Spanish General Strike: only a matter of time

With the latest unemployment figures just in, Spain's economy is creating a financial black hole that threatens to vaporize the entire eurozone

Place your bets, ladies and gentlemen. How long before we see a second general strike in Spain? The first one was a month ago, just 99 days after Mariano Rajoy and his centrist Partido Popular assumed office. That strike was convened by the traditionally leftist labor unions as a result of Rajoy's austerity program which calls for the deregulation of hiring practices; a reduction of workers compensation, pensions and health care benefits; and the elimination of redundant government ministries and the practice of wasteful project spending (during Zapatero's administration there was actually a government sponsored project to outline and map the woman's clitoris and the labia minora). Additionally, the most indebted autonomous regions have to curtail their budget deficits to meet national projections.

Spain's unemployment currently stands at 25 percent, the highest in Europe. It is estimated that one in three of all unemployed people in the eurozone is Spanish. And the forecast is dim as this figure is expected to increase. The causes are many and I've previously mentioned them here (Mar 27), here (Mar 30), here (Mar 31) and here (Apr 13).

What's clear is that the crisis in Spain is not going to see a turnaround any time soon. There's one fundamental flaw in the government's program. At the same time the government is reducing expenses, they are also increasing taxes of prime commodities to increase revenues. While I understand the need to increase revenues and decrease expenses to reduce the budget deficit, increasing taxes is counter intuitive and will result in the exact opposite of the desired result.

To get the economy moving again, money has to start circulating. In other words, the administration has to restore investor confidence. Reducing workers compensation on the one hand is an incentive for employers and prospective investors, but at the same time, tax increases of prime commodities such as fuel and utilities is a turn off to employers and prospective investors. The incentive the government is offering on one side is being offset by the increased cost of doing business on the other. The net effect is zero benefit. Who, in their right mind, would want to invest under these conditions? Furthermore, the increase of prime commodity taxes creates inflationary pressures at a time when the country can ill afford it. The way I see it, increase taxes and you reduce employment. If you want to decrease unemployment and get money circulating once again, reduce taxes. Unemployment is a double edged sword: less people contributing to social security and more unemployment benefits social security has to pay out. It's not rocket science, the system will fail.

But there's another reason why the Spanish economy will be hard to restart: culture.

Spain is the one country in Europe that has failed to adapt to the international work ethic. For example, businesses routinely take 3 to 4 hour lunch breaks and they do not open on weekends. The big chain stores only open one Sunday a month because the association of mom and pop stores complained that allowing the big stores to open on weekends would put them out of business. And yet for many, the weekends are the only free time they have. I guess no one ever told these mom and pop stores they could close on Monday and Tuesday and open weekends.

Spanish workers also take a month off with pay in July or August during which time businesses shut down except in tourist areas. That means employers are paying employees during a month in which production is zero. It wreaks havoc on cash flow and budget planning.

Still, on average, the Spanish work more hours per week than their European counterparts. The problem is they are also less productive. Spanish workers, for example, work 9 hours more per week than the Belgians but are only 50 percent as productive.

So what's the point of working more hours if nothing is getting done anyway? Might as well just shut down early and at least save on electricity and air-conditioning, right? Well, a lot of it has to do with image and justification. It's bad for their image to admit they are not hard working (they aren't) and they use the extra hours stat to justify they are not lazy (they are). In fact an often heard phrase in Spain is vivir del cuento which basically means "the gift of gab and living off it". Spain takes pride in being different; I would seriously reconsider that self assessment as it may just be their own undoing.

Unions leaders are quick to point out they fought hard to achieve the worker benefits Spain now enjoys. False. They didn't have to fight for anything, it was handed to them on a silver platter when the joined the European Union. Europe poured in the funds and as they say over here, se vivió del cuento. And so far, Spain has been an epic fail on the economic front.

The only question that remains is when is the second general strike going to take place. My guess is before the summer break. What happened in Greece, that was child's play compared to what's going to happen here.