Junk territory. Corrupt. Dying. Failed. These are just some of the terms that experts, analysts and journalists have used to describe Spain in recent years.
It has been a long spiral downward for the Mediterranean country since the mid-2000s, when the International Monetary Fund and the Organisation for Economic Co-operation and Development praised the Spanish government for implementing reforms that opened up the economy and enhanced flexibility. A perceived wariness of competition was cast aside as the country charged forward. In 2005, Spain was responsible for creating some 60% of all European jobs and unemployment fell to less than 10%. By the end of 2008, Spain was Europe's best performing economy, averaging 3.1% growth five years running.
Then came the crisis. Already in 2007, there had been signs that the construction boom – the industry employed several million immigrants, mainly from eastern Europe and Latin America – was nearing breaking point. According to economists, already-low interest rates had fallen so much that Spanish banks lent recklessly while property developers and home buyers collectively borrowed, spurring a property bubble.
When the bubble burst, Madrid had to borrow and spend desperately in a bid to prevent the Spanish economy from collapsing, all the while attempting to control wage costs that had risen 40% more than Germany's during the boom. It was a recipe for disaster – and prompted a save-your-own-skin attitude within the banks, according to anti-corruption prosecutors.
In June 2011, Moody's Investors Service downgraded Spain to just above what is known as 'junk territory', explaining that the plan to borrow $125bn from the European Financial Stability Facility for a bank bailout, coupled with the country's persistently weak economy, would only worsen the situation – which Moody's denounced as "unsustainable".
Earlier this year, Spain's unemployment rate passed 27% (topping the previous record set in 1976). The National Statistics Institute estimates that more than 50,000 Spaniards will leave the country each year for the next decade in search of employment opportunities; already in 2012, the level of emigration increased by 36%. Spain's pension system is woefully overburdened, with only 16 million citizens currently contributing to a system that supports 9 million people. Perhaps even more worryingly, nearly 60% of Spanish youth under the age of 25 cannot find work, and 3 million Spaniards live below the poverty level.
With his party under investigation regarding corruption allegations, beleaguered prime minister Mariano Rajoy is increasingly unpopular (his approval rating this year has remained at less than 20%) and the IMF recently said the country needed "more time to adjust into its fiscal consolidation efforts" – a remark which many economists interpreted as a diplomatic way of saying Spain was failing to live up to its responsibilities.
Corruption has become an increasing concern. Spain ranked 31st in the world on Transparency International's most recent Corruption Perception Index. A series of scandals in recent years has further rocked public confidence. In 2010, the resort city of Marbella was hit by the trial of 95 people – including two former mayors, 15 town councillors and a German countess – on charges of taking €670m in bribes and from municipal funds. The Spanish king's son-in-law is currently facing charges of allegedly using charities to channel millions of euros from public contracts to private offshore bank accounts.
None of this news has been taken as a welcoming sign by potential foreign investors. According to fDi Markets, a greenfield crossborder investment monitor, FDI into Spain declined from roughly $27m in 2008 to $2m in 2012. There are signs that the market may be experiencing an uptick. Last year, multinationals including Vodafone, Roche Group and Costco began investing in Spain and the number of greenfield inbound projects actually increased by 9% from 2011 to 2012.
There are also signs that Chinese businesses could give the country a boost. There are about 400,000 Chinese immigrants in Spain today and, according to Pedro Nueno, president of the China Europe International Business School, efforts are under way to integrate into local communities rather than simply make money and leave. Politicians, in turn, have taken to reaching out to Chinese communities in cities such as Barcelona.
The hope, says Mr Nueno, is that Chinese businesses will "integrate into the local economy, which would be good for the world". Chinese investment growth, Mr Nueno insists, is not something to be feared, but something that will "create opportunities in countries such as Spain, not take them away".
Whether Spain can weather the current storm – and embrace foreign competitors on its shores – remains to be seen. Tensions are high, as is disgust at the government. More than 100,000 so-called indignados (also known as the May 15 Movement, or M-15) have gained international notoriety after inspiring the 'Occupy' movements worldwide and taking to the Spanish streets repeatedly to express a long list of grievances, at the top of which lies outrage at the political leadership.
Following protests last year over riot police beatings of student demonstrators, violence erupted again in 2013 as tens of thousands of protesters took to the streets in 80 cities to protest at Mr Rajoy's austerity package. Protesters set fire to a cafe and smashed the windows of a bank in Barcelona; in Madrid, riot police used batons, rubber bullets and tear gas to disperse a crowd trying to enter the parliament building. More than 100 people were injured in clashes with police and 176 were arrested; about a dozen policemen were believed to have been injured.
The protests have not abated: in March, several thousand angry citizens marched through the streets of Madrid banging pots and pans in protest against the austerity measures; in April, protesters and police clashed once again outside the Parliament building. On May 9, students and teachers joined the fray, protesting the austerity measures and new education reforms.
There is some good news, however. Spain's so-called Stability Programme and National Reform Programme – which emphasises macroeconomic targets through 2016 – has been widely praised, and there is at least some positive data on the economic front: the economy is expected to inch upwards in 2014 and resume a path of growth, while the budget deficit is projected to drop steadily. Writing Spain off permanently as 'junk territory' may well be premature.