A lesson not learned

Today Spain raises its VAT from 18 to 21 percent in an effort to increase government revenues and decrease the budget deficit. If history has taught us anything it's that all previous increases failed miserably in achieving the desired result.

Seventy-three years ago today, German troops invaded Poland and plunged the continent into the darkest five years anyone had ever experienced. In Europe alone the total number of casualties (civilian and military) was well over 15 million.

Today Spain is being plunged into darkness with the value added tax being raised from 18 to 21%, its highest level ever. The centrist Partido Popular (PP) government of Mariano Rajoy insists that extreme measures are necessary in order to reduce the budget deficit and foreign debt. While this may true, the real reason has more to do with credibility, or as I like to call it, creditability - the ability to pay back your loan commitments and thus secure further funding. At this stage of the game the blunders in fiscal mismanagement are so compounded that world financial markets have serious misgivings about Spain's ability to meet its monetary obligations. In other words, while Spain is making all the right moves in the eyes of Germany and the European Central Bank (ECB), the rest of the world believes these measures are too little, too late. The result is a risk premium hovering the 6 percent mark, extremely high for a developed country especially when you consider Germany's risk premium is zero.

So the question has to be, if Spain is complying with all the fiscal controls demanded of them, why is there such lingering doubt in financial markets?

Spain's current sitution

The graphic on the left pretty much explains it all. Currently (2012), unemploy-ment stands at 25% with over 5 million people without jobs. Of these, over 2 million have been out of a job for over two years. And there are over 1.5 million households with no income whatsoever. In a country of only 40 million people, this is tantamount to total social and economic collapse.

Furthermore, this Microsoft report from 2011 finds that 99.88% of the registered companies in Spain are SMBs, which is to say, companies with less than 250 employees and with annual revenues below 50 million euros. However, in Spain, 96% of the registered companies have annual revenues below 2 million euros; 53.9% have no registered employees. This means that the majority of companies are "mom and pop" stores: the butcher, the pharmacist, the cobbler, the auto mechanic, etc.

In other words, these companies do not have extensive financial resources and are living at the edge of their monetary capabilities because the products and services they offer are price volatile and subject to the laws of supply and demand.

Therefore, as financial analysts see it, the increase in VAT and other prime commodities will most likely decrease overall revenues. Some analysts estimate government projections will be off by 2 billion euros due to an overall decrease in consumer spending.

As if to prove the analysts right, the latest consumer reports from the National Statistics Institute (INE) state that retail sales decreased by 6.5% in July.

What's even more amazing is that this is not the first time the VAT has been increased. Two years ago, under the administration of socialist president Jose Luis Rodriguez Zapatero, the opposition Partido Popular launched a massive information campaign against Zapatero's increased VAT (from 16 to 18%) initiative. The campaign cited how previous attempts at raising the VAT ended in economic disaster for the administration of Felipe Gonzalez back in 1993 and eventually led to his defeat in the 1996 elections.

So, if the strategy of raising the VAT did not achieve the desired results in 1993 and again in 2010, why is it now deemed the correct response and being forced on the people yet again? The PP has even gone to great lengths to remove all vestiges of their previous "No más IVA" (No to higher VAT) campaign from the Internet but social networking sites have kept photographic records of the PP's top echelon working the streets to get people to sign the petition.

One possible explanation
This time around Rajoy's austerity measures will have no more of a positive effect than in previous attempts. If Rajoy has paid attention to history he can expect unemployment and business closures to rise.

However, one would think that the logic is sound: if government needs money, raise taxes; if it needs to reduce expenses, cut social programs and services. Or is it sound reasoning? Judging from Spain's track record it would seem not, and yet the same strategy is being employed over and over again. Clearly, raising taxes and cutting social programs is not the answer. It hasn't worked in the past, it won't work now. Therefore, the problem lies elsewhere. These problems are deeply rooted in a flawed state system of autonomous regions and a failed business model of an economy solely dependent on real estate speculation and development. A simplistic approach to a complex problem is, at best, a band aid solution.

I won't go into the problems here because it would take more than a blog to explain and would cover several pages of macroeconomic data, the analysis of conflicting cultural attitudes and a historical approach at attempting to explain the lack of national unity. I can however say that the negative figures presented in the graphic above will only be exacerbated.

In the end, Germany may be appeased by the measures Rajoy is implementing. Their loans will be repaid, they'll make money and will continue to be Europe's economic powerhouse. But at what cost to Germany and to Spain itself?

When the dust from this economic fallout finally settles in Spain, how much will have been destroyed in terms of production, employment and wealth? This time around, how many casualties will this European crisis claim?

Those who don't remember the past are condemned to repeat it.

Spain: land of the mediocre

Yesterday I posted an opinion on Facebook sent to me by a friend. It is a well written, auto critical piece of introspection of the current situation in Spain. I translate it here for my English speaking friends. I do not know who authored it.

Perhaps the time has come for us to finally accept that what's going on in Spain is more than just an economic crisis. It goes beyond laying blame on political parties, banking greed and financial mismanagement or the risk premium. Our problems will not end with the changing of the political guard, the imposition of financial controls or the threat of general strikes. It is time to admit that the problem in Spain is not Greece, the euro or Angela Merkel. It is time to accept that we have become a country of mediocrity.

No country attains this level of deficiency overnight or in three years. It is the result of a chain of events that starts with the educational system and extends to the ruling class. We have created a culture in which average is rewarded - in school, in the office, in the media and in politics.

We are so comfortable with mediocrity that we have accepted it as the natural state of things. The excellence we have demonstrated in sports only serves to obscure and deny the reality of the situation.

- Mediocre is a country whose people watch an average of 134 minutes of teletrash daily.

- Mediocre is a country that, in its 34 year democracy, has not produced a single president capable of speaking English or of having some semblance of knowledge of international affairs.

- Mediocre is the only country in the world that, in its desire to be sectarian, has even managed to divide associations of victims of terrorism.

- Mediocre is a country that has reformed its educational system three times in three decades to the point of having the least prepared students in the industrialized world.

- Mediocre is a country who does not have a single university in the top 150 of the world and whose best scientists must seek opportunities abroad.

- Mediocre is a country with a 25 percent unemployment rate, and yet, is able to feel disgust because its neighboring country makes fun of its sporting figures.

- Mediocre is a country where a person's ingenuity is viewed negatively, where creativity is marginalized and where independent thinking is villified.

This is a country that has converted mediocre into the great national hope and aspiration, sought after by youths whose only goal is to be selected to join the next edition of Big Brother, by politicians that insult without providing a single solution, by bosses that surround themselves with simpletons to disguise their own shortcomings and by students who ridicule those that show initiative.

Mediocre is a country that has allowed, celebrated and promoted the triumph of the average, sidelining excellence with two options: leave or assimilate yourself in that unstoppable gray tide of mediocrity.

Spain, what next?

Spain's risk premium hits an all time high while the disgruntled public takes to the streets. What are the implications and how does it affect you?

Spain is experiencing massive daily demonstrations with no let up in sight. And this is just the beginning.

I've been ranting it for the past several months - raising all kinds of taxes while making drastic public spending cuts in an effort to reduce the budget deficit will only produce more unemployment and Chapter 11s, the exact opposite of what the government wants to achieve.

Rajoy says that they had no alternative but to take these difficult steps in order to save Spain from itself. In his State of the Nation speech to Congress last week, he reiterated that the decision to raise taxes and cut spending was undertaken in consultation with the private and banking sectors and was the correct decision regardless of how difficult it might be.

See, I don't buy the part about how difficult it was to make this decision. On the contrary, they took the easy way out...the easiest way out. In a business, if you have to reduce your losses, the first thing you do is cut expenses - a dollar saved is a dollar earned. That relationship is direct: when you reduce your cost by one dollar, you increase your profit by one dollar. Secondly, if the market can bear it, you raise your prices. This is the easiest and most time-honored way to minimize losses.

Government operates the same way. If the deficit exceeds an acceptable level, reduce operating costs and increase revenue. However, unlike the private sector which raises prices ONLY IF THE MARKET CAN BEAR IT, government doesn't give a hoot whether the public can bear it until it blows up in its face. When you're faced with 25% unemployment, the last thing you do is raise taxes. The market cannot bear it.

According to NationMaster.com, as of 2010, Spain had approximately 24 million people between the ages of 20 and 65 (the workforce), while the remaining 16 million were either retired or too young. If, of that 24 million work force, 25% is out of work, then it is clear to see that one-half of the population works, not only for itself, but for the other half. Since 95% of private sector companies in Spain are SMBs, it is safe to assume that these people are not millionaires. In fact, the average yearly wage of people in the private sector is normally between 24 and 30000 euros.

Spain is the fourth largest economy in the eurozone yet its wages rank only 15th in all of Europe (see graphic upper right hand corner). Spain's has a higher internet connection cost than France, Germany and Holland. All this only goes to show that the Spanish people can ill afford any tax increases as envisioned by this administration.

I've always maintained that the difficult decision, but the right one, would have been to reduce taxes and reduce costs. Make the country attractive to foreign investment, don't kill it.

At present, Spain's risk premium is at 593 points or 5.93% for seven year government bonds, 5% for two year bonds. These are ridiculously high premiums to be paying, but it reflects the level of uncertainty that exists. It is generally accepted that the panic point is 600 points. I have no doubt we will surpass it.

Europe will have to pour more money into Spain that much is clear. Furthermore, the current situation (recession) will extend way beyond the 2014 target the government is setting for itself, which is wishful thinking.

What I can say for certain is that Spain has the potential of dragging the whole of Europe into a deep recession. And if that happens, the rest of the world will be affected because imports from developing countries (SE Asia and Africa) will be greatly affected. The bigger scenario is that the world could end up in the worst depression since 1929.

Speculative politics accentuate innate nescience

With 100Bn euros in fresh aid, Spain seeks to stabilize their over exposed banking system. The question is, is this too little, too late?

Spanish bankers must be passing around cigars, popping champagne corks and making appointments with their favorite massage therapists after receiving the news that the ECB was coming to rescue their industry.

If anyone thinks this bailout will change everything in Spain, and by extension Europe, let me be firm and unequivocal. Yes, it will change things...but not for the better. I've already mentioned in previous posts that Spain is a cancer just waiting to metastasize.

While this bailout may appear to work in the short term, true success can only be measured in the medium and long term. And that long term success is dubious at best.

Spain, like the rest of Europe, is highly socialized, which basically means that government is used to spending money it does not have. To top it off, socialism has no regard for free enterprise. Let me put it this way. If you're an entrepreneur, you want to be living under a government system that embraces free enterprise, i.e. a capitalist system. If, on the other hand, you are a worker, then you want to live in a socialist environment.

The problem with socialism, as opposed to capitalism, is that its adherents believe that the way to pull a country out of the doldrums is through increased public spending. In order to cover increased public debt, socialists simply raise taxes. The result of all this government intervention is minimal growth rates. Compare annual growth rates of socialist countries and you'll see that these are usually in the order of 1.8 to 2 percent a year on average. Socialist governments are structured for this kind of growth. And it works as long as economies are sustainable because everything is controlled, from inflation to pay raises and the cost of living or CPI (consumer price index).

However, the opposite is also true. When the economy takes a downturn, socialist systems are the least prepared to handle it precisely because of the kind of structure they have in place. I'll give you an example.

In 2008, when Spain first started to feel the effects of the recession and unemployment started to reach unprecedented levels, instead of providing incentives to increase consumer spending such as lowering taxes and implementing mechanisms to promote entrepreneurship, the government decided to hire more civil servants. In my previous post I stated how Spain had the highest number of civil servants per capita compared to other European nations. Zapatero's answer to the crisis: increase public debt; hire more civil servants to offset increasing unemployment figures. Where were the incentives to promote new businesses and new hires? Nowhere.

And that's where Spain finds itself today. The 100Bn euro bailout package is destined to recapitalize the over extended banking system. None of this money will be used to reduce unemployment which stands at over 25 percent (and increasing) or to promote new businesses. Instead, to finance interest payments and decrease the deficit, the government will now raise VAT to 21 percent from the current 18. This is the second VAT increase in three years.

It's not rocket science. If you have an unemployment rate of 25%, with mom and pop stores closing at an alarming rate (95% of all businesses in Spain are SMBs) because of reduced consumer spending, raising taxes will just kill the economy completely. And in the process, it will bring down the rest of Europe. The ten year yield on government bonds is the highest its ever been. Moody's and S&P have already downgraded Spain's credit worthiness to near junk status. All this means only one thing: there is absolutely no confidence in the current administration.

Spain is a ship of fools run by incompetents, and like the Titanic, is heading straight towards an iceberg.

Eurodebt graphic

All week I've been posting threads on the state of Spain's economy. This graphic clearly illustrates the situation of the PIIGS states.

A picture is worth a thousand words.

Eurodebt graphic

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.

What manner of pride becomes you?

A few posts ago I railed about Spanish pride. Maybe you thought I was being facetious. Well, here's further proof

Chelsea Football Club has made it through to the the finals of the Champions League after playing a courageous match at the Nou Camp despite being a man down. Apparently that's not the really big news in Spanish sporting dailies. The big news is the front page of today's (April 25, 2012) The Sun, that cheesy English tabloid owned by Rupert Murdoch.

The front page headline says: "Terry sent off; Messi misses pen; Chelsea reach Champions League final...but most incredible of all: TORRES SCORES!"

Well, the backlash of that headline was incredible. Marca headlined it "Intolerable: The Sun makes fun of Torres' goal."

If we were talking about any other non-Spanish footballer, The Sun's headline would not have even raised an eyebrow. But because Torres is Spanish, it is a slap in the face to all Spaniards. I mean, the nerve of these Brits! How dare they! What are they trying to imply, that Torres scored out of sheer luck...that he doesn't possess the skills to score of his own accord? How dare they insult us in this manner, harrumph, harrumph!

But wait, there's more! If you continue reading, I will also include links to the Guiñol scandal (French muppets) at no extra charge!

A few months ago, Alberto Contador, 2010 Tour de France winner, was stripped of his title after being found guilty by the CAS (Court of Arbitration for Sport) of using Clenbuterol, a performance enhancing drug. Well, needless to say, the French jumped all over that one and parodied it on their Guiñol program (Canal+).

It gets even better. The show was so successful, Canal+ decided to up the ante a bit and produced another skit based on Rafael Nadal's physical prowess, which is actually quite funny. The icing on the cake was the Guiñol that showed several Spanish professional athletes, including Iker Casillas and Pau Gasol, signing contracts with a steroid-filled syringe.

Mon Dieu! Sacré bleu, quelle sacrilege!

Suffice it to say the Spanish were up in arms and made all sorts of calls to denounce and boycott the French. Sure, Spanish pride was hurt. But seriously, sue the French over some satirical review? Can you imagine if George W. Bush went about suing every late night talk show because they ridiculed and made fun of him? Jay Leno, David Letterman, Jimmy Fallon, Jimmy Kimmel, Conan O'brien would all be out of a job.

I reiterate, Spain suffers from national collective inferiority complex. And it is precisely their reaction to ridicule and satire that proves my point. Had they chosen not to react so vehemently against the French, no one would have even noticed or paid attention to the Guiñol.

Spain feels, rightly or wrongly, that they deserve to be one of the world's influencers. I can only say that if they continue with their downtrodden persecuted attitude, they'll never be considered for anything.

The old adage still rings true: if it doesn't apply, let it fly.

Spain's legacy to the world

Spain has bequeathed the world with its art, culture and religion. But there is another gift "Made in Spain" that history books never talk about - corruption

Ok, I'll be the first one to admit: Spain did not invent corruption. Corruption, at least its essence, has been around since the beginning of time. The actual term originates in the middle ages and is defined by Merriam Webster as "the impairment of integrity, virtue or moral principle; inducement to wrong by improper or unlawful means (as bribery)."

Let's face it, as Lord Acton once wrote to Bishop Mandell Creighton in 1887: "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men." This quote primarily stemmed from the fact that monarchs and emperors were all absolute rulers. Thus, Caligula Caesar, Pope Alexander VI, Henry VIII and Napoleon to name a few were all corrupt.

But whereas these people were morally vacuous individuals, Spain embraced corruption, developed it into a cottage industry, expanded it on an industrial scale and then exported it.

Need proof? Just take a look at the world around you. Every country Spain has ever colonized, with the exception of Costa Rica and Puerto Rico, is underdeveloped and due primarily to corruption. Mexico, El Salvador, Nicaragua, Panama, Colombia, Venezuela, Peru, Chile, Paraguay, Argentina, the Philippines are all corrupt countries. Anything, including murder and justice, can be had for a price.

And then there's Cuba. Cuba was the jewel in the Spanish crown that India was to the British crown. And we all know how that ended up.

On the outside looking in

The following is a personal account of an outsider's view of the European experience in general and the Spanish experience in particular. This post was originally drafted on October 3, 2009 although never published. It has been edited and revised since that time.

I've always wanted to do a critique on Spain as much as I've always detested the thought of writing one. Anyone who knows me, knows I don't put any stock into opinions because I firmly believe that opinions are like nose hairs - everybody has them but no one wants to see them displayed in public. Here in Spain, opinions are a fundamental part of the social fabric; you not only have the right to an opinion, you are encouraged to express it and take part in coffee shop debates. In Spain everyone is an expert on everything. However, these debates are usually one sided in that everybody expresses a position but no one cares what you think. The unwritten maxim is: When I want your opinion, I'll give it to you.

Why Spain? Because Spain offers a perspective of itself unlike that of any other country in Europe. It is a microcosm of the eurozone itself. Spain is composed of 17 autonomous provinces each with its own dialect, customs, traditions and culinary tastes. The eurozone is made up of 17 sovereign states each with its own language, customs, traditions and culinary tastes. See what I'm getting at?

You've seen the tourist promotional ads, "Spain is different!" Well, it is. What happens in the rest of Europe, also happens in Spain except over here, everything is exaggerated by a factor of ten. I'm reminded of TV star and comedian Bill Cosby. In one of his routines he would go around asking college kids why they did cocaine. "Because it intensifies the personality, man," they would respond and Cosby would counter, "OK, but what happens if the person's an a-hole?" This analogy is the best way to describe Spain - very intense but, more often than not, obnoxious and irritating. To understand what makes Spain tick you have to go back and understand its history.

Spain in the context of Europe
What makes Europe such an attractive travel destination is its history, culture, traditions and diversity. Europe has it all: power, intrigue, scandal, sex, wars, religion, science and arts.

At the same time, it is these very attributes that are the downfall of Europe. Thousands of years of traditions, customs, war and distrust are hardwired into every European. So, while on the exterior the economic powers are genuinely trying to unite the continent through the European Union, the underlying sentiment among members is one of animosity and apathy.

Why the animosity? Because of pride. Pride is at the root of everything that is wrong with Europe. Individual member states take pride in their rich history and their contributions to the arts and sciences. So they are not about to readily accept the dictates of a pan European institution that compromises their sovereign will. No place is this more evident than in Spain.

There's a little known book that was published back in 1969 by Fernando Díaz-Plaja. The book, "The Spanish and the 7 Deadly Sins," is a narrative explaining the attitudes of the Spanish. In the foreword the author states that he had not realized the character of the Spanish until he traveled abroad and observed different cultures. In so doing, he found new insight into his native land. It's a short book just 200 odd pages long but two-thirds of it are dedicated to two sins in particular: pride and envy, one being a corollary of the other.

Pride
Perhaps the strongest emotion of the Spanish, however displaced it might be, is pride. The term 'humble spaniard' is a complete oxymoron; the species doesn't exist. Miguel de Unamuno (1864-1936), Spanish philosopher and essayist, expressed it this way in his book, Obras Selectas (Selected Essays): True humility, in those who feel superior to others, is to admit they are superior. And that, in a nutshell, is the definition of Spanish humility.

I remember that as a boy in the 60s traveling to Spain to visit my aunts and uncles, I would ask my uncle why he never bothered to learn English. "What???!!! Me, learn English? Why should I learn English when half the world speaks Spanish? Maybe it is the English who should learn Spanish!" That was the conventional wisdom back then because in its golden age, the sun never set on the Spanish Empire. The Spanish were the conquerors, never the conquered. And a lot of that sentiment has carried on into the present day.

A few years ago I asked several colleagues who where in their 30s why English in Spain was not as widespread as in other European countries. The answer this time was because Franco, through censorship, discouraged the use of foreign languages in the arts. This is not entirely true. There was censorship but it was aimed at political and moral issues. In fact, there were movie houses in Madrid dedicated to showing foreign films in original version. In these cinemas I got to see the original undubbed versions of Night of the Living Dead, Alfred the Great and the Beatles' Yellow Submarine. I found it amusing that a group of people who had not even been born during the Franco dictatorship were so certain of their answer. I suspect that my young colleagues found it more convenient to blame Franco for Spain's inability to embrace the English language because it acquits them of any responsibility, even though they had every opportunity to change that course of action after Franco passed in 1975. But that never happened because films continued to be dubbed. So my colleagues' argument falls flat on its face. I can only conclude that the Spanish still held on to my uncle's way of thinking.

Shortly after Franco's demise, a new constitution was drafted and all the political parties that heretofore had been banned were allowed parliamentary representation. Keep in mind that the representatives of these parties were Franco's sworn enemies (the socialist left and the communists) and now they were in power. So I imagine that shortly thereafter they decided to rewrite the history books, this time with Franco as the evil stepmother and the socialists as the heroic Prince Charming who saves the innocent and abused Spainderella by recovering her fragile glass dignity at the palatial steps of history and restoring her to her rightful place at the throne of the world. The free thinking liberal socialists would be the saviors of Spain.

Credit where credit is due
Spain experienced its greatest prosperity at the hands of the socialists, largely due to the country's entry into the EU and its access to low interest development funds. But by the same token, the country also experienced its two worst economic downturns in history during socialist administrations.

I wasn't around for the first one in 1993-94 but I was present for the second one in 2008. On this point everyone is in agreement: Spain didn't start the crisis but it should have managed it better. So what happened? Simply put, pride.

Rodriguez-Zapatero(ZP), the socialist candidate, assumed power after the electoral defeat of the centrists in 2004. He had inherited a stable growing economy with a budget surplus. During the 2008 elections, when financial markets started going topsy-turvy, ZP denied Spain was being affected. He constantly stated that Spain was in the Champion's League of world economies and that unemployment, while growing, was under control. Now I'm not an economist nor do I claim to know the ups and downs of financial markets but I'm guessing ZP figured he had enough of the budget surplus he inherited to ride out any economic storm. He dismissed the severity of the problem. He figured that if he reiterated that there was nothing to worry about, the people would have to believe him. After all, finance is a question of confidence. It all came to a head when Paul Krugman, 2008 Nobel Prize in Economics, had a tête-à-tête with Zapatero and warned the president of the impending implosion Spain was about to experience. Zapatero's response: "Krugman doesn't know what he's talking about. We are fine." This response was coming from someone who had never worked a day in his life in any sort of business or economic capacity.

This was the height of arrogance and ignorance. Zapatero could not fathom being a failure or going down in history as the president that caused the worst financial crisis of all time. His pride would not allow it, never mind its effect on millions of people. We all know how that ended: Zapatero finally resigned in disgrace and called for anticipated elections in 2011 which his party lost.

As soon as the centrists took over, they initiated economic reforms, the kind of reforms the socialists should have undertaken but decided to defer due to their unpopularity. So what do the leftists do, they convene a general strike and accuse the administration of taking the road to ruin. The culmination of all this is that Javier Lopez, secretary general of the second largest labor union, CCOO, affirms on national TV that the right to strike supersedes the right to work.

In other words, the socialists are liberals and open minded. They believe in the freedom of expression but only if your views coincide with theirs, otherwise they will insult and intimidate you. If you don't believe me, go ask Lourdes Hernandez, lead singer of the rock group Russian Red when she admitted being a centrist and the subsequent backlash she suffered at the hands of the socialists. They basically labeled her a traitor and a disgrace as an artist. You see, the socialists believe they have a monopoly on intelligence and the arts and, as such, all artists by nature are anti-establishment. It is inconceivable that an artist be anything but left leaning.

We see a lot of pride and arrogance coming from all sides in Spain. It doesn't matter who you are or what your background is. If you are Spanish, you are proud and arrogant. It's in the DNA.

When so much pride and arrogance is coming out at you from one place, it should raise red flags. In my case, my flags are telling me that Spain suffers from a case of national collective inferiority complex. It's not rocket science. People who display airs of superiority do so to disguise their deep rooted inferiority. It's that simple and that complicated.

Spain's General Strike: gearing up for round two

Labor unions stage massive protests across Spain leaving the government groggy but not out. Unfortunately, this is only round one.

It was like watching a game score instant replay only five months later. Yesterday's general strike was highly reminiscent of Athens last October and the unions are promising more of the same unless the government of Mariano Rajoy backs down on its labor reforms.

Facing massive debt, unprecedented levels of unemployment and a stagnant economy, Rajoy's measures include the reduction of worker compensation, company incentives for new hires, higher taxes and lower government spending, all in an attempt to reverse the country's economic fortunes of late.

Sounds like a solid plan, right? So how come my gut tells me it's all marron glacé? You know, as in sugar coated pellets of doo-doo? I understand the reduction in worker comp. I understand the company incentives for new hires. And I understand lower government spending. But higher taxes???

The administration needs to increase revenue to cover pensions, health care and unemployment benefits, I get that. But raising taxes is a double edged sword, one that will have serious consequences. It is not feasibly possible or proper to raise taxes on a populace that is already reeling from the devastating effects of the unconscionable decisions taken by the previous administration.

I don't have the exact figures but there's approximately one million households that have zero income; every eligible member is unemployed and their benefits have run out. That's translates to about 4 million people with no means of livelihood. Other families are surviving under heavy strain because only one member has a job. So, if we now increase basic staples such as food, shelter and energy, where does that leave these people?

I'm not an economist nor do I claim to understand all the nuances of fiscal policy. But through sheer common sense, I can tell you this: you raise taxes and you are not going to induce increased private spending and investment which is what leads to higher productivity and employment. On the contrary, it has the opposite effect. It's time tested and proven. If you want to increase investment, employment, production and turnover, reduce taxes and reduce public spending.

The only thing this government has achieved thus far is to provide cannon fodder for the leftist unions. And more rhetorical bombs are going to fly before the situation gets better. Get ready for round two.