Legacy

During last Wednesday's congressional debate, the prime minister told us about a country that does not exist. His complacent, triumphal attitude was neatly skewered by the United Left leader Cayo Lara when he said, rightly enough, that Rajoy is treating the country for a pulled tendon, when what it has is a cancer. The pulled-tendon diagnosis explains the cheerful self-satisfaction apparent in Rajoy's remark that: "We are implementing the best employment plan possible at the present time."

It might be said that the foregoing are points of view that are open to question. Not so, however, is Rajoy's continual reference to the "legacy received from the Socialists" in justification of an economic policy that amounts to a great leap backward for Spain in so many aspects. "The only thing we cannot do is return to the economic policy that has brought us to this pretty pass," said Rajoy. The opposition leader, Alfredo Pérez Rubalcaba, pointed out how often Rajoy had used his shopworn argument, but failed to enter into further detail, perhaps for lack of time. He might have explained the legacy left us by the Popular Party (PP).

To wit: the crisis we have been suffering since the year 2008 in Spain was not caused by the deficit (there was then a surplus), nor by the public debt then existing (it was very low). The cause was the immense private debt brought about by the gigantic speculative bubble in real estate, activated by the PP with the building-land law it enacted in 1998. Let us remember once again the facts that Rajoy never mentions as causes of the disaster: between 1997 and 2007 (a period mainly covered by PP governments), construction in Spain burgeoned at a rate of five percent annually. In those years the country's housing stock rose by 5.7 million houses, almost 30 percent of the existing total, while accumulated house price inflation amounted to 191 percent.

In 1998, construction accounted for 14 percent of total employment in Spain, twice the figure for Germany and five percentage points above the United Kingdom. Then, in that year, then-Prime Minister José María Aznar enacted a building-land law that further increased the irrational, unnatural exuberance of the construction sector: any and all land was eligible as urban building land, except what was expressly prohibited by environmental laws.

 This fine exercise in liberal principle fomented a feverish real-estate boom in which construction, largely of second and tourist residences, saw an unprecedented expansion. One point of the PP's line was that the number of housing units would increase, and thus prices would drop. On the contrary, the whole direction of the boom was speculative. By dint of taking on mortgage debt, new houses and apartments were acquired, not because they were cheap but because they were expensive, and were expected to become even more expensive, thereby fostering speculation. In turn, the speculation unleashed a process of continual municipal rezoning of rural land, which filled the public coffers of town halls (and the private pockets of office-holders).

 The considerable share of the blame that falls to Zapatero lies in the fact that when he took power in 2004, he did nothing to deflate this bubble. It must be admitted that very few politicians would have had the courage to do so, when the practice of real estate speculation was so widespread, and so many people had put money into it. No, he took the path of least resistance, and chose to ride the wave of opulence. It is open to question whether his plans for expansion of demand, when the difficulties began, were precisely the optimal ones. But the transformation of private debt into public debt, in a continual process of socialization of losses, comes down to us from Aznar, not from Zapatero. This indeed is a heavy legacy.