European  Financial  Crisis  and  Political  Economy  of  Austerity  Measures  in  Spain	  Motohiro	
  Kato	  Motohiro	
  Kato	  Graduate	
  School	
  of	
  Public	  Policy,	
  	
  international	
  Public	  Policy	
  Course	
  51-­‐138030	
  Case	
  Study	  (International	
  Political	
  Economy)  European  Financial  Crisis  and  Political  Economy  of  Austerity  Measures  in  Spain  Introduction  Europe  has  been  always  seen  as  a  place  where  social  contract  has  engineered  to  a  great  deal  leadership  in  making  national  policies.  It  is  a  place  where  public  service  is  cherished  in  order  to  guarantee  every  individual  with  promised  tranquil  retirement,  life,  and  social  community.  It  is  a  place  well  known  where  women  are  respected,  a  place  where  public  education  creates  the  gist  of  national  assets  in  every  tangible  industry  and  social  life.  It  is  Europe  where  the  poorest  and  the  leader  fortunate  are  taken  care  of,  and  where  market  exist  to  harness  good  for  society  rather  than  the  laissez  faire  spirit  of  capitalism.  Yet,  Europe  has  failed  to  escape  the  doomed  bailouts  of  financial  firms  as  in  United  States,  and  countries  have  also  reached  state  of  default,  which  contradict  the  underlying  values  cherished  in  the  continent.    
Spain  has  been  one  of  the  countries  that  suffered  from  the  double-‐‑‒dip  financial  crisis  sprang  up  in  2008  and  having  caused  a  sovereign  debt  crisis  in  Europe.  This  paper  attempts  to  analyze  what  is  the  real  cost  and  benefit  of  the  austerity  measures  1that  were  implemented  by  Spain,  alongside  the  provision  of  financial  resources  from  ESFS  in  July  2012.  To  make  long  story  to  short,  the  authority  of  Spain  implemented  the  austerity  measures  in  response  to  the  first  dip  of  global  financial  crisis,  which  caused  a  deterioration  of  condition  of  the  national  and  regional  public  finance  there.  
This  caused,  in  turn,  the  second  economic  downturn  due  to  the  deteriorated  public  finance  and  bad  loans  in  financial  sectors  that  made  the  financial  market  unease.    
Following  these  economic  background,  this  paper  focuses  on  the  outcome  of  the  austerity  measures  in  relation  to  the  general  election  that  was  held  in  2011  November.  In  short,  the  reason  why  Spain  could  have  relatively  smooth  provision  of  financial  policy  is  because  the  austerity  measure  in  response  to  the  crisis  in  2010  prepared  the  spontaneous  fiscal  entrenchment  and  originally  satisfied  the  conditions  of  the  provision  of  the  resource  from  EFSF,  European  Financial  Stability  Fund.  
Furthermore,  the  market  fierce  for  the  collapse  of  the  fourth  largest  economy  in  Europe  was  the  common  concern  between  Spain  and  the  supra-‐‑‒national  body,  EU  headquarters  and  other  major  economies.      In  the  end,  this  paper  concludes  that  the  major  reason  of  the  successful  provision  of  financial  injection  from  EFSF  was  due  to  the  two  reasons;  the  spontaneous  entrenchment  and  common  profit  to  avoid  the  deterioration  of  Spanish  economy.    
This  paper  is  composed  of  three  parts.  The  first  chapter  reviews  the  main  economic  indicators  and  major  events,  and  sort  out  the  major  events  regarding  the  theme  alongside  the  chronology.  The  second  digs  more  into  detail  about  the  austerity  measures  implemented  in  Spain  to  tackle  the  crisis  and  attempts  to  figure  out  the  relationship  between  the  timing  of  these  austerity  measure  implementations  and  the  general  election,  from  the  political  perspective.  Thirdly,  this  paper  reviews  the  2international  side  of  the  theme;  which  are  the  economic  side  of  the  crisis  focusing  on  the  significance  of  Spain  in  international  financial  market  and  the  politics  of  EFSF,  and  in  turn  tries  to  analyze  the  distribution  of  the  cost  of  the  measures  and  the  crisis  according  to  the  previous  researches.  In  the  end,  this  paper  concludes  that  the  successful  provision  of  the  financial  support  from  the  supra-‐‑‒national  body  EFSF  was  due  to  the  spontaneous  fiscal  entrenchment  of  Spanish  authority,  and  the  match  of  the  profit  between  the  major  other  economies  in  terms  of  international  financial  market.  

Chapter  1;  the  background  indicators  during  the  financial  crisis  and  chronology  of  the  response  of  Spanish  government  As  widely  known,  the  global  financial  crisis  sprang  up  in  America  in  2008  due  to  the  depreciation  of  financial  derivatives  such  as  Mortgage  Backed  Securities(hereinafter,  MBSs)  or  complicated  financial  product.  According  to  Crotty  (2008),  in  the  pre-‐‑‒history  of  the  global  financial  crisis,  “Banks  earned  large  fees  securitizing  mortgages,  selling  them  to  capital  markets  in  the  form  of  mortgage  backed  securities  (MBSs)  and  collateralized  debt  obligations  (CDOs),  and  servicing  them  after  they  were  sold.”  This  caused  a  tremendous  damage  to  the  international  economy  as  a  whole  with  various  extent  

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GDP	
  growth	
  rate	  (%)	
  
4.00	
  
3.00	
  
2.00	
  
1.00	
  
0.00	
  
-­‐1.00	
  

2007	
  

2008	
  

2009	
  

2010	
  

2011	
  

2012	
  

2013	
  

2014	
  

-­‐2.00	
  -­‐3.00	
  -­‐4.00	
  -­‐5.00	    Figure  1  GDP  growth  rate  of  Spain  from  2007  to  2014  (Source;  World  Bank  database)    As  mentioned  in  the  introduction,  this  crisis  had  two-‐‑‒dipped  curve  in  during  the  crisis  in  2008  to  2009  and  in  2011  to  2012,  where  the  growth  rate  fell  down  to  almost  4%  in  2009  and  -‐‑‒1.5%  in  2012.  The  first  strike  was  the  American  origin  and  the  second  one  is  the  so-‐‑‒called  European  debt  crisis,  whereas  the  second  dip  was  the  European  origin  due  to  the  market  uneasiness  about  the  ability  of  reimbursement  of  public  debt  by  the  peripheral  countries  such  as  Spain,  Italy,  Greece  and  Portugal.    

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  Figure  2  the  Bond  yields  of  the  EU  economies  from  2007  to  2012      The  figure  2  shows  the  bond  yields  of  4  countries  in  Europe,  Germany,  Spain,  Italy  and  UK.  This  figure  represents  that  the  gap  of  the  bond  yields  of  Spain  and  Italy  started  deriving  from  the  ones  of  Germany  and  UK  which  were  regarded  relatively  safe  assets  in  the  European  economy,  and  reached  even  just  over  of  6%.  This  means  that  the  uneasiness  of  the  market  was  pervasive  during  this  period  for  the  deterioration  of  public  deficit  of  the  south  European  countries.    

5housing	
  price	
  index(seasonaly	
  adjusted)	
  index	
  based	  in	
  2005	
  
140	
  
120	
  
100	
  
80	
  
60	
  
40	
  

2011:1	  2010:3	  2010:1	  2009:3	  2009:1	  2008:3	  2008:1	  2007:3	  2007:1	  2006:3	  2006:1	  2005:3	  2005:1	  2004:3	  2004:1	  2003:3	  2003:1	  2002:3	  2002:1	  2001:3	  2001:1	  2000:3	
  0	
  2000:1	
  

20	
  

  

Figure  3  housing  price  index  in  Spain  (source;  Queens  University  database)  

  

  

  

In  addition,  what  is  not  ignorable  when  arguing  about  the  Spanish  economy  is  that  the  existence  of  the  housing  bubble  from  around  2000.  As  easily  be  seen  in  the  figure  3,  the  housing  price  had  been  steadily  rising  from  January  2008  to  2011,  with  the  substantial  amount  of  current  account  deficit  throughout  the  period.  This  means  that  the  investment  to  the  construction  sector  was  bolstered  by  the  inflow  of  foreign  capital  to  the  economy  and  the  withdrawal  of  such  foreign  capital  from  the  market  caused  the  sharp  decline  of  housing  bubbles  and  GDP.    In  this  regard,  Akin  et  al.  
(2014)  suggests  that  by  saying  “despite  some  adjustment  in  lending  conditions  in  the  good  times  depending  on  borrower  risk,  the  results  suggest  too  soft  lending  standards  and  excessive  risk-‐‑‒taking  in  the  boom.”  the  lack  of  the  consolidated  governing  structure  of  the  small  saving  banks  called  “cajas”  in  Spain  led  to  the  more  softened  standards  of  lending  during  the  boom  and  worsened  the  real  estate  bubble.  It  will  be  mentioned  later  that  the  bad  loans  in  the  “cajas”  with  less  financial  transparency  and  6governing  structure  led  to  the  difficulty  of  the  assessment  of  the  bad  loans  in  the  political  response.    
  The  chronology  of  the  political  actions  of  Spanish  government      During  the  crisis  aforementioned,  the  government  of  Spain  was  forced  to  implement  austerity  measures,  along  the  stage  of  the  crisis.  In  this  part,  the  history  of  the  actions  of  the  government  and  events  are  provided  in  order  to  clarify  the  interactions  between  the  government  and  other  entities  with  which  it  becomes  possible  to  analyze  the  academic  implications  in  this  paper.    
  According  to  the  sets  of  articles  from  newspapers  and  magazines,  the  chronology  listed  below  can  be  led.    

    March  2008    Prime  Minister  Jose  Luis  Rodriguez  Zapatero  wins  a  second  term  in  office,  but  without  an  outright  majority.    
  Third  quarter  2008    Economy  officially  enters  recession.  Standard  &  Poor's  is  the  first  credit  rating  agency  to  downgrade  Spain,  cutting  its  treasured  AAA  rating  by  one  notch  to  AA+.  

Spain  adopts  an  economic  stimulus  plan  worth  an  estimated  5pc  of  GDP,  including  €8bn  (£6.5bn)  euros  of  infrastructure  projects.    
The  Bank  of  Spain  bails  out  regional  lender  Caja  Castilla-‐‑‒La  Mancha,  the  country's  first  bank  rescue  in  recent  years.    
  7May-‐‑‒June  2009    Spain  creates  a  bank  bail-‐‑‒out  fund,  known  as  the  FROB,  with  firepower  of  up  to  €99bn  euros  and  urges  weaker  savings  banks  to  merge  to  improve  solvency.    
  First  quarter  2010    Spain's  economy  exits  recession.    
  April  2010    As  talks  intensify  on  granting  Greece  an  economic  bailout,  attention  turns  to  Spain  amid  worries  over  its  public  deficit  -‐‑‒  11.2pc  of  GDP  in  2009.    
  May  2010    After  initially  denying  Spain  was  in  trouble,  Zapatero  announces  austerity  measures  worth  around  1.5pc  of  GDP.  Austerity  measures  passed  over  the  following  six  months,  including  a  two  percentage  point  rise  in  VAT,  are  worth  an  estimated  total  of  5pc  of  GDP.                                                                                                                                                                                                                                                                                                      June  2010    Spain's  cabinet  approves  a  labour  market  reform.  The  bill  is  passed  through  parliament  in  September.    
  December  2010    The  central  government  forces  the  country's  17  autonomous  regions,  considered  the  weak  link  in  spending  cuts,  to  publish  more  details  of  their  accounts.    
  January  2011    8Spain  passes  pension  reform  that  will  gradually  raise  the  retirement  age  to  67  from  a  previous  65.    
  June  2011    Zapatero  decides  to  bring  forward  national  elections  to  November,  four  months  early.    
  September  2011    Parliament  passes  a  constitutional  amendment  forcing  governments  to  keep  balance  budgets.    
  November  2011      Mariano  Rajoy's  centre-‐‑‒right  People's  Party  wins  an  absolute  majority  in  November  20  elections  as  voters  punish  the  outgoing  Socialist  government  for  the  economic  crisis.    
    December  2011    New  government  says  on  December  30  that  the  public  deficit  for  2011  would  come  in  at  8pc  of  GDP,  well  above  a  target  of  6pc.  The  government  also  announces  new  austerity  measures  with  a  cut  in  public  spending  by  €8.9bn  in  2012  for  all  ministries.    
Treasury  Minister  Cristobal  Montoro  announces  tax  hikes  to  focus  on  the  wealthy,  raising  around  €6bn.    
    January  2012    Spain  ends  2011  with  almost  one-‐‑‒in-‐‑‒four  of  its  economically  active  population  out  of  work.  The  jobless  rate  jumps  to  22.85pc,  or  5.27m  people  -‐‑‒  the  highest  in  the  European  Union.    
    9March  2012    Spain  will  aim  to  save  more  than  €27bn  in  its  2012  budget  through  corporate  taxes,  freezing  civil  servant  wages  and  ministerial  spending  cuts.  Rajoy  has  said  he  will  reduce  the  budget  deficit  to  equal  to  5.3pc  of  GDP  in  2012  from  8.5pc  of  GDP  in  2011.    
    First  quarter  2012    Economy  falls  back  into  recession.    
    April  2012    Thousands  of  people  protest  across  Spain  against  government  cuts  aimed  at  tackling  the  debt  crisis.    
    May  2012    Government  says  2011  public  deficit  8.9pc  of  GDP.    
    May  2012    Bankia  asks  for  a  €19bn  state  rescue  on  May  25.  Spain  is  nationalising  Bankia,  which  holds  some  10pc  of  the  country's  bank  deposits,  weighed  downn  by  heavy  losses  from  the  property  crash.    
    June  2012    Montoro  says  Spain's  high  borrowing  costs  mean  it  is  effectively  shut  out  of  the  bond  market  and  the  EU  should  help  Madrid  recapitalise  its  debt-‐‑‒laden  banks.  Spain  still  needs  to  refinance  about  €82bn  of  debt  in  2012,  while  helping  its  regions  to  repay  maturing  debts  of  about  €16bn  in  the  second  half  of  2012.    
    

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June  9,  2012    Spain  bows  to  bailout  of  struggling  bank  sector.  Eurozone  finance  ministers  agree  to  lend  country  up  to  €100bn  to  shore  up  its  banks  and  Madrid  said  it  would  specify  precisely  how  much  it  needs  once  independent  audits  report  in  just  over  a  week.    
(source;  Telegraph  http://www.telegraph.co.uk/finance/financialcrisis/9319175/Spains-‐‑‒economic-‐‑‒crisis-‐‑‒a-‐‑‒timeline.html  Partly  edited  by  author)      The  shown  above  is  the  outline  of  the  events.  And  the  latter  is  the  more  in  detailed  descriptive  information  about  the  chronology.    
When  the  PSOE  (Partido  Socialista  Obrero  Espanol)  came  to  power  after  winning  the  election  in  March  2008,  the  Government  repeatedly  refused  to  speak  about  “crisis”  and  only  admitted  an  economic  “desaceleración”.  It  was  not  until  June  2008  that  Zapatero  admitted  that  Spain  was  in  a  dire  situation  and  started  adopting  an  austerity  plan  starting  with  reduction  of  public  spending  in  the  public  administration.  
It  was  followed  further  with  major  reduction  of  public  job  offers  in  2009  with  sharp  decrease  comparing  with  that  of  2008  the  freezing  of  salaries  of  high  positions  in  the  public  administration.  The  government  launched  a  plan  with  24  economic  measures  which  influence  major  sectors  including  transport,  energy,  telecommunication,  environment,  housing  and  financing  of  small  and  medium  enterprises.  
In  2008,  the  Spanish  government  announced  new  plans  for  economic  activation  along  with  11,000  million  Euros  for  public  investment,  8000  of  which  to  be  destined  to  town  halls  to  finance  public  jobs  (Fondo  estatal  de  inversión  local).  
In  January  2009,  four  major  fields  were  prioritized  for  new  economic  measures  called  the  Plan  E(Plan  español  para  el  estímulo  de  la  economía  y  el  empleo)  with  82  economic  measures  in  particular  on:  1)  aid  to  families;  2)promotion  of  employment;  113)  modernization  of  the  economy,  and;  4)  support  to  the  financial  sector.  Promotion  of  subsidized  housing  was  also  created,  which  marked  one  of  the  most  important  measures  in  terms  of  social  rights.    
In  September  2009,  the  Spanish  government  decided  to  increase  the  IVA  (VAT)  and  the  abolition  of  the  (Estrada-‐‑‒Cañamares  et  al,  2014).  
In  May  2010,  the  Spanish  government  again  announced  reduction  of  15000  million  Euros  in  public  spending,  mainly  relevant  to  the  salaries  of  public  officials,  the  retirement  pensions  (which  already  had  frozen  since  2010),  the  abolition  of  the  cheque-‐‑‒bebé  (which  was  introduced  in  2007)  and  the  Ley  de  la  Dependencia.  The  main  controversy  was  revolving  around  the  impact  that  those  cuts  were  bringing  about  to  two  major  government  spending,  on  the  healthcare  system  and  on  the  education  system.    
In  September  2010,  a  new  labor  reform  was  introduced  by  the  Spanish  government,  which  constituted  reducing  the  cost  of  dismissals  and  introduction  of  new  instruments  to  deal  with  unemployed  better.    
In  June  2011,  a  reform  on  retirement  pension  program  was  initiated  by  the  government,  with  the  major  change  of  the  retirement  age  from  65  up  to  67  years.    
In  February  2012,  the  recently  elected  Government  of  the  PP  (Partido  Popular)  introduced  a  new  market  reform.  The  reform  aimed  to  reduce  the  cost  of  dismissals,  allowed  for  collective  dismissals  of  public  officials  and  gave  more  freedom  to  employees  to  modify  working  days,  salaries,  timetables  and  positions.    A  10,000  million  Euro  cut  by  the  government  in  April  was  followed,  which  greatly  affected  the  healthcare  system  and  the  education  system.  Roughly  about  7,000  million  Euros  cut  was  counted  in  the  healthcare  system,  with  introduction  of  the  copago  (co-‐‑‒payment)  12

of  medicines,  which  greatly  depended  on  the  income  of  the  individuals  because  it  set  up  fixed  rate  on  medicines  to  be  paid  by  individuals  including  those  who  did  not  pay  any  under  pension.  In  details,  employed  individuals  with  annual  income  below  18,000  Euros  had  to  pay  40%  of  the  price  of  medicines  as  before,  but  now  those  whose  annual  income  ranged  between  18,000  and  100,000  Euros  now  have  to  pay  50%  of  the  price  of  medicines,  and  those  who  earn  above  100,000  Euros  per  year  have  to  pay  60%  of  the  price.  Meanwhile,  on  the  education  system,  it  increased  the  maximum  number  of  students  per  class  and  the  amount  of  class  hours  per  teacher.    
In  May  2012,  the  Spanish  government  bailed  out  Bankia,  the  fourth  largest  bank  of  the  country,  with  more  than  23000  million  Euros  injected  in  the  process.  By  the  end  of  May,  Spainʼ’s  risk  premium  rose  to  530  points,  and  the  EU  warned  Spain  that  it  should  reduce  public  spending  in  order  to  control  its  public  deficit.  
In  June  9th  2012,  the  Spanish  government  publicized  officially  its  interest  to  ask  for  European  financial  assistance  to  recapitalize  banks,  and  it  argued  tha  the  Eurogroup  had  responded  positively  to  its  message  in  the  meeting  they  had  on  the  same  day.  Later  in  June  25th  2012,  the  Spanish  government  officially  made  a  request  for  financial  support  for  banking  industry  in  particular.  The  European  Commission  along  with  IMF,  the  European  Central  Bank  (ECB),  and  European  Banking  Authority  (EBA)  reached  an  agreed  assessment  that  Spain  was  indeed  eligible  for  requested  financial  assistance.  Once  they  reached  an  agreement,  they  also  came  to  an  agreement  with  Spanish  authorities  upon  the  specific  policy  terms  and  conditions  on  financial  sector,  which  were  to  be  attached  to  the  financial  package,  culminating  in  a  Memorandum  of  Understanding  on  Financial-‐‑‒Sector  Policy  Conditionality  and  a  Financial  Assistance  Facility  Agreement.    

13This  Memorandum  states  that  the  main  objective  of  the  bailout  is  “to  increase  the  long-‐‑‒term  resilience  of  the  banking  sector  as  a  whole,  thus,  restoring  its  market  access”.  The  central  objective  following  was  to  reinforce  the  weak  components  of  the  Spanish  financial  industry.  As  Estrada-‐‑‒Cañamares  rightly  points  out,  however,  the  memorandum  also  stipulates  the  fact  that  “there  is  a  close  relationship  between  macroeconomic  imbalances,  public  finances  and  financial  sector  soundness”,  which  was  in  its  implication,  the  reason  why  Spain  was  then  compelled  to  ensure  the  attainment  of  deficit  targets  of  6.3%  of  GDP  for  2012,  4.5  of  GDP  for  2013  and  2.8  of  GDP  for  2014.  In  addition,  the  Memorandum  “invites”  Spain  to  introduce  changes,  ratifications,  and  modification  in  concrete  fields  such  as  its  taxation  system  as  to  be  “more  supportive  to  growth”  and  to  impose  and  implement  relevant  labor  market  reforms.      In  July  13th  2012,  new  reforms  were  introduced  by  the  Spanish  government,  and  among  them  the  most  important  reforms  were  the  increase  of  the  IVA  (VAT),  the  increase  of  the  Impuesto  de  Sociedades  (Corporate  Income  Tax),  the  reduction  of  housing  assistance,  the  cut  of  unemployment  benefits,  the  modification  of  the  Ley  de  Dependencia,  and  the  reduction  of  public  spending  in  public  officials  (e.g.  the  extra  pay  of  December  is  abolished)  (Estrada-‐‑‒Cañamares  et  al,  2014).      In  August  2012,  the  Government  withdrew  the  tarjeta  sanitaria  to  irregular  immigrants,  which  made  the  access  of  those  irregular  immigrants  to  the  healthcare  system  now  is  limited  to  very  specific  cases  only  such  as  emergency  care.    
During  the  second  half  of  the  year  2012,  especially  from  September  to  November  the  Spanish  press  repeatedly  warned  the  imminence  of  the  second  bailout  in  Spain,  at  this  time  for  Spanish  public  debt  after  the  first  bailout  in  financial  banks.  
The  Spanish  government  then  organized  a  commission  to  conduct  a  set  of  reforms  for  14the  public  administration  and  public  service,  against  suspected  dysfunctional  and  malfunctioning  bureaucracy,  corruption,  and  duplicities.  The  Spanish  government  also  implemented  the  labor  market  reform  that  was  introduced  in  February  of  the  same  year,  for  collective  dismissals  in  public  administration.    

The  establishment  of  EFSF  as  an  supra  national  body  for  financial  stability    When  the  topic  of  this  theme  is  considered  as  an  issue,  the  system  setting  and  the  politics  in  there  cannot  be  ignored  as  a  counterpart  of  one  sovereignty.  The  EFSF  was  created  as  a  temporary  crisis  resolution  mechanism  by  the  euro  area  Member  States  in  June  2010.  The  EFSF  has  provided  financial  assistance  to  Ireland,  Portugal  and  Greece.  The  assistance  was  financed  by  the  EFSF  through  the  issuance  of  bonds  and  other  debt  instruments  on  capital  markets1.  This  institution  is  a  company  which  was  agreed  by  the  countries  that  share  the  euro  on  May  9th  2010  and  incorporated  in  Luxembourg  under  Luxembourgish  law.  
  However,  Gocaj(2013)  points  out  the  existence  of  path  dependency  “in  the  subsequent  management  of  an  unrelenting  crisis,  enshrined  intergovernmentalism  as  the  modus  operandi,  and  led  to  suboptimal  solutions”.  Furthermore,  it  also  suggests  that  “Historical  institutionalism2  aims  to  explain  how  a  policy  outcome  at  a  particular  critical  juncture  triggers  feedback  mechanisms  that  reinforce  the  recurrence  of  a  particular  political  pattern  and  restrict  the  policy  options  available  later  on  in  the  historical  sequence.  
  From  this  perspective,  the  establishment  and  the  function  of  the  EFSF  as  a  supra-‐‑‒national  body  are  not  necessarily  optimum  or  the  best  solution  to  the  response  
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
1

	
  the	
  introduction	
  of	
  the	
  institution	
  from	  the	  HP	  	
  http://www.efsf.europa.eu/about/index.htm	
  2
	  For	  more	  in	
  detail,	
  refer	  to	
  Steinmo(2008)	
  	
  

15

to  the  crisis,  whereas  the  contradictory  approach,  rational  choice  approach,  suggests.  
While  the  rational  choice  approach  implies  institution  is  fruition  of  rational  choice  based  on  material  motivations  such  as  economic  profit,  historical  institutionalism  suggests  in  a  practical  level  that  the  conditionality  that  the  institution  imposes  does  not  necessarily  leads  to  the  economically  best  solution.  Actually,  Gocaj(2013)  suggests  that  the  establishment  of  EFSF  entailed  “political  sunk  cost”  in  each  country  to  pass  the  bill  for  approval,  for  the  purpose  of  being  persuasive  to  market,  by  pointing  out  the  volatility  of  the  downgrading  of  EFSF  in  the  case  of  the  one  of  advocating  countries.    
  Therefore,  when  discussing  the  provision  of  financial  support  from  EFSF,  it  should  be  noted  that  the  conditionality  and  the  policies  implemented  in  fact  are  not  necessarily  optimum  and  in  turn  does  not  mean  that  It  can  contribute  to  the  revitalization  of  the  Spanish  economy.    
Chapter  2;  Evaluation  of  the  facts    As  partly  mentioned  in  the  first  chapter,  the  more  intensive  attention  began  to  be  paid  to  Spain,  by  being  triggered  by  the  profligate  fiscal  management  of  Greece  in  2010.  For  the  fact  that  the  external  dependence  of  Spanish  economy  was  high,  the  concern  of  the  market  toward  the  fiscal  management  of  Spain  was  reflected  as  the  soured  bond  yields  and  the  gap  of  it  with  German  bonds.  Therefore,  it  can  be  said  that  Spain  had  an  incentive  to,  more  precisely  saying  it  has  no  choice  but  to,  implement  austerity  measures  for  sustaining  the  fiscal  conditions  even  if  the  measures  are  unpopular  and  in  contradiction  to  the  political  claims  as  a  leftist  ruling  party.  
    The  model  of  responsiveness  and  responsibility    Here.  In  order  to  consider  the  relation  between  the  election  and  the  perception  of  the  result  of  the  austerity  measures,  the  theory  Bosco  et  al  (2015)  suggests  16

explains.  According  to  this  theory,  there  are  two  concepts  in  contradiction,  responsiveness  and  responsibility,  imposed  upon  incumbents  in  authority.  This  claims  that  while  it  put  a  premise  that  “political  parties  are  in  contemporary  democracies  have  shown  a  diminishing  capacity  to  exercise  simultaneously  the  basic  function  that  allowed  the  development  of  modern  democracies  to  govern  and  to  present”,  “its  organizational  changes  that  moved  parties  away  from  civil  societies  and  reduced  the  size  of  their  membership”  and  “the  diminishing  levels  of  party`̀s  identification  have  parties  less  able  to  listen  to  their  electoral  base,  to  express  the  demands  and  to  mobilize  their  voters”.    
  In  fact,  the  case  of  Spain  in  Europe  financial  crisis,  the  government  of  Spain  was  at  first  hesitated  to  admitted  that  the  economic  crisis  as  crisis  but  continued  to  say  it  was  a  “de-‐‑‒acceleration”  for  the  first  time,  in  terms  of  the  relationship  with  the  domestic  voters,  and  in  the  next  stage  the  government  turned  to  a  stimulus  package  in  2008.However,  the  worse  the  public  deficit  becomes,  the  less  they  are  willing  to,  or  just  could  not,  take  political  responsibility  as  a  leftist  party  that  has  a  more  propensity  for  the  bigger  role  of  the  central  government,  and  inclined  to  pursue  for  the  responsiveness  to  the  crisis  major  in  front  to  end  up  with  the  series  of  austerity  measures.    
  This  forced  a  large  extent  of  burdens  to  its  domestic  voters  in  various  fields  such  as  employment,  welfare  in  general  and  so  on.  In  this  sense,  the  interpretation  that  the  distribution  of  the  cost  of  the  crisis  in  terms  of  austerity  measures  and  the  tax  burdens  due  to  the  solvency  measure  for  the  banking  sector  could  not  avoid  being  perceived  as  unfair  by  the  voters  is  compatible,  and  it  is  consistent  to  anticipate  that  this  perception  of  the  voters  led  to  the  land-‐‑‒slide  victory  of  the  rightist  party,  Peoples  Party,  in  2012  election.  As  a  matter  of  fact,    Bosco  et  al(2015)  states  that  “The  17

economic  storm  that  has  broken  out  in  Southern  Europe  has  shown  that  when  incumbents  are  ʻ‘responsibleʼ’̶—abiding  by  the  agreements  with  the  external  actors̶—
they  end  up  neglecting  their  votersʼ’  demands.  This  has  imposed  a  heavy  electoral  toll  on  South  European  government  parties”,  meaning  the  trade-‐‑‒off  of  their  responsibility  for  its  fiscal  management  and  the  popularity  from  the  voters.    
  Furthermore,  the  fiscal  retrenchment  during  this  periods  in  southern  European  countries  could  not  ignore  the  response  of  market  response.  Mascio  et  al(2012)  suggests  that  “there  is  a  broad  consensus  that  the  New  Public  Management(NPM)  has  constituted  the  most  visible  attempt  to  reform  the  public  sector  across  the  western  world  and  beyond”,  where  the  NPM  is  market-‐‑‒familiar  direction.  This  is  because  that  were  familiar  with  the  concept  of  Marketization  and  Modernization  which  decentralization  and  agencification.    
  In  this  sense,  It  should  be  noted  that  if  they  had  inclined  to  responsiveness  to  the  crisis  too  much,  they  would  not  have  satisfy  credibility  of  the  other  countries  for  the  financial  rescue  and  of  the  international  market.  As  pointed  out,  as  the  EFSF  has  a  fragile  system  setting,  not  only  would  it  have  been  more  difficult  for  them  to  satisfy  the  conditionality  of  the  financial  support  but  also  the  financial  procurement  of  EFSF  per  se  would  have  been  more  jeopardized  in  the  sense  where  there  is  a  high  correlation  between  the  grading  of  the  issued  bonds  of  EFSF  and  advocating  countries  such  as  France  and  Germany.  

  Evaluation  of  voters,  from  the  rational  perspective    On  the  other  hand,  whereas  there  was  suggested  the  dilemma  between  responsiveness  and  responsibility,  it  is  necessary  to  consider  the  perception  of  the  voters  toward  the  austerity  measures.  Anderson  (2000)  says  “there  are  different  ways  to  conceptualize  how  political  contexts  may  help  to  mediate  the  relationship  between  18economic  performance  and  political  preferences”  and  it  “refers  to  them  as  institutional  clarity  of  responsibility,  governing  party  target  size,  and  clarity  of  available  alternatives”.  As  for  the  criteria  of  governing  party  target  size,  it  suggests  that  the  target  size  of  the  incumbentsʼ’  parties  in  ruling  position  affects  the  dilution  of  and  the  allocation  of  responsibility  of  the  economic  damage.    

The  analysis  of  the  austerity  measures      As  mentioned  above,  the  evaluation  and  the  ideological  analysis  of  the  sets  of  austeiry  measures  are  important  to  address  the  perception  of  the  voters.    

  According  to  Blyth  (2013),  austerity  is  the  deliberate  deflation  of  domestic  wages  and  prices  through  cuts  to  public  spending  designed  to  reduce  a  stateʼ’s  debts  and  deficits,  increase  its  economic  competitiveness,  and  to  restore  though  somewhat  vaguely  conceptualized  “business  confidence”.  Austerity  in  theory  guarantees  less  intervention  of  the  government  comparatively  than  before,  as  to  boost  private  investments  in  market  with  consumers  and  produces  confident  about  the  future  therefore  more  inclined  to  spend  more,  which  will  lead  to  economic  growth  coming  out  of  the  recession.    
        However,  reality  has  been  suggesting  a  different  answer,  where  Portugal,  Italy,  Ireland,  Greece  and  Latvia  all  point  out  to  far  from  economic  growth.  More  than  enough  statistics  are  available  today,  which  contradict  the  promised  result  of  austerity  plans.  Then,  the  lingering  puzzle  goes  as  following:  why  austerity  has  been  around  and  remains  as  the  central  policy  response  to  financial  crisis  around  the  globe  and  in  the  Eurozone  in  particular?  According  to  Blyth,  this  is  due  to  both  material  and  ideological  reasons.  This  is  materially,  because  there  are  not  many  other  options  available  at  this  time:  unlike  United  States,  the  EU  does  not  have  counterpart  system  due  to  its  institutional  makeup  like  a  central  Treasury  of  the  United  States  and  a  19central  bank  capable  of  dealing  with  any  sorts  of  collateral  impact.  The  EU  had  at  best  some  additional  liquidity,  spending  cuts,  and  incantations  of  its  “unshakable  commitment  to  the  euro”.  Austerity  is  also  ideologically  attractive,  because  simply  of  its  core  claim  that  you  cannot  cure  debt  with  more  debt.    
        However,  some  factors  challenge  the  austerity  regime  in  its  claim  to  serve  as  crisis  cure.  The  first  factor  is  distributional  relevance.  When  government  cuts  its  public  spending,  the  blow  hits  the  country  with  different  intensity  across  the  social  class  and  different  levels  of  society.  Those  who  are  the  least  fortunate  and  the  poorest  feel  it  more  sharply  because  they  depend  more  heavily  on  government  spending.  It  consequently  makes  the  poorest  and  weakest  to  pay  the  cost  of  austerity  by  reducing  public  expenditure  while  those  who  can  are  not  asked  to.    
        The  second  factor  to  be  considered  is  a  matter  of  chronicle.  Austerity  theoretically  assumes  that  public  frugality  will  eventually  induce  more  private  spending.  However,  when  the  unit  of  the  actors  become  states  in  European  context,  it  contradicts  the  very  nature  of  the  European  Union,  as  in  supposition  Spain  reduces  their  cut  in  spending  with  deeply  interconnected  trading  partners  in  Europe,  the  regional  economy  itself  will  be  in  contradiction.  In  other  words,  for  Spain  to  benefit  from  a  reduction  in  its  domestic  wages  with  expectation  that  by  doing  so  it  will  produce  more  competitive  costs,  there  must  be  another  country  willing  to  spend  its  money  on  what  Spain  produces.  Therefore,  European  countries  have  to  work  in  punctuality  for  the  plan  to  work  while  the  reality  has  been  that  many  countries  are  trying  to  save  or  buy  at  the  same  time.                    The  last  factor  to  suggest  is  logical.  This  goes  back  to  the  preposition  of  the  austerity  theory  suggests  mentioned  briefly  before  in  the  previous  paragraph-‐‑‒the  frugality  of  public  spending  will  eventually  promote  more  private  spending.  As  the  20economist  Paul  Krugman  has  argued,  this  claim  assumes  that  consumers  anticipate  and  incorporate  all  government  policy  changes  into  their  lifetime  budget  calculations.  
When  the  government  signals  that  it  will  cut  its  expenditures  in  a  dramatic  degree,  the  argument  is  that  consumers  will  then  realize  that  their  future  tax  burdens  will  decrease,  which  make  them  consequently  to  spend  more  money  now  than  they  would  have  done  without  the  cuts  in  government  expenditure,  all  to  at  the  end  put  a  period  on  the  recession.  However,  it  is  also  an  assumption,  a  improbable  one,  that  financially  illiterate,  consumers  at  all  kinds  of  level  of  social  context  will  also  act  as  it  expects,  despite  the  eminent  threat  of  losing  their  jobs  in  the  midst  of  the  recession.    
        Austerity  in  this  sense  ignores  the  externalities  it  produces,  impact  on  one  individualʼ’s  choices  anotherʼ’s,  and  the  low  chance  that  people  will  actually  comply  with  the  expectations  the  theory  imposes  (Blyth,  2013).  
        In  case  of  Spain,  it  has  just  escaped  from  two  consecutive  years  of  recession  with  a  third  quarter  growth  rate  of  0.1  percent  by  2013.  By  this  data,  the  Spanish  recession  is  officially  over.  However,  micro  context  of  the  country  yet  suggests  a  long  way  to  recover  before  it  can  confidently  say  that  it  is  officially  over  not  only  with  the  recession  but  also  with  the  diminishing  sides  of  austerity  that  was  implemented  for  the  past  couple  of  years,  imposed  indirectly  but  also  aggressively  by  Germany-‐‑‒led  European  Union.    
In  Spain  as  of  2013,  unemployment  still  remains  stubbornly  high  at  26  percent,  while  half  of  those  age  25  and  under  in  labor  market  are  still  unemployed.  More  than  half  those  age  25  and  under  in  Greece  and  Croatia  are  also  unemployed.  In  Europe,  only  in  Germany  and  Austria  is  youth  unemployment  under  10  percent.  Greece  and  Spain  lead  the  sorry  list  of  European  countries  with  more  than  25  percent  unemployed,  and  13  more  are  enduring  joblessness  at  more  than  10  percent  (Wapshott,  2013).  

21

When  Spain  only  finds  economic  growth  in  some  of  the  export  sectors,  there  is  only  weak  message  to  be  offered  that  the  economy  has  been  genuinely  cured  by  this  protracted  austerity  regime.  Domestic  demand  is  still  far  from  satisfaction  with  confident  claim  of  full  recovery.  Wapshott  elaborates  further  that  such  growth  is  not  enough  to  create  jobs  and  the  labor  regulation  reforms  that  have  accompanied  austerity  mean  growth  now  has  to  be  at  somewhere  between  1  and  1.5  percent  before  new  jobs  are  created;  to  spur  on  job  growth,  labor-‐‑‒intensive  industries  like  construction  need  to  expand.  Yet  there  is  little  sign  of  that  happening.  
  The  origins  of  Austerity  trace  back  to  liberal  economic  thinking  about  the  state.  
The  seventeenth-‐‑‒century  English  thinker  John  Locke  in  his  literature  Two  Treatises  on  Government,  acknowledge  that  there  will  be  an  inevitable  inequalities  that  market  creates,  and  in  such  case  the  state  should  intervene  to  deal  with  inequalities.  However  dilemma  comes  when  the  state  does  that  duty  effectively,  because  then  it  means  that  the  state  is  also  strong  enough  to  threaten  the  property  holders  it  was  supposed  to  protect  in  the  first  place;  how  to  find  the  balance  to  live  in  the  state  that  can  threaten  the  property  holders,  but  nevertheless  the  state  that  property  holders  cannot  live  and  live  without.    
        This  question  was  later  articulated  further  by  David  Hume  and  Adam  Smith  in  eighteenth  century,  with  the  answer  they  found  out  and  they  were  not  really  font  of  and  only  to  conclude  that  it  should  be  avoided  at  all  cost:  government  debt.    
Later  in  nineteenth  century,  while  David  Ricardo  was  seeking  for  extreme  measures  such  as  abolition  of  the  state  from  economic  intervention  at  all,  John  Stuart  Mill  pondered  on  the  role  for  the  state  and  government  debt  with  more  creativity.  

22Millʼ’s  argument  is  that  government  debt  should  not  have  to  bankrupt  a  country  and  can  be  used  so  as  to  use  for  beneficial  social  investments.  To  add,  Mill  predicted  more  precisely  that  self-‐‑‒regulating  and  equilibrium-‐‑‒reaching  market  is  not  likely  to  be  able  to  exist  because  of  labor  agitation,  volatility  in  the  market  especially  with  business-‐‑‒cycle,  political  externality,  and  poverty  pervasive  at  the  time.    
In  twentieth  century,  this  resulted  in  two  schools  of  thoughts  splitting  from  traditional  liberalism,  commonly  known  as  Austrian  School  following  Ricardo  on  one  hand  with  rejection  to  state  intervention,    and  a  group  of  British    economists  following  Mill  on  the  other  with  advocating  active  intervention  and,  if  needed,  indebted  state.  
        The  Austrian  School  of  Economics  argued  that  the  binge  of  debt  financing  could  be  cured  only  by  the  purge  of  austerity,  and  the  role  of  the  state  was  to  get  out  of  the  way  and  let  the  profess  unfold  (Blyth,  2013).  “Liquidationism”,  letting  failing  enterprises  be  liquidated  as  a  solution  to  economic  problems,  was  the  underlying  idea,  which  the  United  States  also  used  during  the  Great  Depression  only  to  turn  out  to  be  a  failure.  Although  in1930s  Keynes  along  with  his  literature  General  Theory,  raised  considerable  criticism  against  the  Austrian  School,  the  financial  crisis  of  2008  brought  and  marked  a  sharp  return  of  the  Austrian  model  as  the  default  model  for  crisis  response  in  the  Eurozone  today.  
        When  there  have  been  clear  arguments  that  austerity  does  not  work,  question  as  to  what  would  be  the  alternatives  to  austerity  are  yet  subject  to  fevered  debates.  
Although  a  government  already  in  debt  to  go  on  spending  sprees  is  obviously  not  a  desirable  option,  keeping  simplicity,  one  can  suggest  at  least  that  governments  in  recession  should  not  cut  spending.  As  Richard  Koo  has  argued,  countries  cannot  simultaneously  shed  their  public  and  their  private  debts  although  this  is  exactly  what  Europe  has  been  doing.  Rather,  governments  should  get  the  private  sector  to  pay  23

down  its  debts  while  maintaining  public  spending.  Then,  as  the  private  sector  recovers,  tax  revenues  will  increase,  and  the  accumulated  debts  and  deficits  can  start  to  go  down  (Blyth,  2013).  

	  Figure	  4	
  Impact	
  of	
  Austerity	
  on	
  Social	
  and	
  Human	
  Rights	
  in	
  Spain	
  
	
  

24

	
  
Figure	  5	
  	
  Evolution	
  of	
  Annual	  Minimum	
  Wage	  Compared	
  to	
  Annual	
  Average	
  Wage	  (2007-­‐2013)  

  

	
  
Figure	  6	
  Incidences	
  of	
  Unmet	
  Health	
  Needs	
  Due	  to	
  Cost  

25

  

	
  
Figure	  7	
  Budget	
  Allocations	  to	
  Address	
  Equality	
  and	  Gender-­‐Based	
  Violence	
  2009-­‐2015  

  

	
  
Figure	  8	
  Proportion	
  of	
  the	  Spanish	
  Population	
  Who	  Can	  No	  Longer	
  Afford	
  to	
  Pay	
  for	
  Medicines	
  Due	  to	
  Low	  Wages	  (2007-­‐2013)	
  26

All  of  the  hitherto  figures  suggest  that  Spanish  austerity  policies  have  not  been  so  conducive  to  the  country  in  many  aspects,  and  even  detrimental  especially  to  the  socially  disadvantaged  groups  in  health  care,  education,  gender  equality  and  many  others.    The  case  of  healthcare  highlights  a  complicated  nature  of  looking  at  austerity  with  cautious  view.  Spain  in  its  determination  to  seek  for  short-‐‑‒term  cost  recovery  at  any  circumstances  in  the  thrust  of  austerity  measures,  it  decreased  the  already  low  level  of  spending  on  health  care  with  dramatic  reforms.  Consequently,  Spainʼ’s  universal  public  health  care  system  has  shrunk  and  fragmented  while  now  the  undocumented  immigrants  who  had  an  access  to  the  public  health  services  before  find  themselves  stripped  off  of  that  right.  More  precisely,  such  healthcare  reforms  dragged  15  percent  of  the  population  in  the  country  to  live  with  no  healthcare  to  cover  their  medicines  and  of  them  are  the  most  socially  vulnerable  and  poorest  of  the  society.    
The  case  of  Spain  and  cautionary  reviews  that  can  be  taken  is  that  they  all  stress  that  the  Spainʼ’s  spending  cuts  has  endured  and  remained  notwithstanding  more  equitable  fiscal  alternatives  that  are  available  in  options,  such  as  progressive  taxation  and  meaningful  efforts  to  tackle  tax  evasion  and  avoidance  that  would  both  balance  the  countryʼ’s  budget  and  comply  with  its  human  rights  duties  under  international  law  to  deploy  the  maximum  available  resources  to  fulfill  economic  and  social  rights.  
Those  who  have  been  worst  affected  by  the  crisis  in  Spain  as  suggested  in  figures  relevant  to  gender  violence  and  inequality,  were  women,  (illegal  in  particular)  migrants,  and  children.      In  May  2012,  United  Nations  Committee  on  Economic,  Social  and  Cultural  Rights  came  up  with  guidance  for  Spain  about  protection  of  human  rights  in  the  midst  of  Spainʼ’s  financial  crisis,  which  asked  Spain  to  rekindle  the  efforts  to  protect  these  rights.    

27

The  definition  of  growth  complicates  itself  due  to  the  multifaceted  volatility  of  human  life  and  the  number  of  the  indicators  that  can  be  considered  for  growth.  
However,  in  terms  of  addressing  human  rights  in  a  proper  manner  and  suitable  encounters  have  not  seemed  to  be  found  in  Spain  in  its  pursuit  of  austerity  policies  during  the  financial  crisis,  with  human  rights  duties  largely  ignored  in  the  process.    
Lessons  from  Spanish  Crisis    To  recap  of  the  CESR  report  of  2015,  austerity  measures  in  the  Spanish  crisis  introduced  drastic  budget  cuts  in  health,  education,  and  social  protection,  disproportionately  affecting  the  most  disadvantaged  and  marginalizing  individuals  and  groups.  It  also  brought  about  increase  in  population  living  in  poverty  that  entails  social  exclusion  as  well,  most  prominently  to  the  immigrant  households.  Unemployment  still  if  not  worsened  remains  with  erosion  of  domestic  wages.  Lastly,  there  also  came  a  considerable  disparity  in  economic  equality  between  men  and  women  with  discriminated  earnings,  gender-‐‑‒based  violence  and  bias,  and  relevant  services.    
The  Spanish  crisis  highlights  the  flaws  of  the  idea  of  integration  to  an  incomplete  monetary  union  (one  not  backed  by  a  political  union:  “…  Lower  interest  rates  and  the  loosening  of  credit  will  likely  lead  to  a  credit  boom,  driven  by  potentially  overoptimistic  expectations  of  future  permanent  income,  which  in  turn  may  increase  housing  demand  and  household  indebtedness,  as  well  as  lead  to  overestimations  of  potential  output  and  expansionary  fiscal  policies  (Royo,  2015)”.        Second  problem  to  be  pointed  out  is  rather  a  traditional  one  in  financial  crisis  in  the  world.  Government  and  banks  should  be  open  and  proactive  about  the  danger  of  default  before  bubble  pops  and  should  recognize  that  political  interests  should  be  put  aside  if  they  are  seeking  for  economic  stability  in  long  term  for  the  country  as  whole,  which  can  cause  other  social  and  political  instabilities  with  intensity  in  the  case  of  crisis.  

28

They  need  to  try  to  avoid  any  complacency  and  examine  the  countryʼ’s  business  confidence  in  check  which  can  be  overstated  and  overoptimistic.    
  Royo  points  out  that  a  crucial  problem  for  the  case  of  Spain  was  its  comparative  advantage  in  dramatic  erosion.  The  emerging  countries  such  as  India  and  China  brought  about  considerable  damage  in  the  European  continent,  agitated  additionally  by  the  Euro  appreciation  and  the  increase  of  unit  labor  costs  less  competitive  than  those  emerging  countries.  For  Spain  however,  the  problem  was  that  too  few  companies  export,  and  those  who  do  export  have  differentiated  products  because  they  are  the  large  corporations,  which  explains  why  the  market  share  of  Spanish  products  in  world  trade  did  not  fall  in  the  last  15  years  (Royo,  2015).    
  Final  point  that  can  be  taken  into  account  is  that  countries  inevitably  need  a  certain  degree  of  flexibility,  which  will  allow  to  encounter  times  of  crisis  and  to  increase  productivity  in  necessary  situations.    As  Royo  rightly  points  out,  this  will  help  Spainʼ’s  productive  sectors  to  respond  to  the  increasing  demand  and  to  ensure  that  their  economies  can  withstand  the  pressures  of  membership  to  a  single  market.  In  the  process,  it  is  also  highly  suggested  that  the  state  parties  will  wage  a  constant  review  on  the  reforms  that  have  already  been  undertaken  to  make  sure  that  those  austerity  measures  uphold  the  level  of  protection  to  be  attained  in  economic,  social,  and  cultural  rights.  One  of  the  hardest  missions  still  to  bear  will  be  to  ensure  that  such  austerity  measures  do  not  negate  or  impinge  on  very  economic,  social  and  cultural  rights  in  any  given  countries.      
  

  

.    

29

The  reason  of  the  smooth  provision  of  the  financial  support      As  being  reviewed  in  the  first  part  of  this  paper,  the  government  of  Spain  implemented  a  stimulus  package  for  the  first  move,  but  then  turned  to  the  austerity  measures,  which  were  like  a  neo-‐‑‒liberal  policy.    IMF(2014)  suggests  that  the  austerity  measures  implemented  by  2013  were  consistent  with  the  policy  suggestion  of  IMF,  which  means  by  2013  Spain  was  successfully  introduced  the  measures  in  the  first  chapter  in  a  way  that  it  matches  the  expectation  of  the  international  organization  in  cooperation  with  EFSF  body.  There  are  supposedly  two  reasons  for  this  match,  in  terms  of  financial  market  stability.          Firstly,  it  can  be  pointed  out  that  coherent  motivation  of  countries  both  the  credit-‐‑‒serving  sides  and  the  recipient  side  in  the  international  market  facilitated  their  negotiations  of  the  financial  injection.  As  mentioned  in  the  first  chapter  as  the  feature  of  the  EFSF,  it  is  a  limited  liability  company  established  in  Luxemburg  under  the  auspices  of  Luxemburg  law,  with  the  dominant  power  of  Germany,  France  and  so  on.  
Additionally,  the  financial  procurement  of  the  body  was  completely  relied  on  the  one  from  the  financial  market  as  a  form  of  security  by  compensating  the  lack  of  credibility  with  the  highly-‐‑‒graded  bonds  such  as  German  and  French  ones.  Therefore,  as  a  matter  of  system  mechanism,  the  more  stable  financial  market  was  the  common  concern  and  profit  for  both  of  the  parties,  EFSF  and  Spain,  in  terms  of  stable  financial  procurement.    
  In  addition,  the  insolvency  measure  in  the  banking  sector  of  Spain  was  the  acute  and  common  concern  problem  at  the  moment.    

30

  Figure  9  Loans  to  private  sector  from  domestic  banks  and  other  credit  institutions  (source;  World  Bank  financial  database)  First,  figure  4  shows  the  amount  of  loans  from  domestic  banks  to  private  sectors  in  each  countries.  This  shows  that  the  figure  of  Spain  more  rapidly  rose  from  1998  to  2007,  during  which  investment  bubble  to  the  construction  industry  and  real  estate  occurred.  Auter(2012)  explains  the  part  of  the  reason  as  “The  European  periphery  experienced  strong  credit  booms,  in  part  because  joining  the  euro  zone  meant  that  their  banks  strong  credit  booms,  in  part  because  joining  the  euro  zone  meant  that  their  banks  could  raise  funds  from  international  sources  in  their  own  currency̶—the  euro̶—  could  raise  funds  from  international  sources  in  their  own  currency̶—the  euro̶—  rather  than  their  previous  situation  of  borrowing  in  a  currency  not  their  own”.    
Secondly,  there  was  an  acute  necessity  for  the  financial  injection  to  the  banking  sector  to  resolve  the  credit  crunch.  The  table  below  shows  the  result  of  the  assessment  of  the  bad  loans  in  the  financial  sector  in  Spain.  

31  Figure  10  the  result  of  the  stress  test  In  2011,  showing  core  capitals  in  Banks  in  Spain      Figure  11  Spanish  cajas  core  capital  in  the  4Q  of  2010      The  two  tables  above  show  the  result  of  the  stress  test  showing  the  amount  of  core  capital  of  each  banks.  According  to  these,  the  minimum  requirement  for  the  core  one  capital  of  each  financial  institutions  was  8%  and  under  some  conditions  it  was  10%  at  least3.  Taking  into  consideration  the  financial  conditions  of  Spanish  banks  and  the  less  transparency  of  the  small  financial  firms,  cajas,  the  necessity  for  the  financial  injections  can  be  said  having  been  quite  high  at  that  time.    

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  

3

	
  The	
  financial	
  report	
  of	
  Natixis	
  in	
  2011	
  says	  “As	
  already	
  announced	
  by	
  the	  Spanish	
  Finance	
  minister,	
  Elena	
  Salgado,	
  Spanish	
  financial	
  institutions	
  will	  have	  to	
  hold	  core	  capital	
  (defined	
  in	
  accordance	
  with	  Basel	  III	
  rules	
  with	  the	  addition	
  of	
  instruments	
  subscribed	
  by	
  the	  FROB	
  and	  convertible	
  instruments	
  that	  must	  be	
  converted	
  into	  shares	
  before	  2015)	
  of	
  at	
  least	
  8%	
  of	
  total	  risk-­‐weighted	
  assets	
  at	
  any	
  time	  (with	
  a	
  minimum	
  in	
  2011	
  equal	
  to	
  those	  assets	  included	
  in	
  the	
  calculation	
  as	
  of	
  December	
  31st,	
  2010).	
  That	  requirement	
  of	
  8%	
  will	  be	
  raised	
  to	
  10%	
  for	
  credit	
  institutions	  verified	
  to	
  be	
  evidencing	
  the	
  following	
  two	  conditions:	
  (i)	  their	
  proportion	
  of	
  funding	
  in	
  wholesale	
  markets	
  exceeds	
  20%	
  and	  (ii)	
  at	
  least	
  20%	  of	
  their	
  share	
  capital	
  has	  not	  been	  placed	
  with	  third	  parties.	
  T”	
  

32

Chapter  3;  Conclusion    As  argued  up  to  this  part,  the  response  of  the  government  of  Spain  was  an  unpopular  and  contradictory  to    the  European  welfare  state  tradition  pervasive  in  Europe  as  well  as  there  were  actual  damages  and  ignorance  of  the  profit  of  the  citizens,  which  can  be  a  persuasive  reason  for  the  negative  perception  of  the  citizens  toward  the  government  action.  Meanwhile,  there  were  simultaneously  acute  necessities  for  the  fiscal  retrenchment  and  austerity  measures  to  deal  with  the  deterioration  of  public  debt  that  provoked  an  anxiety  of  the  international  financial  market,  represented  as  a  widening  gap  of  the  bonds  yields  in  the  market.    Upon  such  an  analysis,  there  were  an  oversight  of  supranational  bodies,  EFSF  and  IMF,  to  monitor  the  fiscal  conditions  to  prevent  from  contagion  of  recession  to  other  European  economies  and  there  was  a  match  of  political  motivations  between  them.  This  was  proven  by  IMF  article  4  report  in  2012.    
  Therefore,  as  a  conclusion,  it  can  be  led  that  the  successful  provision  of  the  financial  support  from  EFSF  was  due  to  the  spontaneous  implementation  of  the  austerity  measures  and  the  coherence  of  the  motivation  of  the  government  of  Spain  and  EFSF  including  the  other  major  economies  in  Europe.    
  For  the  further  research,  the  more  chronological  interactions  between  Spain  and  the  authority  of  EU  should  be  scrutinized,  since  this  paper  was  rather  inclined  to  the  ideological  analysis  of  austerity  measures  and  the  historical  approach.  With  regard  to  the  policy  response  in  the  time  of  economic  crisis  in  general,  the  analysis  about  how  sovereign  governments  respond  to  turbulences  is  a  long  lasting  academic  issues  to  be  addressed.  Although  neo-‐‑‒liberal  policy  is  deemed  as  a  dominating  direction  for  the  time  being,  it  is  an  arguable  topic  whether  such  neo-‐‑‒liberal  austerity  measures  are  33

desirable  or  not,  seeing  the  result  of  the  response  of  Asian  economies  toward  the  Asian  financial  crisis.    
For  the  bridge  to  the  point,  this  paper  could  have  successfully  introduced  Historical  Institutionalism  that  positions  international  organization  as  the  product  of  path  dependency.  If  the  international  organization  or  the  supra  national  mechanism  are  sub-‐‑‒optimal  product  of  international  politics,  the  propagation  of  certain  policy  should  be  doubt  in  terms  of  its  justifiability.  As  a  writer  of  this  paper,  I  would  like  to  make  this  the  further  research  issue.    

34

  
  
  
  
  
  
  
  
  
  
  
  
  

35

  
  
References    Estrada-‐‑‒Cañamares  et  al  (2014),  Constitutional  Change  through  Euro  Crisis  Law:  “Spain”,  European  University  Institute,  Research  Council  of  the  EUI,  2014    Mark  Blyth  (2013),  The  Austerity  Delusion:  Why  a  Bad  Idea  Won  Over  the  West,  Foreign  Affairs,  May/June  2013  Issue,  available  at  https://www.foreignaffairs.com/articles/2013-‐‑‒04-‐‑‒03/austerity-‐‑‒delusion,  accessed  on  August  2nd,  2015    Nicholas  Wapshott  (2013),  No,  austerity  did  not  work,  Reuters,  November  7th  2013,  available  at  http://blogs.reuters.com/nicholas-‐‑‒wapshott/2013/11/07/no-‐‑‒austerity-‐‑‒did-‐‑‒not-‐‑‒work/,  accessed  on  August  2nd,  2015    Mark  Blyth  (2013),  The  Austerity  Delusion:  Why  a  Bad  Idea  Won  Over  the  West,  Foreign  Affairs,  May/June  2013  Issue,  available  at  https://www.foreignaffairs.com/articles/2013-‐‑‒04-‐‑‒03/austerity-‐‑‒delusion,  accessed  on  August  2nd,  2015    36

Nicholas  Wapshott  (2013),  No,  austerity  did  not  work,  Reuters,  November  7th  2013,  available  at  http://blogs.reuters.com/nicholas-‐‑‒wapshott/2013/11/07/no-‐‑‒austerity-‐‑‒did-‐‑‒not-‐‑‒work/,  accessed  on  August  2nd,  2015    CESR  (2015),  Spain  Austerity  Driving  Poverty,  Growing  Inequality  and  Human  Rights  Deterioration,  Factsheet  2015,  No.  14,  Center  for  Economic  and  Social  Rights,  2015    CESR  (2015),  Spainʼ’s  Austerity  Criticized  again  in  US  Human  Rights  Review,  Global  Policy  Forum,  January  30th    2015,  available  at  https://www.globalpolicy.org/home/213-‐‑‒financing-‐‑‒for-‐‑‒development/52732-‐‑‒-‐‑‒spains-‐‑‒austerity-‐‑‒criticized-‐‑‒again-‐‑‒in-‐‑‒un-‐‑‒human-‐‑‒rights-‐‑‒review.html,  accessed  on  August  1st  2015  
  Christopher  J.  Anderson(2000),  Economic  voting  and  political  context:  a  comparative  perspective,  Department  of  Political  Science,  Binghamton  University    European  Financial  Stability  Facility  (2013),  European  Financial  Stability  Facility  (EFSF),  available  at  http://www.efsf.europa.eu/attachments/faq_̲en.pdf    Crotty  James,  Working  Paper  Structural  causes  of  the  global  financial  crisis:  A  critical  assessment  of  the  "New  Financial  Architecture",  University  of  Massachusetts,  Department  of  Economics,  No.  2008-‐‑‒14        

37  International  Monetary  Fund  (2014),  Spain:  Financial  Sector  Reform̶—Final  Progress  Report,  International  Monetary  Fund  Publication  Services    Ledina  GOCAJ  et  al  (2014),  Time  Will  Tell:  The  EFSF,  the  ESM,  and  the  Euro  Crisis,  European  Integration,  2013  Vol.  35,  No.  3,  239–253    Ozlem  Akin  et  al  (2014),  The  real  estate  and  credit  bubble:  evidence  from  Spain,  SERIEs  Journal  of  the  Spanish  Economic  Association  2014    Anna  Bosco  et  al  (2012),  Electoral  Epidemic:  The  Political  Cost  of  Economic  Crisis  in  Southern  Europe,  2010–11,  South  European  Society  and  Politics  Vol.  17,  No.  2,  June  2012,  pp.  129–154    Sven  Steinmo  (2008),  What  is  Historical  Institutionalism?,  Forthcoming  in  Approaches  in  the  Social  Sciences,  Donatella  Della  Porta  and  Michael  Keating  eds.,  Cambridge  UK:  Cambridge  University  Press,  2008    Netixis  (2011),  Covered  Bond  Market  Weekly,  Netixis,  issued  on  February  23,  2011    38Intereconomics  review  of  the  European  Economic  Policy,  Austerity  Measures  in  Crisis  Countries  -‐‑‒  Results  and  Impact  on  Mid-‐‑‒term  Development,  http://www.intereconomics.eu/archive/year/2013/1/austerity-‐‑‒measures-‐‑‒in-‐‑‒crisis-‐‑‒countries-‐‑‒results-‐‑‒and-‐‑‒impact-‐‑‒on-‐‑‒mid-‐‑‒term-‐‑‒development/,  accessed  on  7th  August  2015  

International  Monetary  Fund  (2014),  2014  ARTICLE  IV  CONSULTATION̶—STAFF  REPORT;  STAFF  SUPPLEMENT;  PRESS  RELEASE;  AND  STATEMENT  BY  THE  EXECUTIVE  DIRECTOR  FOR  SPAIN,  IMF  Country  Report  No.  14/192  

39