Pablo Gil: The Unsustainable Math of the Welfare State and the Housing Dead End

Economist Pablo Gil, speaking from forty years of market experience, steps completely outside his usual format this time: no script, no charts, only an emotional and unsparing audit. His thesis is blunt from the first sentence: politicians know the real state of the welfare system but cannot say it aloud, because telling the truth would carry a brutal cost at the ballot box. Voters were told for years that every problem had a fix; the fiscal math, he argues, stopped adding up long ago.

The welfare state means a wide protective umbrella, from unemployment cover to publicly provided schooling and treatment, from shelter for vulnerable households to national security. What disturbs Gil is the widening gap between demand and means: citizens keep asking for broader protection while governments, squeezed by debt and interest burdens, have less and less room to act. Spain is the stage for this tension, but the play is running in many other theatres too.

This is not a Spanish story alone; the same squeeze is visible in Germany, even more strikingly in France, in the United Kingdom and in the United States, above all in the lower half of the income distribution. The common thread is structural: for more than a decade, spending has run ahead of revenue and the gap has been plugged with borrowing. While money was free, the arrangement stayed hidden. Nobody talks about the water bill while the taps run open.

The legacy of the zero-rate years

Between 2010 and 2021 the advanced economies lived through an episode rarely seen in monetary history, with policy rates at zero and in some countries below it. Governments could issue bonds almost for free, at some maturities even being paid to borrow; Gil recalls that the stock of negative-yield bonds reached about 18 trillion euros. It was a temporary fiction mistaken for a permanent condition, and many decision makers assumed those days would last forever. That assumption is being repaid now.

The revenge came as inflation. Since the pandemic, cumulative price rises across advanced economies have stacked up to between 20 and 25 percent depending on the country, quietly making everyone who could not shield their money poorer. Spain looks harsher: nominal pay seems higher, yet inflation-adjusted real wages have barely moved for eight or nine years. Euribor Rates records show how deep the rate floor of that era was, while TradingEconomics compilations put the current euro-area benchmark near 2.65 percent. Mild by historical standards, that level still shocks budgets raised on zero.

The pain is not only dearer new borrowing but the rollover of old debt. Paper issued at zero or negative rates in 2019 and 2020 now matures and must be refinanced at prevailing rates, so the interest burden compounds year after year. Long-term funding costs are climbing faster than short-term benchmarks, which means the pressure sits inside the maturity structure rather than passing through. TradingEconomics data put Spanish debt at 100.7 percent of GDP, down from the 119.3 percent peak of 2020; BBVAResearch estimates the budget deficit narrowed to around 2.4 percent of GDP by the end of 2025. BNPParibas projections pencil in a primary surplus from 2026, though that remains conditional on spending discipline holding.

Households feel this arithmetic most in housing. Home prices have raced well ahead of general inflation while real earnings stood still, so the affordability gap widens every year. Idealista research finds that in the first quarter of 2025 a household needed 23 percent of its income to buy and 36 percent to rent; in ten provincial cities the rental burden exceeds 30 percent of income. Put simply, pay stayed in one league while home prices moved to another.

The vanishing rental supply

On the rental side, supply has all but evaporated. Idealista data show listings down 56 percent from the end-2020 peak; between March 2020 and January 2025 the fall reached 58.1 percent in Barcelona and 46.7 percent in Madrid. With demand swelling and listings halved, rents keep setting records. An Alegria Realestate compilation reports rents up 8.5 percent in 2025, reaching 14.7 euros per square metre by December. For thousands of seekers, finding a long-term rental has become nearly impossible.

At the centre of the debate sits the 2023 housing law. Written with good intent to shield tenants, it produced, in Gil's verdict, a disastrous outcome. The Catalonia example is stark: after the caps, supply in Barcelona collapsed, with close to four-fifths of listings vanishing. Idealista specialists expect Catalan supply to stay near historic lows through 2026, as some owners withdraw listings and others shift to seasonal lets outside the caps. The distance between intent and result could hardly be wider.

Gil frames it as a game of chairs: ten people circling eight seats, each blaming the other. The argument, he says, should not be about who sits but about the two missing seats; the issue is not who owns or what the price tag reads, but that too few homes get built. When supply meets demand, prices calm; when supply outruns demand, they fall. New decrees, he contends, merely re-share the eight seats among ten players instead of adding chairs, and demand subsidies such as 50,000-euro purchase grants will sooner or later show up in prices.

Another front is property rights. Tenant protection is a constitutional value, yet so is ownership; schemes shifting unpaid-rent risk onto the public purse lose credibility when past relief, after the volcano eruption and the floods, took years to reach victims. The gap between paper guarantees and lived reality feeds street-level anger. A double standard sensed this widely turns into fuel for unrest.

Polarisation, the tax squeeze and the search for shelter

On the political front, narrative engineering rules. Every failure gets pinned on the rival camp, red-versus-black polarisation and fan-building language leave broad groups unable to discuss figures. Gil argues rulers care less about fixing problems than about controlling the story, and through the story, votes and parliamentary seats. A polarised crowd is easy to herd; a public that reads data and keeps its bite is far harder to govern. The real fight, then, is not over rents or wages but over who decides what to believe.

The tax front completes the picture. With income-tax bands left unadjusted for price rises, workers pay more tax each year; the share of company earnings reaching staff and the record of subsidised labour bodies add to the grievance. His question is plain: why does nobody attack the root, the missing supply and the frozen real pay? Because roots take years to fix while polling calendars speak in months. Lofty solidarity rhetoric alongside a record of trailing Europe in social building sums up the contradiction.

Gil closes by urging citizens to build their own protection plan, pointing to the 17 October gathering in Madrid: geopolitics, property, precious metals, crypto assets, unlisted firms and the tax code will all be on the table. The uneasy question lingers: what happens the day politicians drop the fiction and speak plainly? Until then, the only insurance for those paying the bill through inflation is to read the figures and do their own household math. Less a gloomy prophecy than a belated call to grow up.