Sparkling Spain

Spain’s economy is of course booming, (as it has been for the last ten years). The inflation rate is booming too. Some even go so far as to suggest that Spain should now become a member fo the G8. Spanish people are of course buying a lot more houses, indeed more housing units were built in Spain last year than in Germany, France and Italy combined, and since, as Brad Delong pointed out yesterday, as long as interest rates stay low, the housing sector can keep booming, and since in the short term interest rates in Spain will stay low, then the boom looks set to continue. Plenty of reasons then, at least for now, to break open the bubbly.

Which is what, of course, a lot of people having been doing. In Spain by bubbly people normally mean Cava, a Catalan beveridge which is really remarkably similar to French Champagne. This year, however, things may be a little different, at least in some parts of Spain, since in addition to having a smokeless celebration, many will also be having a cava-free one.

So what is this all about? Well funnily enough rather than being about Eve (whether New Year’s or Xmas), this topic is in fact much more about José Luis Rodriguez Zapatero (the Spanish Prime Minister/President).

The sub-script to all the colourful publicity this affair has been receiving is the fact that Spanish political right are trying to use the Zapatero government’s dependence on Catalan votes to get at him.

The right of the Partido Popular (the local party members, not the leadership) are using the campaign against the new Catalan Statute of Autonomy (which is still under discussion in the Spanish parliament) as an excuse to try and raise the temperature in the national political arena. This topic is also losely related to the recent bogus phone call to Evo Morales, since it is being partly organised and promoted by the same radio station (La Cope).

The issue has particular significance at this time of year since Spanish people tend to receive a case of wine as part of their xmas ‘box’ (the other part being an extra monthly’s salary payment) from their employers, and normally these cases contain a couple of bottles of Cava. In a sense the composition of the box has represented the cultural diversity of Spain. This year however some distributors have changed the Cava for sparkling wine from other Spanish regions and it is this move that has sparked all the debate.

All of this has its curious dimension, since the people in the forefront of promoting the boycott are the very people who want to argue that the Catalans are in fact Spanish (right to their bone marrow!), while it is normally the Catalans themselves who say they aren’t. But if Catalans are Spanish, then why boycott a Spanish drink? Really I can’t help feeling that it is the people who say their main priority is maintaining the unity of Spain who are the ones who are doing the most to foment separatism.

The same would go for the recent comment by Esperanza Aguirre (possibly the main contender to replace current PP leader Mariano Rajoy, should he prove to have a mission impossible **) that the merger of the Spanish electricity company Endesa with the Catalan-based Gas Natural should be opposed since it would mean control of what would be one of the largest European utility comanies (in terms of market cap) would be moving outside ‘territorio nacional’ (the headquarters of the new company would be in Barcelona).

Be warned however, the Catalan Cava is only a warm-up issue. Just behind the Catalans, in what is, it should be said, a remarkably orderly queue, come the Basques. This topic is ‘on hold’ for the moment. But if the Catalans get what they want (which I guess is something like what Quebec has in Canada), then there will be peace with Eta, a new statute of autonomy for Euskadi (the basque name for their country), and a new tri-national Spain – which may have many structural similarities with the current UK (with England, Wales and Scotland). This then is the big beer, and not the little ol’ Cava of Catalonia.

Of course the real hurdle to cross in establishing a tri-national Spain is not the identity of the Catalans or the Basques. The real issue, IMHO, is that it is the Spanish themselves who need to define their identity.

This is the ‘plato principal’ (or main dish) which will need to be served for the final toast to be called (with or without cava?) at this feast. Essentially what is involved here is a big gamble on Zapatero’s part about whether and to what degree Spain has changed (see my comment re this on Emmanuel’s latest post).

In the past, the easist way for Spanish nationalism to whip-up popular support was either to stage a bullfight ** (Franco Era) or to make a passionately anti-Catalan speech (the 90s). This later phenomenon reached its peak with the election of José Maria Aznar in 1996, when on victory night thousands of PP supporters chanted enthusiastically ‘Pujol, enano, habla Castellano!’ in the street outside the party headquarters.

An enano is a dwarf, and Pujol was the then President of Catalonia. What the party faithful were celebrating then was the hope that the Catalan dwarf President would now be forced to speak in Spanish.

The celebration was however very short-lived. In fact the whole incident turned out to be fantastically embarrasing (and dogged Aznar in the humour columns throughout his presidency), since only a few days later (and lacking a majority), he was forced to negotiate with the very same Jordi Pujol in order to form a government. To explain this sudden conversion Aznar made a now legendary speech where he ‘admitted’ (if you want he ‘outed’ himself) that he himself liked to speak Catalan, but only in the intimacy of small family gatherings since he was too embarassed by his poor pronunciation to do so in public.

Aznar, of course, speaks neither English nor Catalan, But this is beside the point, Spanish politics at this level is simply a big ‘show’. Incidentally, Aznar’s University of Georgetown lectures are big audience viewing here in Barcelona: everybody loves to see the guy making such a fool of himself, and to note that his poor English pronunciation seems to constitute no impediment (has the man NO shame).

So, as I say, Zapatero is gambling that all this is about the ‘old Spain’, and that it is this old Spain which is in the process of changing. I certainly hope he is right. If he is, don’t expect to see the PP back in government anytime soon (think post John Major conservatism in the UK).

** The aspirations of Esperanza Aguirre to succeed Mariano Rajoy are now more or less an open secret in Spain. I think to the more intelligent PP leaders it is clear that – bar a miracle – the next election is now lost, and that the party will definitively have to turn the page on the Aznar era to have a hope of a shot at government. The fingerprints of Aznar are simply all to evident on the day to day policy of the current ‘opposition’ (or lack of one).

So everyone is positioning themselves for the post-Rajoy leadership contest, and our Esperanza is certainly well placed. Having impecable ‘right’ credentials, she is now busying herself in trying to be seen as a much more ‘centre’ politician. She conspicuously didn’t participate in the pro-family march against gay marriage, and after wrong-footing herself on the Endesa-Gas Natural merger, she is losing no-opportunity to be seen toasting the future with the best Catalan cava, which can, of course, be read as an implicit critique of those who are doing just the opposite.

Those of you who like conspiracy theories need look no further than the recent helicopter crash. Aguirre invited Rajoy to participate in a reckless take-off from a local bull-ring, one which produced the more or less inevitable (but fortunately non-mortal) dramatic crash as the copter was buffeted by a strong gale as it rose above the protection of the ‘ring-fence’ wall. Aguirre climbed straight out of the wreckage, dusted herself down and was immediately giving interviews to the astounded media. Rajoy was only to be seen in the backrground, muttering darkly ‘I knew it’, ‘I knew it’, before being lead away for an overnight stay in a Madrid hospital. The observant among you will realise just how all of this reinforced Aguirre’s image of a somewhat reckless survivor (note how she like to be photographed with fast cars, motor bikes and helicopters, all of these are good points in Spain) while leaving poor Rajoy tainted with the idea of his being ‘gaffe’ (or riddled by bad luck, in the Jimmy Carter/ Gerald Ford mould). This, I think, now makes him virtually un-electable.

The incident also highlighted the continuing semiotic significance of the bull in Spanish life, since European Parliament President Josep Borrell was overheard and broadcast across Spain as saying :“serves them right for going to see a bull fight in a helicopter”. Borrell, being a Catalan, hates bull-fighting.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

12 thoughts on “Sparkling Spain

  1. Very insightful analysis, Edward.

    One of the things that makes the cava boycott especially idiotic is that it affects a lot of non-Catalan Spaniards: the Extremadurans who make the corks, the Aragonese who make the bottles, the Valencians who make the labels. But who cares about reality in this era of ‘crispación’?

  2. Edward,

    You’re obviously more of an expert on this than me. Is the essential trend since the onset of democracy this: under the left, the regions get more autonomy; under the right, the government holds the line? This would seem to suggest that moves toward greater autonomy are inevitable (especially since the regions seeking autonomy are richer and more successful) through a kind of rachet effect. Of course, something big could change in the Spanish political scene.

    Since there is no way the Basques and Catalans and Galicians will ever become Castilians, it seems like the right in Spain has a big problem. They really don’t like regionalism, but every time they open their mouths on the subject, they annoy the moderates who might otherwise support them. I know a lot of people with conservative politics vote PNV instead of PP, just because they feel Basque.

    Also, this is difficult to bring up with Spaniards, but how post-fascist is the PP? A lot of Franco’s positions seem to be theirs as well, and I know Aznar put some effort into defending Franco when no one in their right mind would (harassing people digging up graves from the Civil War, continuing to fund Franco glorification museums, etc.)

    Great post!

  3. “You’re obviously more of an expert on this than me.”

    Well, I wouldn’t exactly call myself an expert, but I have lived for fifteen years in a country were disputes about identity are routine and form one of the main topics of political debate. I have the feeling that far too much energy is wasted on this topic, energy which could be much better redirected to making a more prosperous ‘happier’ country.

    I also was brought up in the UK, were the issue was much less devisive and were pragmatic solutions seem to have worked reasonably well.

    “under the left, the regions get more autonomy; under the right, the government holds the line?”

    No, I don’t think it is quite that simple. I think, if you have a two party democracy, when one party has an absolute majority the government holds the line, and when there is no absolute majority then the national minorities get more autonomy.

    I wouldn’t use the term regions, since that begs the question, and is at the heart of the issue. I think whether you are a nation or not depends on whether you feel yourself to be one or not. That is why I keep mentioning Catalonia dn Euskadi. There is a third ‘national minority’ (the term in the existing Spanish constitution) Galicia, but they may well not really feel themselves to be a nation, and of course have a perfect right to feel they are not.

    What I don’t think is that people who feel themselves to be Spanish have the right to tell those who don’t feel themselves so to be that they are.

    So back to the left/right thing. If you look at the recent history of political alliances in Spain, Italy and the UK, you will see that there is no clear pattern, either in the attitudes of the central parties, or in the politics of the ‘nationalists’.

    In Italy it is Berlusconi who is in alliance with the Liga, and who is offering decentralised reform in order to stay in government.

    In the UK both labour and conservative parties have made agreements with the Ulster Unionists in the past to maintain themselves in government in Westminster.

    In Spain the PP government of Aznar extended the powers of the Catalan government considerably, and if you get behind the rhetoric today, you will find that they are willing to do so again.

    Basically the best hope for the PP to get back into power would be to reach another agreement with the centre right Catalan nationalist party CiU. The difference would then be the umbrella under which the autonomy was granted. There would be no general statute, but a lot of individual specific agreements.

    You are right about one thing though: the ratchet effect.What this is about is the modernisation of over-centralised, diversity unfriendly societies, into more modern, decentralised, more diversity aware ones.

    I don’t think Spain is in any danger of disintegration, and even the Basques won’t leave unless the government in Madrid make life too impossible for them.

    “but how post-fascist is the PP?”

    I would say very. Clearly there is no independent ‘hard right’ party in Spain like the Le Pen group in France, and since there are people who hold these opinions, then logically they must be inside the PP practicing some kind of ‘entrism’. But the PP itself I consider pretty post-Franco. Especially since the older generation is now dying off. The big difference would be between those who want a more modern, deregulated, free-trade Spain, and those who probably have more in common with Jacques Chirac (protectionist, rentier etc) but then, I guess you have those kinds of difference in the Republican party in the US, just as you have Republicans who are pro- and anti- immigration.

    One last point. The immigration issue is now a coming one in Spain. The last 5 years have seen massive (and I mean massive) immigration into a country which had no significant history of immigrants (as opposed to emmigrants). This week a national poll has shown that 60% of Spanish people now feel there are ‘too many immigrants’. This will probably soon become a major political issue.

  4. Edward,

    Nice political anlysis, but the economic comments in the intro?

    “Spanish people are of course buying a lot more houses, indeed more housing units were built in Spain last year than in Germany, France and Italy combined, and since, as Brad Delong pointed out yesterday, as long as interest rates stay low, the housing sector can keep booming, and since in the short term interest rates in Spain will stay low, then the boom looks set to continue.”

    First of all the DeLong reference is misleading, as he said nothing about Spain. Seems like nobody is looking closely at the Spanish economy. They just go,”eurozone-leading GDP growth, no public deficit = Sparkling Spain”.

    You yourself have pointed out the problems: More housing production than France, Germany and Italy combined!! Negative real interest rates!!

    You know what this means? Massive misallocation of resources (what you call a boom), which means massive liquidation later (yep, bust). Watch out for unemployment (rising ominously), mortgage defaults, etc.

    Look at the private-sector debt figures… look at the trade and current-account deficits!! Bigger than the free-spending, increasingly non-manufacturing Americans. None of Hausmann and Sturzenegger’s “dark matter” here. And guess what, Spain doesn’t have control of its monetary policy, and its money is not the world’s reserve currency.

    Sorry for the breathless tone and the excessive use of exclamation marks, but I am just flabbergasted.

  5. The last 5 years have seen massive (and I mean massive) immigration into a country which had no significant history of immigrants (as opposed to emmigrants).

    The Arabs of Al-Andalus don’t count?

    If you take a country with that history, namely France, is there any indication that such experience is helpful?

  6. Oh, I forgot about immigration. A huge part of this influx of immigrants is employed in, wait for it, construction.

    A lot of them have also been able to get into the real estate game thanks to ultra-low rates, 100% financing, variable-rate mortgages (98% of all mortgages are variable-rate) over 40-50 years.

    When the developers stop building, what do you think all of these people will do? Your guess is as good as mine. Sell their house (if there is positive equity)? Stop paying and just hightail it home (if negative equity)? Turn to “alternative” sources of income?

  7. “The Arabs of Al-Andalus don’t count?”

    No. In fact Arabs were an infime minority of those who entered the Wisigoths kingdom in 711 CE. And it did not fit an “immigration” pattern, so Edward is right.

    Comparison with France is rather useless. The general ideology, “jacobinisme” in France, is very different from the Spanish one, which vary strongly with the region where immigrants settle.


  8. Hi Pepe,

    Basically I entirely agree with what you say, even down to the points about the immigrants.

    “You yourself have pointed out the problems:”

    Yes, what I tried to do was hedge my wording:

    “as long as interest rates stay low, the housing sector can keep booming, and since in the short term interest rates in Spain will stay low, then the boom looks set to continue.”

    If you read between the lines here, all I am saying is that things go on till they can’t go on any longer.

    The thing is I can’t see how the Spanish housing bubble (yes, I think it is a bubble, not a boom) can rectify itself. Normally a country would try to raise (like the UK) its interest rates, but due to the euro system Spain cannot set its own rates. So normally financial markets would punish countries with the kind of high inflation and trade deficit which Spain has by selling the currency, but Spain has no currency (of its own) to sell, so in the end I don’t see the correction mechanism.

    Of course one day there will be a correction, and it will be important. But here I wanted to do a positive post, for the new year, and not another of those ‘oh what a headache the euro is’ ones. And I do think that what Zapatero is doing now, about the ‘national question’ is important.

    Actually, the biggest problem Z has on the horizon will be the ‘housing correction’.

    Like the US CA deficit, which can’t correct, because the US dollar can’t fall due to continuing euro and yen weakness, Spain is being propped up by an artificial support.

    How could all this unwind? Well I have long felt that the weakest link in the international financial system is the Italian public debt. One day the eurobond markets can find themselveswith a big problem as a result of this. If and when this happens people may also start to look at the capitalisation and sustainability of the Spanish banking system. This is the only thing I can think of which could drive up interest rates in Spain. If people start to charge a much higher ‘risk factor’ to the Spanish banks – since many of the people they have lent money to may not be able to repay – then the thing could unwind.

    Incidentally I do think one of the big unknowns here is what will happen to the immigrants. If one day a serious recession comes, most of them will have little social security entitlement. So will they stay, or will they move upwards across Europe in search of work. A real mystery, and a key question?

    Their wives though look set to stay, since the old people situation cannot survive without a substantial and continuous entry of new cheap female labour to care for the oldest old, and those with the everytime more evident Alzheimer illness.

    BTW Pepe, where are you?

  9. Spain as whole may not have experienced immigration before but Basque, Catalan and the Madrid region did. The first to even of people who do not speak the local language.

  10. “but Basque, Catalan and the Madrid region did.”

    Definitely and this is very important. In Spain people tend to distinguish betweeen internal and external migration. The highpoint of the internal migration was during the 50s and 60s of the last century. It was massive.

    To give an example. The population of Catalonia is now around 7 million. Nearly one million of that is an increase due to immigration since the late 90s.

    Of the other 6 million roughly half were Spanish speaking in the early 90s (which means, more or less that they were Spanish migrants or descendents of Spanish migrants). The social impact of this was enormous.

    Here again it would be important to distinguish between the Basque region and Catalonia. For a variety of reasons the Spanish speaking population has been better integrated in Catalonia than in Euskadi. The communities are not divided here in the way they are there, where there is undoubtedly outright hostility from one part of the population to the idea of increasing Basque autonomy. This hostility, more or less, doesn’t exist here.

    Part of the reason is the language: Catalan (which is a kind of cross between French and Portuguese) is not so difficult to learn (even if Aznar still has difficulty) but Euskera (the Basque language) is pre-IndoEuropean and hellishly difficult.

    What this means in practice is that the communities are much closer in Catalonia, and there is no serious friction. In part this is due to a very intelligent use of local language TV over the years (Barcelona FC also forms part of this as nearly all Barça matches come with commentary in Catalan) and in the schools, where people are normally surprised to learn that the first language for virtually all teaching is now Catalan, and in school Spanish is just one more subject like English.

    What this means is that virtually everyone under thirty now speaks Catalan reasonably well (even if their first choice language may be Spanish), and almost everyone over thirty now understands it.

    The two communities here were brought together in recent years by two events. Firstly the asssasination of local socialist politician Ernest Lluc by Eta five years ago: the demonstration here following his death was enormous, the impact was too, and secondly the war in Iraq, which really brought the two communities together like never before with popular ‘caçerorlades’ (banging of pots and pans) across the city on a nightly basis. Opposition to the war brought together socialist opposition to Aznar with nationalist opposition to the idea of a country being in a war without being consulted. Really the current Catalan view can be summed up in: no taxation without representation. Clearly they are represented in the Madrid parliament, but what they feel is that they are not sufficiently involved in taking key decisions about european level issues, or about wars like Iraq, or even, dare I say it, about immigration policy, since their country is obviously one of the most affected.

    Incidentally, although I haven’t mentioned this, Madrid, as Charly rightly indicates, also had huge internal migration, as is happening again now with people coming from the exterior. In a sense this makes Madrid and Barcelona a little different from the rest of Spain, more open to outside influences perhaps, and the PP Mayor of Madrid Alberto Ruiz-Gallardon is undoubtedly was of the most sophistocated and intelligent politicians in Spain. If he were to be leader the PP would be a much more balanced and normal centre-right party. He even has a wikipedia entry I see:

    So just to close were I started. Spain is changing. The Catalans will have their statute, and perhaps the most significant event of recent weeks has not been the dog-in-the-mangerism of the PP towards the statute, or the fact that some commercial interest are not buying cava for xmas, but the fact that although being trounced, the supporters of Real Madrid stood up and applauded Ronaldinho Gaúcho’s second goal in the recent match in the Bernabeu stadium. Now that is significant!

  11. Edward,

    Thanks for replying to my post. Once again, sorry about jumping on your comments about the boom, as I know it wasn’t the main thrust of your piece, and you are of course right that it is still going on nothwithstanding the fact that the seeds of its own destruction are there and must germinate sooner or later.

    You are also right on the money in pointing out that, unlike most of the other countries that have been experiencing a property bubble (US, UK, Australia, China (Shanghai)) Spain does not have the means to raise rates, and the government does not have the will to take tough measures (as in Shanghai). Maybe the heavy involvement of the regional governments in the “cajas” has someting to do with this.

    Cheers from Madrid, an increasingly dangerous town for a supporter of hitherto safe-to-root-for Osasuna.


  12. “Cheers from Madrid, an increasingly dangerous town for a supporter of hitherto safe-to-root-for Osasuna.”

    Well, nice to meet you Pepe. So you are from Navarra I guess. Dealing with the issues by order of importance, I wouldn’t mind seeing this years Spanish league classification ending up like this:

    1/. Barça
    2/ Osasuna
    3/ Vila Real
    4/ Valencia

    Now what else was there? Oh yes, the Cajas. I think these could become an issue if public finances in Spain started to deteriorate (with the increasing demands of an ageing society). At the moment – and thanks in part to Solbes, and in other part to Rato – the deficit isn’t an issue: but it might become one later, and that I think is the large print behind the Catalan Statute financial small-print. If the deficit did start to rise in a problematic way, then the regional cajas and the financial liabilities of the autonomous communities (particularly the ones who have had little immigration to compensate) could become a big issue.

    Meantime, on we go….

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