The pain in Spain
Austerity packages are difficult to pull off, as the Spanish experience shows
Jun 3rd 2010
FRANCISCO GRANADOS, a conservative Spanish politician, works in a tastefully modernised palace. He is guarded at street level by men in quaint uniforms (in his case, Civil Guards in patent-leather tricorne hats) and upstairs by serried ranks of aides. His limousine waits in the square below, watched over by pigeons and the bust of a dead aristocrat. All in all, he offers a fine study of political power as it is exercised across Europe every day.
Mr Granados, a minister in Madrid’s regional government, administers more than 160,000 public servants. Add those who work for the central government, the city and other boroughs, and half a million of the capital’s 6.5m residents work for the state, he reckons. A further million are retired, a million are children and more than half a million are unemployed (national jobless rates are almost 20%, with youth rates double that). In short, almost half of all Madrileños depend on the state in some way.
Following other European countries, Spain’s Socialist central government recently announced austerity plans. Cutting public spending fast is not easy, and it is no coincidence that governments have trimmed things they directly control, like public-sector salaries: measures range from a pay freeze in Italy to a 25% pay cut in Romania.
With an eye to public opinion, governments have also tackled symbols of privilege, making deep cuts to ministerial pay or limousine fleets. Even in France, where the government rejects talk of “austerity” or public-sector pay cuts, the political elite is doing its bit: the education minister is reported to have started to decorate his offices with artificial flowers.
In several countries cuts are being stealthily applied by not replacing civil servants when they retire. Spain, for instance, has said that only 10% of those who retire will be replaced. An optimist might wonder if Europe is about to embrace structural reform by accident: after allowing public sectors to swell, the need for swift cuts is pushing them to slash the costs of the state. Alas, pessimists are entitled to some doubts. The 10% rule in Spain does not apply to areas like health, education or care for the elderly, and does not stop regional governments creating new posts.
Moreover, powerful men like Mr Granados are oddly powerless when it comes to changing the status quo. Spanish public workers essentially cannot be sacked. Last week Madrid’s regional government announced it was scrapping 48 of its 125 official cars, and replacing the remaining Audi and Peugeot limousines with midsized models. “The paradox is, I can’t get rid of any of the official drivers,” sighs Mr Granados. He can try moving government drivers to new duties, but only with their consent (though he is laying off 23 drivers on temporary contracts).
The minister cannot move an official from social services to the health department, or from a day to a night shift. Absenteeism rates average 18%, but little can be done about abuses: public workers can take three days off sick without medical proof. If he wants to recruit a star surgeon, the minister cannot offer a bonus. All surgeons must be paid the same rates—indeed, doctors’ salaries are tied to pay rates for all staff, including hospital cleaners. The conservative-led regional government might like to privatise some state enterprises, including Madrid’s two public television channels. But under collective agreements, workers laid off by new private owners would have to be taken back on to the public payroll. An army of 3,242 trade union representatives polices these agreements, their salaries paid by the Madrid region.
Spain is often cited as the big EU economy most in need of labour-market reform. The central government has spent months agonising over changes to a law that makes it expensive for private firms to make full-time staff redundant. But in truth parts of Spain’s economy are very flexible: just ask the 1.5m people who have lost jobs since the boom stopped. The problem is that the labour market divides insiders from outsiders. Immigrants on temporary contracts have been hit hard, as have the young.
Are you in or out?
Will the economic crisis force change, or entrench privilege? So far lots of outsiders have responded by trying to become insiders. Applications for posts in Spain’s national police force have tripled since the crisis began. Some 300 people apply for each new clerical job advertised by the Madrid government, officials say, though the number of posts available has fallen sharply.
At the Centro de Estudios Financieros (CEF), a private college in Madrid that prepares graduates for civil-service entrance exams, numbers are also up, despite fees of €2,000 ($2,450) a year. Most tutors at such colleges are themselves moonlighting civil servants: public-sector hours run from eight till three, giving bureaucrats ample time to pursue second careers.
Free time and the guarantee of a job for life matter more than pay cuts, declares Almudena Gonzalez Menéndez, a CEF student who has just passed exams to become an employment-ministry inspector. She told, appalled, of friends telephoned in the evening by their private employers with work requests. As an official, she enthused: “you have your life to yourself”.
Yet some austerity measures could prove surprisingly effective, notably the non-replacement of retiring staff. Europe’s civil services are greying fast: in lots of countries, including Spain, 30% of staff will retire in the next 15 years. That sets the scene for big changes, if politicians dare.
More politically, the economic pain in Europe is likely to get worse. Not all public servants are privileged: some teachers in Romania earn €250 a month, so a 25% cut would be brutal. But in places like Spain, an unsackable bureaucracy now co-exists with 40% youth unemployment. That is a recipe for reform or revolt. Half measures will not do the trick.