They call themselves "the indignant". Armed with sleeping bags and week old clothes stuffed into rucksacks, around 500 people stand shoulder-to-shoulder in Madrid's central square.
As darkness falls, and the last few tourists flock to their hotels, the nightly vigil begins.
Some hoist placards. Others gather outside the gates of the Ministry of the Interior, chanting in unison: "It's not the crisis, it's the system" and "End the cuts". Many of them have been here since May 15, when they joined the nationwide protests against government austerity measures and Spain's chronic unemployment.
But this is not just Spain's disaffected youth. Among the crowds are parents, pensioners, teachers and civil servants, all angry and frustrated as their nation – once a European heavyweight – teeters on the brink of a crisis. As the rest of Europe suffers amid soaring sovereign debt, the protesters reiterate their demands for jobs, secure housing and increased hospital funding.
This is no longer a peaceful protest. Last week, riots broke out in Madrid's Plaza de Cibeles, leaving at least 20 young people and seven policemen injured. Police estimate that up to 100,000 people have taken part in protests so far, with countless strikes, clashes and arrests across Spain. There is increasing speculation that the protests may turn violent on Tuesday as participants react badly to the cost of the proposed €60m (£37m) visit by the Pope.
Despite efforts by Jose Luis Rodriguez Zapatero, Spain's Prime Minister, to quell the movement, the ranks of the "indignant" are growing. Early elections have been called and opposition parties are strengthening as the turbulent economy continues to fuel popular unrest. But what does this domestic turmoil mean for Spain in its European context? The markets remain volatile as Zapatero's government struggles to restore investor confidence and stave off financial crisis. Is this once-stable nation becoming the weakest link in the eurozone?
"Spain is the reality everyone is ignoring," warned Nouriel Roubini, the bearish US economics professor, addressing a recent conference in Madrid. Looking at Spain's faltering domestic economy, traders might be advised to heed his words.
With government debt at 64.5pc of gross domestic product (GDP), the nation has only shown halting and at times regressive recovery after the economic crisis burst the
property bubble that had
previously propped up the Spanish boom. The latest figures from the Bank of Spain place second-half growth at a cautious 0.8pc – dampened by a sluggish first half and the threat of tensions over its neighbours' sovereign debts.
In a bid to reduce the deficit and fortify banks' balance sheets, PSOE, Zapatero's ruling party, introduced a raft of austerity measures in 2010. The programme includes spending cuts, raising the retirement age, liberalising the labour market and selling off state assets. But the result is far from the increased fiscal liquidity the embattled leader was hoping for. Figures from Spain's National Statistics Institute show that industrial production fell 2.7pc in June, while the number of bankruptcies increased 16.5pc in the second quarter against the same period last year.
Unemployment remains the thorn in Zapatero's side, however, with more than a fifth (20.9pc) of the working-age population out of work, according to government data.
Carina O'Reilly, senior European analyst at IHS Jane's, says the unemployment problem has been "building for a while", soaring to around 43pc among the under-30s. "When the crisis hit Spain, unemployment rates were – even then – very high, and it's been rising steadily since 2007," she adds. Much to the despair of the "indignants", this puts career opportunities in Spain below the rest of Europe, Egypt, Lebanon and Tunisia.
The spillover from Spain's domestic woes has already been felt in Europe. The benchmark Ibex 35 index fell to its lowest level – 7966 – on August 4 from a high of 11113 earlier in the year.
Moody's downgraded Spain's credit rating to Aa2 back in March, warning that the economy was "subdued", and late on Thursday night short-selling in Spanish banking stocks was banned by the European Securities and Markets Authority. Earlier that day, Standard & Poor's cut the credit rating of Telefonica, the Iberian telecommunications giant and a major economic driver, from A- to BBB+ after its net profit slumped 27pc.
In the Spanish bond market, 10-year government bond yields reached 14-year highs of 6.29pc in July, soaring dangerously close to the 7pc level that saw Greece and Portugal bailed out in the last 18 months. Even the reactivation of the European Central Bank's bond-buying programme has left shaken investors hesitating to venture into the rollercoaster Spanish market. Last week, bond yields dropped back below 5pc, but analysts are warning traders to remain cautious.
Louise Taggart, European analyst at AKE consultancy in London, says the ECB's
intervention gave Zapatero's government "breathing space", but is unlikely to signal the end of economic volatility in Spain. "At the minute, unemployment is the major issue, and if the protesters involved in the 'indignant' movement aren't seeing any improvement in the situation, then there's no reason for them to get off the streets," she adds. "But I'd be surprised if the civil unrest impacted on the markets unless it got worse."
Jan Randolph, director of sovereign risk at IHS Global Insight, sees little difference between Spain and Greece and Portugal where civil unrest in response to austerity measures saw both countries seek European Union bail-out funds. "The battle for the euro will be won or lost on the southern flank for sure," he warns. "My bottom line is that Italy and Spain are solvent but if markets push new borrowing costs at the margin up to 6-7pc, and this permeates the rest of their debt mountains over time, then this could make them insolvent."
Mr Randolph was one of the first to blacklist Spain as the "big weak link" in the eurozone, and says the "indignant" movement has already proven a "major political constraint on more aggressive structural reform in Spain". He adds: "Whether social cohesion holds together under such pressures is still an open question."
The economic outlook on the Iberian Peninsula is not all doom and gloom, however. A handful of companies in the Ibex 35 continue to post positive reports, buoyed by dominant positions in niche markets. Amadeus, the airline bookings company, grew first-half profits by more than 12pc to €263.7m, while Madrid-based insurer Mapfre climbed 13.5pc to €322m in the first quarter. A report published by Deutsche Bank in July revealed latent optimism towards Spain's stock market, with hotel chains – particularly Melia International – profiting from a booming tourist trade.
Back in Madrid's main square, Spain's "indignants" will not be moved. Angered by job losses, hospital closures and 150,000 annual housing repossessions, they have planned a raft of protests this month, culminating in the nationwide "Real Democracy Now" strike on October 15. With one eye on the elections, brought forward to November after mounting pressure on Zapatero to resign, opposition leader Mariano Rajoy is wooing potential participants with promises of tax cuts and sturdy growth.
But the protesters may take more convincing. "We won't leave until they promise us jobs," says Silvia Inez, a former secretary who has been unemployed since last year. Isabel Gimenez, a university professor in Madrid, adds: "The 'indignant' movement has been highly positive ... it has served to revitalise Spanish society."
With widespread support, robust motives and no jobs to
go home to, the "indignant" movement shows no signs of abating. And as Spanish markets and bond yields rollercoaster, investors' confidence in domestic recovery continues to plunge. Within a debt-ridden eurozone, Spain is clearly not the only cause for concern. But while everyone looks the other way, it could well be the next domino to fall.
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