"Power has shifted from elected representatives to financial moguls"
Former Prime Minister Felipe González gives his views on the euro crisis
Felipe González is angry and concerned. Spain's longest-serving prime minister (1982-1996) is criticizing the conservative government of Mariano Rajoy for allowing what he said amounts to "a total intervention" of the Spanish state at "a low cost" to the European Union, in reference to the approved bailout of Spain's banking system.
The former Socialist leader, considered one of the country's most influential statesmen, also thinks it would be a serious mistake to think that Spain is too big to fail because of the risk to the euro. "Was not Europe able to destroy itself [in the past]?" he asks in this interview with EL PAÍS. "We are adrift, as Spaniards and as Europeans."
Question. How did we get to this point?
Answer. [Angela] Merkel says we are paying 10 years' worth of mistakes made by an economic policy based on an enormous real estate bubble. Now that we keep saying she is wrong about everything, we need to admit that yes, she is right about that. She is talking about the 10 years prior to 2008, which is when the world financial system blew up and the real estate bubble burst in Spain. From a Spanish point of view, the unbridled property boom began with the law that freed up land for sale with the banal argument that the greater the land supply, the cheaper the price, as though the markets would be rational. The reality was that land became more expensive by the day, that we built three or four times more square meters than was required by balanced demand, and that we wildly encouraged small-time corruption.
Angela Merkel is right to focus on the fallout from Spain's property bubble"
Q. So Spanish decisions are to blame?
A. The responsibility does not lie solely with a bunch of undisciplined people rushing madly along towards a property bubble, as they would have us believe. There is a shared responsibility with regard to a monetary policy that facilitated loans at rates below those of inflation, and that was not the exclusive responsibility of Spanish financial institutions, but also of German ones, French ones... The mistake is ours, but it is a shared one. There's been a terrible construction crisis, but the debt crisis is caused by the banks, which fed that debt irrationally. [...] But things were not the same at the state level. During that same period of time that Merkel is talking about, Spain had much healthier public accounts than Germany and almost any other country. When the bubble burst we had a budget surplus of over two percentage points, and a public debt of under 37 percent of GDP.
Q. Ten back-to-back years of mistakes is a long time, though.
A. All this began with political decisions made from 1998 onwards by [Popular Party government officials] Aznar, Rato and Rajoy, but they were not corrected by the governments that followed in 2004, that is to say by [Socialist Prime Minister] Rodríguez Zapatero. They were not corrected by a government apparently living in an ideal world, with the economy growing at over three percent and loans below inflation levels [...] instead it added fuel to the fire. Of course, all this came with a defective European model for a monetary union without economic union. When it was convenient for us for the interest rate to be reasonable with regard to economic growth and inflation in our country - that is to say, when we needed to cool down that speculative economy - the interest rate was fixed with criteria that did not meet our needs. So the European Central Bank fed the fire we were creating in Spain.
Q. Could this Spanish drift have been corrected with a different European policy?
A. At least it would have prevented the dramatic situation that Spain and Italy find themselves in, and by extension the entire monetary union. Complete correction has its difficulties. If you look at the United States, you see that a single currency with divergent economic policies caused a tremendous panic in the late 19th century, which led to the creation of the Federal Reserve. Today, the state of California cannot balance its budget. So how does it finance its debt? Through the Federal Reserve, at negative interest rates. Obviously, they will have to do some serious restructuring, but the Fed prevents speculation from wiping out California, just like it does with Florida. It's not like here, where the European Central Bank does not act like a central bank.
Q. Neither are we a federation.
We are now seeing the same banking practices again that led to the trauma"
A. We are not a federation and we do not have a central bank that acts as such, I insist. Spain has a deficit and debt figures well below those of Britain, and yet Britain finances itself through the Bank of England at very low interest rates while Spain finances itself at unbearably high yields, because the ECB does not act like a central bank, but it does prevent national banks from acting as such. This is an asymmetrical restriction because it tremendously favors countries like Germany and its closest partners, while it hurts others just as tremendously. So we could say that to talk about a single European currency is almost an exercise in political-fiction. There is one euro with completely different assessments in the markets. In California, independently of California's debt, the dollar is the same as the dollar from New York. But in Alicante the euro is more expensive than in Frankfurt.
Q. Is that what happened with the monetary union?
A. We need to remember that all this is taking place in a context that we have forgotten about already, namely that the origin of this crisis is in the meltdown of a deregulated global financial system. There was a rescue of that deregulated financial system, and that was done at the taxpayer's expense, not just in terms of the bailout itself but also to pay the consequences of the deep recession caused by that financial crisis - once all that was done, it turns out that the things that caused the crisis remain untouched. We are now seeing the same practices that led to the crisis, and suddenly you read that J.P. Morgan has lost another few billion euros.
Q. Why is that happening?
A. I'll give you a personal opinion. Because the displacement of real power in the last 25 years from our democratic representatives to the financial decision centers has not been reverted.