Age-old tensions have resurfaces as the country buckles under harsh austerity measures.
When Lisha Yan, a young London-based media executive, left her business dinner at the rooftop restaurant of Madrid's elegant Palacio de Cibeles last Wednesday night, she expected to enjoy walking through the elegant streets of a sophisticated European capital at night.
Instead, Yan (26) was hit by a rubber bullet. "We were walking to our taxis and all of a sudden people were running towards us and these big vans appeared," she said. "We heard loud shots. Then I felt something hit my knee and I realised that it was police firing rubber bullets at civilians in a public place."
Armed and helmeted riot police rushed by, shouting at the shocked Asian executives in her group. "The police didn't care who they shot at. It was just outrageous," she said. "How can that happen?"
Riot police had been chasing demonstrators, some of them violent, who had protested outside the Parliament buildings for several days. But the response has often been heavy-handed and indiscriminate.
Yan's taste of the turmoil the economic crisis has brought to Spain is matched by the experience of many ordinary Spaniards. As unemployment hits 25% and keeps rising, parts of the country's fabric are beginning to tear. Half a million homes have no breadwinner. More than half of the country's under-25s and half of immigrants are jobless. And with one-third of them not qualifying for any unemployment benefit, desperation is setting in.
One of the most alarming tendencies is the removal of elderly people from care homes because families are either unable to pay or simply desperate to have the stable, if meagre, income provided by a pension back in the house. Recent government cuts to carers' allowances as part of a fresh wave of social spending cuts have made life even harder.
Almost all welfare sectors can tell similar stories. Hospital wards are being closed in Catalonia. Madrid's state schools have started the term with fewer teachers and some secondary schools have closed their science laboratories.
The Roman Catholic Church's Caritas charity, which hands out food packages, says it now looks after a million people, or one in 50 Spaniards. "People need us for longer and longer and our resources are stretched to breaking point," said Caritas boss Sebastian Mora. "We are deeply shocked by a crisis that keeps on growing and by the speed and extent to which things are getting worse."
In some neighbourhoods of Madrid, nervous men now scuttle from bin to bin at night, looking for food. The unemployed try to make extra money by fishing through recycling bins. And as Spain becomes poorer, squabbling over increasingly scarce resources becomes ever more bitter.
In relatively wealthy Catalonia, age-old tensions are being revealed again by the crisis. As Catalans become increasingly convinced that they pay too much to poorer regions while seeing cuts applied at home, a surge in separatist sentiment is driving the region into a head-on collision with central government.
"Look at this – in Catalonia it would be twice the price," said Carlos Heras, a Barcelona bus driver who travelled to Madrid to protest against cuts recently, as he pointed at one of the capital's parking meters. "Catalonia pays too much for what it gets back. We would be much better off if we were on our own."
But Maria Eugenia Ruy, an unemployment-office worker from the Catalan industrial town of Sabadell, said: "I don't like nationalists of any kind, whether they are in Catalonia or Madrid. They wrap themselves up in the flag, just like Hitler."
Wrapping in flags reached a new peak last week as Catalan nationalists vowed to hold a referendum on independence or the other options for changing the region's relationship with the rest of Spain – and the central government vowed to stop them. But the row over Catalan separatism supplies both the government in Madrid and the regional government in Barcelona with an excuse not to talk about the real problem – Spain's inability to grow its economy.
Cuts are tearing through Spain's cultural fabric, too. Public museums such as Madrid's El Prado gallery have had budgets slashed by two-thirds in just four years.
Spain's caja savings banks, whose profits once funded everything from museums to daycare centres, have now also largely disappeared, the victims of politically appointed management boards that indulged in a frenzy of lending before the housing bubble burst, leaving them overwhelmed by toxic real estate loans.
The economy is set to shrink this year and next, yet last week the government announced another round of spending cuts – which will do nothing to aid growth.
As the protests and moves towards Catalan secession have shown, Spain's social and political fabric cannot cope with much more pain. – © Guardian News & Media 2012
Bank bailout likely to affect small investors
Spain's banks must fill a €59billion hole in their capital cushions caused by a burst of reckless lending to building developers during the country's boom years, which has left them awash with toxic real estate assets.
The Spanish government and the central bank last week revealed the results of a report commissioned to assess the damage and identify banks that will need to be bailed out with eurozone rescue funds.
The report, based on stress tests carried out by consultancy Oliver Wyman, lists seven banks that will need bailout money or must raise further capital themselves.
Spain's secretary of state for the economy, Fernando Jiménez Latorre, estimated that, overall, Spain's banks would eventually need some €40billion of the €100billion of bailout money on offer to them to cover the bad loans – adding that this marked the beginning of the end of the country's banking crisis.
Bankia, the country's fourth-largest lender, topped the list with a hole in its capital needs estimated at €24.7billion. The hole represents the amount of extra capital a bank would need to survive a further significant downturn in Spain's recession-plagued economy.
Bankia, created by the merger of half a dozen ailing savings banks, is one of several that also sold its own clients complex hybrid preference shares, which will now see hundreds of thousands of ordinary investors forced to lose money.
Eurozone authorities have made it clear they will not fill the entire €59billion hole with bailout money and that part of it must be covered by inflicting losses on the preference shareholders.
That will enrage the small investors, many of whom complain they were sold the shares without understanding what they were by insistent bank managers who cold-called them and claimed that they were as secure as ordinary deposits.
Some put their life savings into preference shares – and courts are dealing with thousands of cases in which banks are accused of conning them into buying the shares.
As part of the bailout terms, those banks that receive bailout money will off-load their toxic real estate on to a so-called bad bank, which will pay prices well below the value reflected in banks' accounts. The "bad bank" will sell them off when the real estate market recovers. It has been given up to 15 years to do so. – © Guardian News & Media 2012