister Mariano Rajoy introduced one of the most draconian budgets in the country’s history. It was intended to reassure international investors and demonstrate the fiscal discipline that the euro zone was demanding of Madrid. 

The markets need reassuring: Spain has a stubbornly high budget deficit, its banks require tens of billions of euros in rescue loans and the government may soon have little choice but to request European aid. 


Demonstrations were held protesting Rajoy's proposals throughout Spain last week, including several in Madrid and Barcelona. 

Since our hotel was only a block from the Spain's Parliament building, we experienced first hand the frustration and unhappiness of Madrid's citizens.

The larger demonstration was held on last Tuesday night, when several thousand people gathered in the park located down the street from the government offices.  Another similar demonstration was held on Wednesday night, although the crowd was noticeably smaller.

The demonstrations were largely peaceful, and had the feel more like a sports rally than an angry mob.   However, once the police moved in to try to break up the crowd, the atmosphere became a little more tense, as protestors battled with police dressed in riot gear.

We watched the protests from the vantage point right outside our hotel, joined by several other curious visitors and hotel employees. 

It was somewhat uncomfortable, to be honest, to be standing outside of our luxury hotel watching the chants of protest being raised by passionate citizens.

While we were watching, I had the chance to have a long conversation with one of the hotel employees, whose English was nearly flawless. 

He told me that his girlfriend - who works for the national health service - just had her pay significantly cut as a result of the government's austerity program.  In other words, in his world, Spain's economic woes are very real.

At one point he turned to me and asked:

"What do Americans do when the government cuts their benefits? Do they have similar protests as these?"

For a moment I thought, and then had to answer him truthfully.

"Well," I said, "in America, our government does not ask our citizens to take cuts. Since we have the ability to print money, and the world apparently has an insatiable appetite for dollars, our debates are largely about cutting taxes and raising benefits."

He looked at me incredulously, then shook his head. 

Spain's economic woes are not the result of fiscal probity, but rather an overextended banking system.Yet the Spanish citizens are paying the price.

I thought about this conversation on the plane ride home, and wondered how our country would react to seeing benefits cut and taxes raised.  

Fiscal austerity has not been proposed in the United States for decades, despite our $16 trillion cumulative budget deficit. President Jimmy Carter, for example, was widely mocked in the late 1970's for suggesting that Americans turn down their thermostats and reduce their dependence on debt.

Since then, politicians on both sides of the aisle have steered clear of any suggestions that American lifestyles might eventually have to changed.

Columnist Frank Bruni had a good piece on this same subject in the op-ed section of the New York Times yesterday.  Here's an excerpt:

The size of the federal debt and the pace of its growth can’t be ignored. 

Economists disagree on how soon and aggressively to tackle them, but not about the eventual need to. 

Yet we have tax rates that, by some measures, are near the lowest in the postwar era. We also have polls that show that a clear majority of Americans don’t think our country is positioned to afford its children as good a life as its adults have enjoyed. 

Conditions, all in all, are ripe for a serious conversation about sacrifice. But this presidential campaign has been noteworthy for its nonsensical insinuations or assurances that although we’re in a jam, we can emerge from it with discrete, minimal inconvenience.