After Hungary, Greece, Ireland and Portugal, it is now Spain’s turn to get under pressure from financial speculators. Since July 2011, the country has suffered from a capital flight adding up to 128.7 bn euros. In February 2012, the last month for which figures are available, alone, 25 bn euros were withdrawn from the country. It has become much more expansive to Spain to refinance its public debt. The main problem, however, is not the public debt. The enormous private debt and the huge number of empty flats – both remnants of the real estate boom – are more relevant challenges.

Until 2008, Spain was hailed as a neo-liberal success story. The growth rate was rather high, unemployment had receded and public finance seemed to be solid. Construction, real estate and rapidly expanding private household debt were the ingredients of the Spanish boom. In no other European country, the share of the construction sector in GDP was higher than in Spain. It absorbed a lot of lowly paid labour. Both the governments of the post-franquist Partido Popular (PP) and the social liberal Partido Socialista Obrero Español (PSOE) have systematically favoured the construction and real estate sector. From 1997 to 2007, the number of flats increased by about 30% – i.e. 7 million – and real estate prices more than doubled. In the end, this proved to be an overproduction. At the end of 2008, about a million flats were unsold. The overproduction of housing produced ecological damage on a broad scale. Without any green interruption, urban corridors stretch for 100 km along the Costa del Sol and the Mediterranean coastline close to Alicante.

The real estate boom was financed by credits. The credit boom was facilitated by Spain’s entry into the euro zone. Interest rates declined significantly. It was especially the regional cajas which aggressively promoted real estate credits. Even poor households were classified as credit worthy. At the end of 2008, the debts of private households reached 84% of GDP. This is clearly an excessive debt level.

The growth model was extremely unequal. In terms of economic inequality, Spain was surpassed in the EU only by Portugal. In the boom years 1995 to 2007, when “España iba bien”, 40% of Spaniards passed through a period of poverty.

The growth model was not only characterised by social exclusion, but also by economic vulnerability. After the accession to the EU, the Spanish economy suffered from a partial de-industrialisation. Entry into the euro zone and aggressive German wage deflation aggravated the structural problems of the Spanish economy. Immediately before the crisis, the Spanish current account deficit surpassed 9% of the GDP. The current account deficits were financed by external credits – which were provided particularly by German and French banks.

Even without the accelerator of the global crisis, all the ingredients of a massive crisis already were in place in 2008. The PSOE government was late to acknowledge how deep the crisis was. With the deepening of the crisis and increasing external pressure, already the PSOE government increasingly adopted austerity measures. After the electoral defeat of PSOE, these policies have been radicalised by the government of the Partido Popular. The austerity policies are already showing their results. Spain’s economy has started to contract again. The unemployment rate reaches 24.4%. For the young, it is even worse. They are the best educated generation which Spain ever has had, but half of them are unemployed. Recession and high unemployment aggravate the problems of private debt even further.

While the PP government has announced further severe cuts in the education and health services, it seeks new ways to relieve banks from part of their bad debt. The creation of a variety of “bad bank” where the private banks can load off bad debts is contemplated. The Financial Times cites the figure of a further 100 bn euros that might be needed to recapitalise the weak Spanish banks.

Multi-faceted resistance has emerged against the austerity policies and the prevailing economic model. A month ago, a general strike paralysed the economic life. Already last year, a strong protest movement of the “indignados” and “indignadas” occupied public spaces. It was particularly the young unemployed that spearheaded the movement. It proposed novel ways to deal with the private debt focusing on providing relief for the debtors, not the banks. The indignados and indignadas demanded much stricter control of the banks, a more progressive fiscal regime, public housing programmes. The debate on an alternative development model, however, has hardly begun.