How the most unemployed part of Spain is pushing back against Madrid

When Spain's housing market collapsed in 2008, no region felt it more keenly than Andalusia.

While today the unemployment rate in Spain remains the second highest in the European Union, hovering near a record 27.2 percent, the southern autonomous region of Andalusia is even worse off: unemployment rates in its provinces range from 36 percent in Malaga to 40 percent in Cadiz.

As a result, the government of Andalusia – one of only a handful of autonomous regions in Spain not governed by the Popular Party – is walking a fine line these days, caught between central government’s austerity measures which are affecting them more acutely than the rest of the country, and pressure from their constituents to break with Madrid and mitigate the effects of tax hikes and spending cuts that are squeezing the regional economy to the breaking point. [Editor's note: The original version misstated how many autonomous regions are governed by the PP.]

Boom to bust

A mere six years ago, the Andalusian economy – which depends heavily on construction, about 10 percent more than the rest of the country – was booming.

Tourists were buying up existing homes in the area and building new ones, transforming quaint seaside villages into sprawling urban areas. New construction was in demand and coupled with the influx of foreign capital, construction costs soared.

“Before 2008, people here were making so much money on new construction that they were doing things they’d never done before, like buying fancy, new cars and paying 250 euros [$330] for a meal at a restaurant,” says Joaquin Ruiz Lagares, a small business owner from Malaga. “It was crazy, we were living like Americans.”

The construction boom was accompanied by a rise in rental costs, prompting many Spanish residents to opt for mortgages that offered lower monthly payments – and left them vulnerable when the debt crisis hit.

Like many in Spain, Andalusians blame the PP for making matters worse.

They see Madrid's austerity measures as the reason why so many businesses have had to shut their doors, making it harder to find work. And with one of the highest eviction rates in the country, they accuse the federal government of making it easy for banks to foreclose on their homes, by sanctioning controversial hidden clauses in mortgages.

But most Spaniards do not have what Andalusia has: a regional government led by a party other than the PP. As a result, coalitions have formed throughout Andalusia to pressure the regional socialist government to buck Madrid's lead and find a more humane way to navigate the crisis.

Andalusia's alternative

And they've been having some success. One of those groups is Plataforma de Afectados (PAH), an organization of mortgage holders who’ve lost their homes in Malaga. PAH has been trying to put a stop to what they see as unscrupulous foreclosure tactics that have led to thousands of evictions in the region.

Sara Vazquez, legal counsel for PAH, points to a decision handed down by the European Court in March which declared Spain's foreclosure process to be incompatible with European consumer protections. 

She says the regional government has unilaterally taken action to counter some of the effects of those policies. The Andalusian government has passed a law that calls for a moratorium on the eviction of families in critical or emergency situations, for a period of three years, if they have missed mortgage payments due to the loss of employment.

Ms. Vazquez applauds the move. She says regional officials' decision repudiating bank policies ahead of the central government, which has been slow to act, is unprecedented in Spain.

“The central government is more concerned with protecting Spanish banks that owe money to the Germans, French, and Americans, than they are about the tragic consequences of their policies right here at home,” says Vazquez, who was herself evicted.

She explains that the current national law allows banks to foreclose if you’ve missed one payment, and charge 18 percent for late payments. If the bank can’t sell the property at auction, you’re legally responsible for paying back your mortgage on top of thousands of euros in late fees and legal fees, and those fees just went up last month by 10 percent. The bank can then buy the home for 70 percent of its market value, while you’re forced to pay back a debt on a house that isn’t yours anymore.

In addition, the regional government is fining banks 9,000 euros for every property that has remained empty for 6 months or longer. According to the most recent government figures, there are between 700,000 and 1 million empty properties in Andalusia.

“This will force a correction in the housing market in this area,” says Vazquez, “because the banks will have to sell their properties at a reasonable price.”

More that government can do?

Even though the regional government has begun to take action, critics say officials need to do more to cut administrative costs, which Isabel Rodriguez, head of Malaga’s Economic Institute, describes as “excessive.”

Gaspar Llanes, the general secretary of the economy in Andalusia, told the Monitor that the government is doing all it can to cut spending.

“The government of Andalusia is committed to carrying out administrative reforms," he wrote in an email. "The result of this commitment is a government restructuring plan, implemented last year, which has resulted in a total reduction of 30 percent of senior positions in both its headquarters and management centers and in the peripheral structure.” Mr. Llanes says the reforms have reduced government spending by 7 million euros since 2012. 

He claims the real problem is generating revenue. “There are two reasons for this, a high rate of tax fraud that we have to actively fight, and the existence of a tax structure that relies too much on labor income and very little on capital income.”

His office introduced a business stimulus package this week aimed at creating jobs. The initiative will disperse 125 million euros in low interest loans to start up businesses. The government is stepping in for banks reluctant to loan money in the current economic climate, rejecting, on average, 80 percent of all loan applications in the region.

It’s one of several stimulus plans put in place, says Llanes, to offset the effects of “the closure of the central government, which is putting the future of Spain in the hands of austerity.”

Ms. Rodriguez says Andalusia's GDP isn’t expected to grow this year, and until it does, the region won’t see a drop in its unemployment rate. “Our economy right now is a political economy. We answer to the European Union. If we want to play in the European market, we have to follow the rules, because the consequences go far beyond this country.”

“Things can’t get any worse,” she says, “but it will take time for things to get better.”