WHICH DIRECTION FOR SPAIN ?

Today, Spain is held up as an example of the positive impact of policies demanded by the European Union, the European Central Bank and International Monetary Fund. The country has left the recession behind and its economy has annual growth of 1.6%. But few are paying attention to the real nature of that recovery. Big problems persist and the forecasts are not good. Unless Spain, and Europe, change course there is a risk dangerous deflation and decades of high unemployment -- currently at nearly 24%. Per capita income is lower than in 2004. At the current rate of job creation, high unemployment will last several decades. Real wages, which lost 13% in purchasing power during the crisis, continue to shrink. And inflation is negative for the sixth month running.

Long-standing problems remain unresolved, or have even worsened. Inequality has grown faster in recent years in Spain than in any other OECD country. The private sector has made little progress paying down debt. And government debt has risen to 98% of GDP from 40%.

The current strategy is clearly not working. The lower and middle classes are carrying the burden. Competitiveness has only been regained by depressing domestic demand and increasing unemployment. Austerity has exacerbated inequality. The government has taken on more debt to rescue the banking sector.

Spanish voters face a clear choice in the coming months: continue with current policies, and risk years more pain, or embrace an alternative aimed at serving the interests of the majority.

Podemos, the new party that emerged from a wave of popular anger advocates four changes:

1. Reverse austerity: With households and companies weighed down by debt, only government spending can revive growth. Large scale public investments are essential if Spain wants to create jobs, improve productivity, and modernize its infrastructure.

2. Make the tax system more progressive. Go after the tax evaders, and eliminate exemptions which benefit large companies and those on the highest incomes.

3. Halt the decline in wages. In the EU, more than 80% of aggregate demand comes from domestic demand, and most foreign trade takes place between EU members. That means the few gains in competitiveness arising from falling wages are largely offset by the collapse in private consumption. And this approach risks becoming a "beggar thy neighbor" policy which won't work for Europe as a whole.

4. Restructure debt. A real alternative for Spain cannot ignore its greatest problem. Given the scale of the burden, for both private and public sector, Spain needs to reschedule repayments, renegotiate interest rates and cancel some debt. Without this restructuring, it will be very difficult for households, businesses and government to drive economic expansion.

The proposed programme would require the European Central Bank to assume a central role in helping Spain, particularly in granting more credit, which would only happen in the extremely unlikely event that there was authorisation to do so by all euro countries. Furthermore, it is materially impossible for these policies to be carried out in the framework of the euro as it is designed. The only way to fulfil the programme would be for Spain to leave the euro, something that the majority of Spaniards do not want.

Opinion polls in recent months show that far from being a temporary phenomenon, Podemos will be a force to be reckoned with in the next general election due to be held by next December. It is now up to the Popular Party and the Socialists to convince the electorate that they have renovated themselves in order to recover their credibility. If they do not, their attempts to counter Podemos’ unrealistic reforms and convince voters that the party’s road map would bring ruin not prosperity will sound hollow.