It's the governance, stupid!

Germany is so scared of inflation that is even willing to endure a 26% unemployment rate for years if needed ... in Spain. Or in Italy. Of course. Forget about it: the problem we face has nothing to do with sovereign debt, with predatory banks or with the housing bubble either. It is a problem of governance. Does anyone doubt that if the catastrophic unemployment figures were chastising Germany the eurozone would be making completely different policies? I'm sure we'd have a European New Deal from the very first minute of the sinking of the labor market and I believe that any honest economist will tell you the same thing, even though he or she were ideologically against it.

It's easy to be rigorous and be stubbornly wrong when the price is paid by someone else. The problem here is that countries in trouble have ceded monetary instruments to Europe and have renounced fiscal instruments honouring European stability pacts -in the case of Spain even through an express reform of the Constitution- in short, have ceded economic sovereignty to Europe, and do not have absolutely any instrument powerful enough to mend the situation. Spanish democracy, if there ever was one, is vacuous when the sovereignty that matters, which must act immediately and forcefully against the tragedy that is costing lives, does not depend on people's votes.

The oxymoron of capitalist democracy

The so-called internal devaluation, the "solution" that seems to be applying, isn't valid for many reasons: firstly because, unlike a devaluation of the currency, it is asymmetrical and uneven, driving those who are in weak bargaining positions within the economy to lose a lot, while others in positions of power even win with it, it is to say: it's not neutral at all, serves the 1%'s interests. Secondly, because during the process the welfare state is being dismantled, and although ours is obviously imperfect, it's the model of relative equality and security that we had provided ourselves with: public health and education are being destroyed, the social protection networks collapse. Thirdly, and may be most importantly, because it is too slow. Today's unemployed workers, those who are living the tragedy of the eviction, the young unemployed graduates, the long-term unemployed people and the families with no income whatsoever can't wait for solutions in 2018. Actually, the internal devaluation is not a solution, there is no policy behind, it is the simple realization that we are in such a bad situation that real wages are falling and will eventually reach a level low enough to make our country competitive again, through the price mechanisms. But when will they have fallen so much to become competitive within the world's global markets? And how much will have to fall for that? Spain should not aspire to compete through the argument of price but through the innovation and quality ones, and can do so because it's got many highly educated young professionals. This might be the real main reason that impels Germany -through its ECB- to act so blindly and to punish us: because that would send us to the second division and, thereby, would eliminate a potential competitor.

As a matter of fact the European Periphery do have a last instrument: we may leave the euro or threaten to do so if Europe doesn't take seriously a 26% unemployment rate. And here we face a second problem of governance: any legitimate government accountable to informed voters would have already gone to Brussels and would have striken its fist on the table. But our governments are cognitively captured by the Washington Consensus and the neoliberal orthodoxy and think, thanks to the deeply undemocratic bipartisanship system imposed on us in the Spanish transición, that their position is safe, that they can simply alternate one another until hopefully one day the crisis will be over by itself.

The ECB President and the Spanish Economy Minister having fun

That several important countries like Spain and Italy, along with some others such as Greece, Portugal and Ireland were to leave the euro or threatened to do so may be a tragedy, but mostly for the euro. For outgoing countries it would be a chance to regain the economic policy instruments they need to lift themselves and the ability to devalue their currencies and avoid the drain of the internal devaluation, so that the losses from the withdrawal of the common currency would be more than offset. In fact, it is not clear that there had to be any significant loss: EU countries which didn't enter the euro (Denmark, Sweden and even the Eastern European countries that did not meet the convergence criteria) are doing much better than those that entered, and those outside the currency that find themselves in the edge of serious troubles, namely the UK, it's because they also bought the austerity ideas. The tragedy would be for the euro in terms of political prestige, huge legal mess and economic credibility and influence.

In conclusion, governance is the problem: the incentives of economic policy makers affecting Spain are misaligned with the interests of Spain. It is a problem of democracy, and what we are seeing, therefore, is a disgrace to the citizens of a system they perceive in a more or less explicit way that doesn't respond to their needs and lately even works against their interests. The model discredits itself and this process, which is increasingly accelerating, will ultimately bring to radical political demands for change. The question is whether these changes will lead to a true democracy, more transparent, more direct and better or to something else and potentially dangerous. And the other relevant question is what will be the cost in economic decline, in destruction of the welfare state, in cutting prospects for young people and in human lives.