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"I may have made mistakes, but I've always acted, and Rajoy never has"

Alfredo Pérez Rubalcaba, the Socialist candidate for prime minister, comments on the acute nature of Spain's economic crisis and spells out some of the guiding principles for his campaign ahead of the November 20 general elections

The next few paragraphs are not, strictly speaking, part of my interview with Alfredo Pérez Rubalcaba, the Socialist candidate in the November 20 elections. I have chosen to ignore the rule by which the conversation is usually reproduced in the chronological order in which it took place, opting instead to start with the reflection he made at the end. It's a kind of coda that provides the perfect backdrop, as I see it, for the significance and scope of the interview and the issues around which the entire election campaign should revolve, if the Spanish people are not to be deprived of a crucial debate regarding the future of the country, the importance of these elections and the sustainability of our current welfare state, seriously endangered by the financial crisis.

"Healthcare is more moral than political: you either give a guy a CAT scan or you don't"

"If Brown and Sarkozy have taxed banks, I don't see why we can't"

"May 15 represents a deep-rooted malaise; it would be foolish not to listen to that"

It was over three hours into our interview, around 11.30pm, when all the questions I had prepared had already been fully answered. Rubalcaba looked as if he was about to stand up and I started to gather up my two voice recorders. The back-up one had already been switched off, but the main one was still whirring when the Socialist candidate started talking, without being prompted by any particular question. Instinctively, I didn't stop the tape. This is what he said:

"What we were talking about earlier regarding healthcare is really interesting, because from a budgetary standpoint it's a problem with a difficult solution in the long term, because people are living longer and longer, and that costs money, especially the technology, which is extremely expensive. That's where my obsession with financing health care comes from. When I was education minister I used to say that the difference between education and healthcare is that with education, the solution is political, but with healthcare, it's almost moral: you either give a guy a CAT scan or you don't; what is the limit to the services that you give someone you know is going to die... it's a world where science, politics, economics and morality all come into play."

Q. If it's about the future of the welfare state, does that mean that this campaign has more of a moral undertone than others?

A. More than moral, political in the best sense of the word.

Q. Not morality in a religious sense. I meant a civic, democratic morality.

A. Yes, I honestly think that it's going to be a campaign where people are really going to think hard. That's my big hope. I think that today, people realize that the next four years are going to be crucial in their lives; that it's important who runs the country because all kinds of things we've talked about affect the idea of the welfare state. And these things are going to be called into question throughout the term. Election manifestos aside, the last three years have shown that no one has any magic formulas. You've got a series of ideas and people have to cast their vote and trust the person they vote for. In the end, it's me against [Popular Party leader Mariano] Rajoy.

Q. And you think that you can offer people more protection than Rajoy, despite everything that has happened in the past four years.

A. We've been in the same places, and I've done lots of things, while he's done practically nothing. I may have made some mistakes, but I've always acted, and he never has. In the end, it's about choosing someone who is going to make very difficult decisions, slowly but surely. And in that regard, Rajoy and I are totally different...

Q. Was Spain in serious trouble in August?

A. No, I don't think so.

Q. You don't think so or you know so?

A. No, I know so.

Q. CCOO labor union leader Ignacio Toxo said that Zapatero told him that in August, we were at the edge of the abyss, perilously close to a European bailout.

A. No, not in August. For a while, not for long, our risk premium was at 400 points. But not at the edge of the abyss.

Q. Why is everyone - even you - saying that the fall is going to be a terrible time?

A. First, because Italy has a lot of debt redemptions coming up. And second, because there is no reason to believe that the origin of the financial instability is going to be corrected in the short term. The origin basically has two causes: the situation in Greece and the global economic growth outlook. It doesn't look like either of those two things is going to improve in the short term.

Q. In order not to fall into deficit, the Spanish public budget needs, or has needed in the last 16 years, an expanding real estate bubble.

A. Let's talk a little bit about the real estate bubble, because we are at risk of going from one extreme to the other, from gorging ourselves on construction to fasting or abstinence. Neither 12 percent of the GDP nor one percent of the GDP: Spain has to build some homes because there's a demand. Paradoxically, right now there are places with empty flats and places where there are people who want flats and they're not being built. So we'll have to normalize that. Instead of the 800,000 that we must have built back in 2007, we might have to build 350,000. There are still more percentage points of the GDP to cover. But the revenue is going to go down, of course.

Q. Why do you think the markets continue to mistrust Spain?

A. Basically because of Greece.

Q. In the euro zone, they only ask for two-percent interest on the German debt and over five for the Spanish debt. Might that be because they're afraid that they won't get paid?

A. There is an overall fear about euro-zone countries right now, especially Spain and Italy. We've got a problem that isn't our debt, and I think that the markets think that we're going to pay for it. It's the unemployment rate.

Q. And growth. Without growth, there's no way to pay one's debts.

A. Of course. But when you talk with leaders, of the OECD and the ILO, for example, they harp on about the unemployment rate.

Q. To grow, structural reforms are also necessary. The sensation is that last year's labor reform succumbed to pressure from the unions and that no progress has been made.

A. No, it just hasn't been applied yet. We've got a great custom in Spain, which is to say if a law is good or bad before it's applied. We're going to apply it, we're going to finish developing it and we're going to see if in effect, as we say, there is room for flexibility, both in the labor reform as well as in collective bargaining, to boost job creation.

Q. Is there a social-democratic way out of the crisis?

A. There's always been a social-democratic way out of a crisis.

Q. But would you make cuts, or not? And how much?

A. Or how much revenue do we have to collect, right? Here we've got a problem of income and expenses. Let's talk, for instance, about healthcare. In Spain we spend around 70 billion euros. I don't believe that in a system that spends 70 billion euros, there is no room for improving its management. Now the national government and the regional governments have reached an agreement to save 2.4 billion eurosin pharmaceutical expenses. Next year, thanks to the new financing system, the regional governments are going to receive an additional 8 billion euros or so, of which 3 billion euros, for example, might be spent on healthcare. That's 5.4 billion euros altogether. Not bad. The question is: Is it enough? I think it is, and there will be no need to supplement it.

Q. Do you think that the healthcare system can hold up without any other kind of cuts?

A. Without doing anything at all, no. But it can without cutting personnel or services. We'll have to manage it better and centralize certain purchases, which makes a lot of sense. Surely the days of this happy-go-lucky, trusting management that we've had, protected by the real estate bubble that gave us resources, resources and more resources are over, and as I said before, more money must be supplied.

Q. In your opinion, then, can we afford the healthcare system that we have now? And by extension, the current welfare state?

A. The welfare state is pensions, healthcare, education and dependency. We already reformed the pension system to ensure its sustainability. I've already said that the healthcare system needs more money, and where I think we have to get it from. Education is well-financed, although we might have to spend more money on universities and scholarships. The hardest part, financing dependency, is already done. In short, and as a goal, we should finish the next term with a stronger, well-financed welfare state.

Q. Rajoy said that he likes the cuts Cameron has made, and he's backed the cuts made by the Castilla-La Mancha regional government. You, on the other hand, have promised to be firmer in your defense of the welfare state, because the Socialist Party is more sensitive about that. When you say firmness, I take it to mean money. Where are you going to get it?

A. Of course. Aside from the things I've already mentioned, there are also other things that can be done to cut expenses, such as a total reform of provincial governments. How much can be saved? Around 1 billion euros, which is a lot of money. Or we can crack down on tax fraud, which brings in money and widens the tax base.

Q. You propose taxing banks and the wealthy to promote youth employment. Let's start with the wealth tax: you'd tax the wealthy 1.4 billion euros.

A. Yes, more or less. I'm not going to say it now. You're going to ask me to tell you the minimum exempted amount, and what I'm saying is that I'll announce it when the time comes.

Q. But why don't you want to say it now?

A. Because I'm fine-tuning those calculations and because what I'm going to do is ask the government to reinstate the wealth tax now, only for the wealthiest. If I win the election, I'll reform the current tax to make it federal rather than regional. There's a major advantage to reinstating it now: we'd have the money by next year. What's more, it's fair.

Q. Then you'd tax the banks 1 billion euros, once they've recovered. When will that be?

A. Next year. Gordon Brown introduced that tax in the middle of the banking bailout. He didn't wait. Sarkozy has introduced it. If Brown and Sarkozy have done it, I don't understand why we can't.

Q. If everything works out, that's another 2.4 billion euros. This year, if you look at the budget, around7.3 billion euros has gone to active employment policies. That is, tens of billions have been spent in recent years, yet youth unemployment is at 47 percent.

A. A lot of other things were also financed with that money, such as vocational training. Yes, you finance those other things. What would have happened if I hadn't?

Q. But looking at the figures, are you really proposing a major plan to save young people from unemployment or is it a political gesture towards the youth and the most leftwing voters?

A. No, no, it is a genuine concern and a proposal. I think we have a tragedy with youth unemployment.

Q. I'm just asking how effective it is. If you look closely at the figures...

A. 2.4 billion euros is a lot of money, and it must be spent well. Youth unemployment is a historically recurring phenomenon. Every time there's a crisis, we've had very high rates. It's a problem that deserves deep analysis.

Q. Might not it have to do with the inflexibility of the job market?

A. No, I don't think so, because we've had eight percent unemployment nationwide with this job market, not with a more rigid one. With a system described as very rigid we ended up hiring. In other words, I think that hiring essentially depends on whether or not there is economic activity. In short, we're going to have the money to do Keynesian labor policies for a year or two, while we wait for the economy to start firing again and stabilize jobs.

Q. You have said: "In 1994, our project had ended." Not now? What differences are there?

A. I don't remember the context of that statement, but it's true that in the last years of the Felipe González administration there was a huge amount of political exhaustion that we don't have now. Now what we have is a huge crisis, which is a different thing. And all governments, from both ends of the political spectrum, are suffering the consequences of it.

Q. Recently you also said: "I won't mind saying what we could have done differently, either." Name five things.

A. I'll tell you one, which I think is the worst. There is one that gets mentioned a lot: that we took too long to acknowledge the crisis. Surely that is true. But I think the most important one is the real estate bubble.

Q. At what moment did you decide not to burst it?

A. Bursting the bubble isn't so easy. In fact, nobody bursts it. Generally, all governments have had bubbles burst on them, among other reasons due to something that you mentioned before, which is quite true: in the bubble...

Q. the bubble, life is good.

A. Life is good, until it bursts.

Q. I'm asking you this because in the 2004 election manifesto there was a very accurate analysis of the risks of that bubble. But then you didn't do anything about it.

A. We did some things to change the model. For example, we doubled our investment in R&D. You start to prepare for a shift in the production model, because the problem with bursting the bubble is that if you burst it the way it went here, all of a sudden, what you get is what has happened to us. We started to change it, and we spent money on education, on R&D, on infrastructure - we came up with a new urban development law... Now, could we have been more aggressive? Well, yes. The famous housing deductions always come to mind, for example. It's true that we could have done things to curb the demand. That, I think, was simply a mistake.

Q. Regarding the May 15 protest movement, you've said that there are things that you agree with and others that you don't. What do you agree with?

A. I agree with the demand for changes in the way politics works, with some institutional reforms.

Q. And what don't you agree with?

A. Immigration policy, for example. They propose to let in everyone who wants to enter the country, and I can't agree with that.

Q. Are you concerned about those votes?

A. More than their votes, you can't ignore the fact that it's there, and that it reflects a deep-rooted malaise in society. Youth employment has a lot to do with it. There are young people who dropped out of school and now they are jobless. And then there are those with degrees, who are saying: "We've done everything you told me to. You told me to study and I studied; you told me to get my master's and I did; you told me to study abroad on an Erasmus grant, and I did." These are people who take their complaints to politicians because politicians aren't solving their problems. That does not mean that they are anti-system or anti-institutions. Your average May-15er is not someone who goes around saying that democracy is trash; it's simply someone for whom democracy is not solving their problems. It would be foolish not to listen to these people.

Q. Do some of the most traditional ideas of social democracy need to be revised?

A. In my opinion the welfare state, which works well and fulfills its objectives, has got three enemies: one is the deficit, another is fraud and the third...

Q. Fraud?

A. Yes, fraud. People who use grandpa's prescription to buy pills for their child, people who collect unemployment and work. That's a huge problem. The third enemy is the Tea Party.

Q. There's a Tea Party in Spain?

A. Yes. Just listen to some of the more conservative PP leaders.