Dispatch

Spanish Flu

Spain's economy should be taking a turn for the better. So what's wrong?

MADRID — Spain is badly stuck. The European medicine of austerity has proved to be ineffective at kick-starting economic growth, and the country's 6.2 million unemployed constitute a social emergency for which no one has a quick fix -- least of all, it would appear, Prime Minister Mariano Rajoy's conservative government, which has taken virtually no steps at all to lessen the impact of public spending slashes.

Last week, two developments underlined the sterile panorama in which Spain finds itself. First, data showed that in the first three months of the year, the country entered the seventh straight quarter of a recession that began shortly before Rajoy's People's Party (PP) was voted into power in November 2011. Second, the European Commission indicated that it will allow Spain an extra two years to bring its budget deficit back within the official EU ceiling of 3 percent of GDP.

Spain's deficit targets are also likely to be eased soon, as the eurozone consensus is swinging slowly and painfully from the austerity-at-all-costs camp led by Germany's Angela Merkel to a broad recognition that this policy is causing even greater damage to contracting economies. European Commission Vice President Olli Rehn made an extraordinary appeal last week, urging struggling EU states to do "whatever it takes" to deal with the jobless crisis. Listening to the bespectacled Finnish economist, Spaniards may have felt a sudden sense of disorientation: Wasn't it Europe that said we had to trim our sails even if it brought social costs?

Rajoy's Socialist predecessor, José Luis Rodríguez Zapatero, admitted in March 2011 that he had become obsessed by the risk premium -- the interest rate differential between Spanish 10-year bonds and the benchmark German bund. (A higher risk premium in the bond-buying market means a country will have to offer bigger interest rates when undertaking new issues of sovereign debt.) The Socialist leader spent the final reserves of boom-time public funds on municipally managed stimulus plans and kept the country's prestigious but hugely expensive high-speed train projects on track. Then, exactly three years ago, a closed-door meeting of European finance ministers forced Zapatero to change course, imposing the first of many painful cutbacks. In May 2010, the government passed a 15 billion euro austerity package, including a pay cut for public employees and a freeze on pensions. This was followed by another capitulation the following summer, when the Socialist administration hastily agreed with the conservatives to amend the Spanish Constitution to enshrine the concept of a structural deficit cap of 0.4 percent of GDP from 2020. At the end of 2008, Spain's public debt stood at 40 percent of GDP, among the lowest in Europe. It is now more than double that, and on the way to 100 percent.

After Rajoy took power, he refused to accept the idea that Spain should have to submit to the humiliation of a full-scale bailout like those in Greece, Ireland, and Portugal. After the country's risk premium skyrocketed, he eventually partially relented and negotiated a limited bailout for the banking sector. But for now, it would appear, the euro has been salvaged, and unlike his counterparts in Italy, Rajoy can credibly claim that he, and not the fabled "men in black" from the IMF, is still running Spain. What he has so far been utterly incapable of is devising a plan to bring growth back to the Spanish economy.

Instead, Rajoy's economic team last month offered a bracing dose of realism. The government at last revised its forecasts, bringing them into line with the views of the European Commission and IMF, among others. The new numbers effectively put an end to the hopes that 2013 would be a turnaround year.

The government now expects the economy to shrink 1.3 percent this year, after previously forecasting a decline of 0.5 percent. Growth is expected to return in 2014, when GDP is slated to advance by a still-anemic 0.5 percent. It will only be in 2015, when activity is projected to advance 2.4 percent, that employment will be created.

When Rajoy -- in one of his extremely rare public statements -- asked for "perseverance" and "patience" just in late April, he was in effect begging Spanish voters not to cast a harsh judgment on his first term. According to the administration's own projections, unemployment (now at a record 27.2 percent) will end 2015, the next electoral year, at 25.8 percent, higher than when the conservatives took office.

Unemployment had already spiraled upward before Rajoy took the reins, however. In Spain's erratic labor market, where even before the crisis around one-third of contracts were temporary, unemployment has tended to spike rapidly at the first sign of trouble. Among under-25s, a staggering 57.2 percent are idle. With many business owners and self-employed workers eager to avoid social security costs, conservative estimates suggest that the shadow economy in Spain is worth 20 percent of GDP. In this context, the PP has tried to make a virtue out of what it portrays as a long game to hammer together a more efficient economy. This effort has included a new labor reform, approved in March 2012, that makes it much easier for companies to shed workers. Under the new law, they need only show falling income, where previously losses had to be incurred. Employers also need to pay out far less in terms of compensation when layoffs are technically justified. Crucially, pay cuts can also be imposed if justified by the same economic criteria. Figures from the end of 2012 bear out the government's plans: Severance costs for companies were down 23 percent from the final quarter of 2011, while salary costs were down 3.6 percent from the same period.

There are a few more other signs of hope: Amid the general gloom of 2012, exports rose 3.8 percent. The tourism sector is also holding its own as Spain once again becomes an affordable destination for travelers. And Spain's risk premium has returned to around 300 basis points, down from the 600-plus marks it had hit during the nervy days of last summer.

Spain also seems to be going through something of a public catharsis, with sins of the past being aired in a way that simply had not happened during the heady years of bonanza. Gerardo Díaz Ferrán, the former chief of the country's foremost business association, the CEOE, remains in prison on fraud accusations totaling tens of millions of euros, and the serving vice president of the organization is being investigated for allegedly paying his company's workers in cash. Last month, a listed seafood-processing company admitted undeclared debts of close to 4 billion euros.

Then there is the awkward business of King Juan Carlos's son-in-law, Iñaki Urdangarin, whom an investigating judge has accused of embezzling millions of euros from regional governments through his supposedly nonprofit sporting events consultancy. Rajoy's own party has not been immune from the spotlight of a justice system that seems bent on making up for lost time after the former PP treasurer's secret ledgers were published by the newspaper El País. In these scrawled, handwritten notes, a 15-year trail of illegal, undeclared donations from companies are apparently logged, as are monthly cash payments to leading figures in the party (on top of their official salaries as ministers or officials in other state posts). Listed among those allegedly on the take are the PP's two prime ministers: José María Aznar and Mariano Rajoy.

This government, which likes to present itself as a sleeves-rolled-up managing group sent to bring order to the Neverland that was Zapatero's economic reign, has conspicuously avoided any public explanation of the corruption case. Its sole consolation is that the Socialists continue to languish in opinion polls. The big political ideas are in the streets, evidenced by the rise of civil society activists such as those from the PAH mortgage reform platform, which aims to better support homeowners in a country where in 2012 some 100 families were evicted every day. The PP used its congressional majority to squash the life out of a popular legislative proposal -- backed by 1.5 million signatures and adopted by opposition parties -- that aimed to establish a moratorium on evictions.

Desperate to gain traction with a disillusioned electorate, Socialist leader Alfredo Pérez Rubalcaba is formally reaching out to the government with proposals for a cross-party action plan to stimulate Spain's sagging economy. No one expects Rajoy to sign up, but the opposition can hardly miss the opportunity to pit pain-easing solutions against the prime minister's "perseverance and patience" approach. Among other schemes, Rubalcaba has suggested tapping the 60 billion euros left over in an EU bank bailout fund to help families facing eviction and companies that are struggling.

In Europe, the worms are turning. France's ruling Socialists see a new left-leaning Italian government as an ally against German prescriptions for fiscal discipline. Brussels itself is busy cutting Spain some slack on deficit spending, and the markets, for the moment, are providing finance at lower costs than in previous years. As external pressure recedes, the onus is on Rajoy to provide some drive for Spain's stalled economy. Or is the problem that he too is stuck?

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Dispatch

Yemen's Power Wedding

When the sons of Yemen's most powerful tribal leaders tie the knot, it's not only a marriage -- it's a chance for a show of strength that nobody in Sanaa can ignore. 

SANAA, Yemen — Generally speaking, it's hard to imagine anything more mind-numbing than watching a bunch of people discuss how they're going to hand out wedding invitations. But, as I sat at the home of Sheikh Himyar al-Ahmar earlier this month, watching the deputy speaker of Yemen's parliament and about a dozen others, ranging from fellow tribal leaders to his brothers' office staff, fiercely debate the intricacies of how to handle that very task, I was fascinated to the point of embarrassment.

The discussions focused on which guests would have their invitations delivered personally, and who would ultimately give them to whom. But it wasn't the topic itself as much as the prominence of those involved that interested me. Names of key power brokers were dropped by the minute; sitting silently, I wondered if it was possible to divine clues into something more substantial from this glimpse into the mundane inner-workings of Yemen's elite.

Six days later, the marriages of two of the sons of Sheikh Himyar's brother, fellow politician Sheikh Hamid al-Ahmar, would be marked in a reception attended by thousands of guests. The event contradicted the stereotypes that paint Yemeni society as perpetually on the brink of devolving into a nationwide blood feud, providing a glimpse of the cultural mechanisms that hold it together despite its many fractures

Even among Yemen's many prominent tribal families, the Ahmar clan occupies a special status. Its late patriarch, Sheikh Abdullah bin Hussein al-Ahmar, was arguably the most powerful and respected tribal leader of his generation -- popular memory places his influence as second only to that of former President Ali Abdullah Saleh, with whom he was allied until the former's death in 2007. The eldest of the late tribal leader's 10 sons, Sheikh Sadiq, succeeded him as head of the Hashid tribal confederation, but even among his prominent siblings, Sheikh Hamid often seems to get the bulk of the attention.

His father's name alone guaranteed Sheikh Hamid prominence since birth. But he has done more than simply coast on his father's legacy: His business empire is so vast that even activists who accuse him of corruption are users of his cell-phone carrier. And his political prominence is at least partially owed to his willingness to break with the rest of the family: Hamid was the first of his brothers to come out against Saleh, doing so while his father was still alive. His blunt calls for a shakeup earned him the ire of the former president and his allies, who accused the sheikh of simply seeking power for himself. Many Saleh loyalists accused him of orchestrating the Arab Spring-inspired protests that ultimately unseated the longtime Yemeni strongman in 2011.

"If you think Hamid runs things now, wait until you see this wedding," a friend told me a few days prior. His tone may have hinted at his tribal and political issues with the Ahmars, but he did have a point. On some level, a massive celebration was a virtual necessity: In Yemen's fluid post-Saleh political environment, the wedding was an obvious opportunity for a show of strength.

By the day of the wedding, news of the upcoming nuptials had spread throughout Sanaa. When I walked out my front door on Thursday, my neighbors, noticing that I had donned traditional Yemeni formal wear -- that is, a freshly dry-cleaned thobe, an embroidered scarf, a tailored jacket, and a ceremonial dagger -- knew immediately where I was heading.

"The Ahmar wedding is today, isn't it?" the guy who runs the shop next to my house, a staunch supporter of the former president, remarked with a smirk. "Send my regards to Sheikh Sadiq."

His joke went over my head, as I was still catching up on sleep I lost attending the grooms' samra, a late night reception that was part of a week-long marathon celebration. I'd planned on staying for an hour, but the display of tribal traditions kept me glued to my seat. It was much like the wedding itself -- and, for that matter, most social gatherings frequented by Yemeni males -- a qat chew. Guests reclined on the low couches that filled the cavernous hall, chatting with those around them as musicians played traditional music.

A crowd of men singing ancient chants in unison heralded the grooms' arrival; through the rest of the night, guests took turns reciting poetry mixing expressions of merriment with musings on Yemeni politics. I'm pretty sure it was abundantly clear that I was enjoying myself, but the uncle of one of the grooms seated next to me couldn't seem to shake fears that I wasn't having a good time. It's hard to find anyone that takes hospitality as seriously as Yemeni tribesmen.

"What do you think? Honestly, we'll be glad when this is all over," Sheikh Abdullah Hamid, the older of the remarkably down-to-earth grooms, told me when I briefly checked in on my way out. "You're coming on Thursday, right?"

I couldn't help but laugh.

"Do I even have a choice?" I joked. "I'm pretty sure most of Yemen will be there."

Arriving at the gate of the wedding hall with some friends, it seemed like the truth. The most stunning success of the wedding was evident at the entrance -- a gun ban was enforced without any major difficulties. At weddings like this, a decent chunk of guests usually show up heavily armed -- sheikhs, particularly, tend to travel surrounded by an entourage of AK-47-toting companions.

But barring a handful of exceptions, guests left their weapons and guards at the door. Even the Ahmar brothers were limited to two guards with a single handgun each. One of their cousins, who refused to leave his guards, was forced to welcome guests outside.

The mammoth chamber in the Sanaa Convention Center that housed the reception was three times larger than any of the Yemeni capital's wedding halls, and it was still packed. There were 9,427 invited guests -- including all of parliament, all of the current cabinet, all senior military security officials, and 700 tribal leaders. In total, more than 10,000 people were estimated to have stopped by. The key thing -- especially in weddings this high profile -- is often just making the appearance. 

Eager to get my own appearances made, I moved toward Sheikh Hamid who, despite being mobbed by guests and looking a bit fatigued, noticed me out of the corner of his eye and motioned to his guards to part the crowd. I quickly offered my regards before jumping into the line to congratulate the two grooms, the men of the hour. (Yemeni weddings are ultimately a rather painful ordeal for the grooms, who have to spend hours on their feet greeting an endless procession of well-wishers, the majority of whom they barely even know.)

The brides were absent, celebrating at a separate reception elsewhere. In conservative Yemen, the vast majority of weddings are gender-segregated events. That's not to say that the brides' identities were of no consequence -- both hailed from prominent tribal families. With the bulk of marriages still arranged in Yemen, they're often used as an opportunity to cement ties between elites.

Past political or military battles with the Ahmars were no obstacle to receiving a wedding invite. Sheikh Naji al-Shayf, the vociferously pro-Saleh head of the rival Bakil tribal confederation stopped by -- out of respect for his age and tribal status, he was one of two tribal leaders granted an exception to the gun ban. I bumped into an official who in a conversation last fall cast the Ahmars, his rivals for decades, as the epitome of everything that's wrong with Yemeni politics. A number of officers from military units that helped lay siege to the family's compound in the capital in 2011, during the Ahmars' clash with the government, made an appearance as well. Meanwhile, soldiers from the recently disbanded Republican Guard, a bulwark of support for Saleh, secured a nearby hilltop. 

"Where else would you see this?" a friend asked after we left, pointing out a few of the more interesting guests. "These people talk shit about the guy constantly, and still, they all show up for his sons' wedding and wish him the best."

The retention of honor is, of course, a key aim of the traditions that govern Yemen's tribal system. But what the weddings of the children of prominent Yemenis show is that honor doesn't inevitably demand the vanquishing of one's rivals -- more often than not, it's just about being able to save face.

The decision to send invitations far and wide may not be driven solely by gracious intentions -- a part of me sees such invitations, and subsequent attendance, as a series of passive aggressive dares, with each side trying to come off the bigger man. But regardless of motivations, it's hard not to see such cordial gestures as a way to let off steam amidst the country's fraught politics.

"Say what you want about Yemenis," a sheikh from the rural environs of Sanaa once told me. "But even if we're fighting a war against someone, we'll still take a break to go to his son's wedding."

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