Indignation eats away at Spanish state For the government of Mariano Rajoy, elected only eight months ago with an absolute majority, it must be uncomfortable to have demonstrators beating pots and pans outside the headquarters of his centre-right Popular Party, protesting against the latest round of tax rises and spending cuts. It looks worse when riot police arrive, a helicopter hovering above, to deal with no more than a local outburst of indignation. Such flash demonstrations are igniting all over Spain, using social media rather than an ossified trade union establishment, which nevertheless brought hundreds of thousands out on to Spanish streets last week as the €65bn austerity package went through parliament. This remobilisation of Spanish society, lulled into comfort and complacency during the boom years, in some senses recalls the fevered political and street activity of the transition to democracy after the death of the dictator Francisco Franco in 1975. Yet it is more amorphous and experimental, bypassing politics and Spain's increasingly tarnished institutions. "I belong to no party," says Rafael Alvarez, a post office worker for 30 years demonstrating outside the PP offices in Madrid. "But this is the party that has carried out the biggest cut in salaries and social rights in the era of democracy," he says, "and since they have torn up all their promises they should call new elections." "I am neither left nor right," says Sofia, a 27 year-old unemployed science graduate at the same protest. "We are all indignados," she adds, referring to the youth movement that erupted in Spain's squares last year. Every day there will be something somewhere, until they resign. A salient feature of the present crisis - beyond the immediate drama of Spain's cost of borrowing and the broader eurozone crisis - is the extent to which Spain's institutions, the linchpins of the vibrant democracy Spaniards painstakingly built after Franco, have been battered. "The central institutions are looking badly damaged," says Jesús Ceberio, former editor of El País, the main newspaper. This is the worst crisis Spain has been through since the promulgation of the constitution [in 1978]. I think we're heading towards a Papandreou scenario within a year," he adds. If that were to happen, new elections would fragment the political spectrum, reducing the PP and the opposition Socialists to something like the much diminished size of Greece's conservative New Democracy and former prime minister George Papandreou's Pasok. Institutional discredit is wide and deep. "There is no institution left untouched in its prestige, and for most it is because they have been colonised by the parties," says José Ignacio Torreblanca of the European Council on Foreign Relations. The Constitutional Court, for example, is so balanced between factions it is deadlocked. All sides prefer to live with a malfunctioning institution than one that may work against them. The monarchy looks less of a unifying force after King Juan Carlos turned out to be on safari in Botswana as the crisis started to bite, and his son-in-law was caught up in a financial scandal. The highly politicised judiciary has been tarnished after its former head, Carlos Dívar, was pushed out after a colleague denounced anomalies in his expenses. The cajas, local savings banks with a social role dating back over a century, became piggy banks and a licence to print money for regional grandees - of all parties but most egregiously of the PP - to distribute patronage. The property bust blew holes in caja balance sheets that are at the heart of Spain's financial crisis. But the sale of preference shares to 700,000 depositors in the cajas has blown away their savings. "Rajoy should have been much better informed about all this," says one PP insider. In a crisis of confidence, the way they've managed it is incomprehensible. Institutions vital for confidence - abroad as well as at home - such as the Bank of Spain, are being dragged through the mud of partisan warfare. On Tuesday, Miguel Angel Fernández Ordóñez, the outgoing bank governor appointed by the Socialists, is due in the parliamentary dock. Yet, as one analyst puts it, the "regulatory undersight" of the banking sector is not unique to Spain, and both parties bear responsibility for it. Parliament itself appears a spectator, since the Rajoy government is resorting to decrees for most of its measures, and the prime minister himself speaks rarely, in parliament or elsewhere. "One would at least have expected him to address the nation," the PP official said of last week's fiscal package. For all that it commands a majority in parliament, the government avoids debate or full disclosure. Details of last week's package emerged in English on the Treasury website, plainly aimed at investors. The Spanish version that emerged later contained a €10bn discrepancy over expected revenue increases. "Of course you need to address markets, but investors are unlikely to be impressed by a government incapable of engaging with its own citizens, or institutions such as parliament," the analyst said. Added to all this are growing fears that a stabilising institution in a country more than half of whose young are unemployed - the family - is fraying. "This is a welfare state that is invisible and there will come a moment when that is exhausted," says Mr Torreblanca. Mr Rajoy, some analysts are starting to suggest, needs to forge a national consensus urgently, through something like the 1977 Moncloa Pacts, the multi-party social contract that underpinned the transition to democracy. This is now anathema to a still young government, the PP official says, but could become inevitable. This country needs really fundamental changes. We need an ample majority to carry through the fiscal and economic changes in a way that convinces the whole country this is just and fair; it is not enough just to have an absolute majority" in parliament, says a former aide to José Luis Rodríguez Zapatero, the Socialist prime minister Mr Rajoy replaced. "What we need now is a new [national] pact, between the parties but including the Basques and the Catalans," he says. To recover our credibility we need to agree among ourselves.