Spain: Big business demands savage attacks on working class following bank crash


by Paul Stuart
Global Research, April 4, 2009
WSWS


Big business leaders in Spain are stepping up their demands for labour reforms following the crash of regional savings bank Caja Castilla la Mancha, the first since 1993. After attempts to coordinate a buyout failed, the Spanish government was forced to inject €3 billion ($4 billion) into the bank to plug a "hole" in its finances and provide €9 billion ($12 billion) in loan guarantees.

The bailout has destroyed the myth that Spain's banking system was "immune" from the global financial crisis. According to economics professor Antoni Espasa at Madrid's Carlos III University, "The Spanish economy is in for a ferocious fall... It's going to suffer more than Europe and take longer to recover."

Dominic Bryant, Spain expert at BNP Paribas added, "The economy is in dire straits... The adjustment will be enormous."

When the economic crisis first broke José Luis Zapatero's Socialist Workers Party (PSOE) government boasted that the country's large budget surplus and tough regulations and controls on financial transactions would allow the country to resist the worst of the global crisis. This nationalist chimera has been burst. This month, the Economist warned, "Back in September Mr Zapatero had expressed his confidence that the downturn would bottom out fairly quickly, helped by ‘perhaps the most robust financial system in the world'. The recent rush of policy action would suggest that the outlook is now not quite so rosy."

On March 23, Finance Minister Pedro Solbes announced that the government was preparing a plan for major bailouts using public funds, after admitting that the banking sector was not immune from the international crisis.

Within days news of CCM's demise was announced. Bank shares tumbled on the Madrid stock exchange, led by a seven percent fall in Banco Santander, the largest bank in the eurozone area. "There must have been no other way out," said Intermoney SA's chief economist José Carlos DÃ*ez, "This was not the preferred option."

CCM's problems followed the downgrading of a number of Spanish banks earlier this month by investment bankers Goldman Sachs, who warned that there were likely to "suffer disproportionately" in the coming months. "With Spain facing a spike in unemployment and a burst real estate bubble, signs of severe credit deterioration abound," it added.

In Castilla-La Mancha, for example, nearly 70 percent of houses built over the last three years remain unsold and tourism, the second biggest business, saw a 15 percent fall in visitors this month after similar falls in preceding months. Goldman Sachs believes that Spanish banks have calculated their bad loans in "too narrow" a way, which "masks the true damage."

"The impact is likely to be greatest for the domestic operators but we see international banks as far from immune," Goldman Sachs said, referring to banks such as Santander.

The Bank for International Settlements has also drawn attention to the dangerous $332 billion worth of exposure of Spanish banks in Latin America—far higher than US banks—and that some countries there may default on loans.

On top of this, Spain has become the first member of the eurozone to go into deflation following eight months of falling prices. Credit Suisse reported recently that the nine percent fall in house prices over the last year was insufficient and warned that they are still 50 percent overvalued. This will have catastrophic consequences in terms of negative equity for many families who are spending an average of 7.2 times income on mortgages.

When the problems with CCM emerged, Finance Minister Pedro Solbes admitted that a number of regional banks had been "exposed" by the collapse in the property and construction sectors and were being carefully monitored. He declared, "If we continue with the liquidity problems we've got at the moment, I don't think we can say that anybody is immune."

Bank of Spain Governor and European Central Bank member Miguel Ã