For Spaniards, there's no going back to the peseta
Barbara Kollmeyer/MarketWatchGregorio Cifuentes, who sells meat in central Madrid, holds up a sign showing the price of an item in euros and translated into pesetas. Against the backdrop of a difficult economic crisis, a recent survey showed many Spaniards do not think the euro was good for Spain.
MADRID (MarketWatch) -- For Gregorio Cifuentes and other merchants at a food market in the Chamberi neighborhood of central Madrid, indicators of Spain's worst economic crisis in decades come daily, as hard-hit customers spend less and less.
And while the 58-year-old meat vendor can clearly remember when goods were priced in pesetas rather than euros, a return to the country's former currency is not an option, he said.
"People don't want to go back," said Cifuentes, who has done business at the small market for 30 years. "Spain needs Europe. We're all a part of it now."
Amid a worsening economic backdrop and skyrocketing borrowing costs for Spain, signs of the country's growing dissatisfaction with Europe and the single currency emerged from a poll earlier this week. A survey of 1,000 people in each of several European countries by the Pew Research Center found 41% of Spaniards think the euro hasn't been a good thing, though 66% want to keep it.
It's been a long road from 2002 to present for Spain's adoption of the euro. Cifuentes said he recalls when the euro was introduced at an exchange rate of €1 to 166 pesetas, and prices of many items shot up. While that was hard enough for Spaniards then, a return to the old currency would be psychologically damaging to the already-suffering consumer, he said.
"If you price something in euros, it's one number, but if you price it in pesetas, it's three numbers, such as 179 pesetas," Cifuentes said. "When people see those prices, they will think it's a lot more expensive."
Consumers in Spain are clearly getting better at belt tightening, which is weighing on the country's ability to recover from the real-estate-market collapse that fueled banking and economic crises. Data this week showed that retail spending sank 9.8% in April, more than double the decline of the prior month -- and the 22nd consecutive monthly retreat. And the car manufacture Anfac warned Friday that new car registrations are in "free fall" after sinking 8.2% in May on an annual basis.
Even among those hardest hit by the crisis, the peseta doesn't hold great appeal. Carlos Aznar, who was shopping at the market in Chamberi, is a 42-year-old sports journalist who was laid off a few months ago. Spain's unemployment rate of nearly 25% is the highest in the European Union.
"It would never work," Aznar said of a prospective return to the peseta. ". It would be a mess. Think of the kids that are now 9, 10 years old who have never known anything but the euro. Now we aren't spending anything, but we're accustomed to the euro."
And while the country has seen its share of public demonstrations, most famously last May's protests and the Puerta del Sol occupation that spread across the country and beyond, many, like Aznar, say Spaniards will put up with the austerity needed to get the country's finances back in order. Even the economists see strong family structures as making the difference in Spain, with newspapers here full of stories of retirees supporting their unemployed older children.
"Spaniards are like Don Pelayo," said Cifuentes, referring to a Visigothic nobleman in 8th-century Spain who was credited with the start of the Christian reconquest of Spain from the Moors. "We're strong. We've suffered."
Barriers to exit
By the looks of it, the suffering for Spain will go on awhile, and it's possible the festering among some here over the euro will worsen. But economists here say the cost of exiting the euro, let alone a smaller one like Greece, far outweigh the costs of trying to hold the single currency together.
Edward Hugh, a Catalonia-based independent economist, pointed out that a Greek exit would mean its external debts wouldn't be repaid. As they amount to about a third of Spain's, an exit by the Iberian nation would represent a far bigger problem.
"Spain's got external debt of over 90% of GDP -- that's €900 billion [$1.1 trillion]," and money that Spain couldn't repay under a devalued currency, Hugh said. "On top of that, Spain's banks owe [the European Central Bank] about €400 billion, and we haven't had any rescues yet."
With a deflated currency in place, he and other economists forecast inflated costs for many items -- and most importantly vital commodities, such as energy. According to the International Energy Agency, Spain was the world's 10th largest oil importer in 2011.
"If you have no credit, you'd have to pay upfront for any delivery of oil, and we'd have a few months of power cuts, no gasoline and irregular supplies of items to supermarkets," said Hugh.
One village in Spain, Villamayor de Santiago, made the headlines of several newspapers earlier this year after a clutch of shop owners, disgruntled with the falling value of the euro, said they'd accept the peseta again. The Bank of Spain has never put a deadline on exchanging pesetas and estimates about €1.7 billion's worth of the currency is still in circulation.
Gayle Allard, an economist at IE Business School in Madrid, said that, for any country exiting the euro, the biggest problem is untangling assets and liabilities. "In every country, there are lots of cross-border assets and liabilities, so how do you know what to denominate those in?
"If Spain leaves, the peseta falls against the euro, and liabilities in the currencies become enormous."
She and Hugh said another issue is worrying them right now. That is the dreaded "corralito," which refers to the freezing of accounts in Argentina at the end of 2001 by the government to prevent a bank run in the midst of that country's economic crisis. A Greece exit could prompt Spaniards to panic and pull their money out of banks, they said.
Allard conceded some Spaniards are beginning to think about what currency their money should be in right now to be safe. "Normal people who wouldn't talk about this at all are asking, 'What happens to my mortgage? Would I have to pay in euros or pesetas? How will I ever pay it in pesetas? It would have much less value.'
Alvaro Torres, who has a fruit stall next to Cifuentes, has his mortgage with
"He doesn't have plans to pull it out at the moment," Torres, 41, reported. "Not even if something happens with Greece. If it's in Bankia now, it's got to be more secure.
"It could happen like in Argentina, and that's the worst that could happen. The problem is the corralito never gets the big guys; their money is outside of Spain. It always gets the little guys, with fewer savings."
It does seem that the typical Spaniard recognizes a return to the peseta is no simple solution. "The peseta would have much less value than the euro. I don't really understand much, but I do understand this," said Maria Dolores Ladrondeguevaba, a shopper at the Chamberi food market.
But still, hard times of late do make the past look better, said the 75-year-old. "We lived better under the peseta. We had more money. It is horrible now."
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