Spain was dancing in the streets after winning the World Cup last year. Now, thanks to the Euro-zone economic crisis, crowds are protesting 21 percent unemployment, food price inflation, and a shrinking middle class. In Barcelona, government officials were forced to take helicopters to work.
Conflict between citizens and the political class over social infrastructure is common in Argentina, Mexico and other nations with strong Ibero-American post-colonial cultures. But even with a respectable debt-to-GDP ratio, the crisis caused Spain's popular parliamentary monarchy and financial groups close to the royals and their ties to Greece -- and some politicians -- to back tough reforms linked to an IMF bailout. Like most IMF loan packages, this latest arrangement is designed to downsize government and promote policies that let wealth percolate up to the top rather than distribute it.
With fresh money from the IMF and other international institutions now problematic and the groundswell of populist direct action not going away Spain is becoming the first of Latin America's European mother cultures to take on the political characteristics of the nations that emerged from its colonial hold.
Financier George Soros on his blog and in the financial press has been outspoken calling for Madrid to find new ways to finance its sovereign debt that might help the socialist Zapatero government distance itself from the region's other poor performers. But Spain's reticence to take the advice of Soros keeps it at the trough with the rest of the PIGS group (Portugal, Italy, Greece, Spain) on Europe's southern tier who have been hogging resources from the more productive northern nations.
None of this pleases Mexico's central bank director Augustin Carstens, who was shortlisted on Tuesday as a candidate to head the IMF. Carstens told Reuters that Europe and the Euro currency zone need tough measures to weather the crisis, not unlike what the IMF imposed on Latin America during the 1980s when the region had its first debt crisis. Beyond the 1.1 trillion Euro bailout fund the IMF organized under former leader Dominique Strauss-Kahn, the European Central Bank has spent US$ 720 billion to prop up the PIGS over the past 12 months.
The crisis has produced enmity between Madrid and Paris, which surfaced recently following a statement by prime minister Zapatero indicating that french president Nicholas Sarkozy threatened to pull France out of the Euro currency consortium in order to put pressure on the global financial community to agree to a new series of arrangements to stabilize the PIGS.
French finance minister Christine Lagarde, the leading candidate to replace the departed Dominique Strauss-Kahn as IMF managing director, defended her president, quickly dismissing the charges as rumor. Lagarde had been regarded as a shoo-in to head the organization designated as the lender of last resort by the foundering Bretton Woods economic system. But the Zapatero incident and Vladimir Putin's strong support for Lagarde- Russia is not a member of the World Trade Organization or the Euro-zone- may raise new questions about his motives, and her candidacy, while emerging G-20 nations build support for Carstens as the new broom the IMF needs. The IMF is supposed to vote on a new leader before June 30th.