Spain is in trouble

Spain is in trouble, on the face of it, because its small banks - known as cajas - fuelled an insane property boom that went bust. They didn't do complex structured finance deals like Lehman Brothers; indeed they were the opposite of "Anglo-Saxon" capitalism - being small and locally owned. But behind the pure economic story is a more complex political-economic crisis that could, even now, send Spain the same way as Greece, shattering the eurozone in the process and placing the whole European project in grave doubt. You can see how badly the crisis has hit people at the "Utopia" apartment block in Seville. It's a modern, newly-built, five-storey complex next to a busy road. The flats are small: perfect for young professionals with their taste for minimalist furniture. But the company that built the flats went bust and now the whole place has been squatted by families turfed out of their own homes due to repossession. “ Start Quote The moment people think Europe is letting us fall, people will stop complaining and start protesting.” Raul Limon Journalist, El Pais Toni Rodriquez leads me around the darkened corridors (the electricity company has cut the power supply). "We had weekly meetings for four months and we realised we were all in the same situation and finally we decided to do something about it. When we took over the building I was frightened, because I've seen things on TV where they drag people out. The banks need to adapt the mortgage system to avoid kicking people out of their homes." Toni, aged 44, is one of a tight group of women - mainly cleaning workers - who've organised the occupation. They all have working age children who are unemployed. They resent the banks for kicking them out of their homes, and the politicians for bailing them out. Around the edges of the project move people from a completely different demographic: the so-called "indignados" of the M15 movement - anti-globalist youth with trademark tattoos and piercings. The indignados made world headlines last year after massive occupation protests in the public squares of Spanish cities, in turn sparking the global Occupy movement. Toni Rodriquez organised the occupation of a Seville block of flats When you see the Utopia flats, draped with banners announcing "no homes without people, no people without homes", you see what happens when official politics abandons people. Very ordinary, indeed anti-political people have begun to turn to Spain's radical youth for help. They in turn have found a purpose, here and elsewhere, outside mainstream politics, which they despise. For at the heart of Spain's economic problem is its political system. In the first place the system of autonomous regions, with their own budgets and right to borrow on the financial markets. That delayed Spain's budget adjustment by a year, during which the central government cut spending but the regions raised both spending and borrowing. A large part of the government's current deficit reduction plan depends on getting regions like Andalusia, of which Seville is the capital, to slash their budgets. On top of the regions, you have the cajas. Bankia, the bank at the centre of the crisis, was created only last year through a merger of seven troubled cajas. They merged their debts, took bailout money from the government, sunk some of their bad debts into a government fund and sold shares in the merged company, appointing former IMF boss Roderigo Rato as the CEO. What could go wrong? Well it is now clear that Bankia was hiding bad debts that will need 24 billion euros to sort out. The two biggest cajas that formed Bankia were both effectively controlled by local politicians from the ruling Partido Popular. One has recently walked away with a 14m euro payoff, despite presiding over the biggest bank collapse in Spanish history.