In 2004 I wrote the following:

Coal-dark future: the EU subsidies to Spanish mining (May 15, 2004)

On may 14, 2004, it became known that the Spanish government illegally subsidized the coal mining industry in the amount of €600 million, which will now have to be returned by the industry. The shady political dealings behind this need not concern us here but, according to radio station Cadena Ser,

The coal mines produce about 12.5 million tonnes of coal each year, for which electric power companies pay--at the international market price--some €750 million, well below the operating costs of the mines.

It is for this reason that Brussels authorizes public subsidies, in order to make up for the difference between the market price and the cost, and that accounts for the €600 million now in question, which is to say, nearly half of the total revenue of the mines. Hence, having to return these subsidies might lead to a collapse of the industry, with 47 companies employing some 14,000 workers and many of them essential in comarcas practically without employment alternatives for their population.

Since the Spanish Constitution defines Spain as a social state and the Draft European Constitution lists solidarity as one of the values on which the EU is founded, it makes sense that the EU and Spain are willing to spend €600 million a year for the sake of preserving the social fabric of the mining comarcas (counties?). To understand the magnitude of the problem, one could estimate the number of affected people at about 100,000 (assume each miner is in a family of four, and double the result). The question that assails me right now is, if Spain and the EU are willing to spend about €6,000 per person per year to help these people, isn't there a better, more imaginative, way to use the money than to subsidize the industry? We are talking almost €43,000 per year for each of the 14,000 employees of the industry!

The problem with subsidies is that they just make the problem worse for the future. If Spain's coal mines are not productive enough to be profitable, the more is extracted from them the less profitable they become, because each new tonne of coal becomes more expensive to extract. The amount of the subsidies must, therefore, increase each year. Presumably, subsidies started when the mines were just short of breaking even, and so have increased to €600 million from a negligible amount. As far back as I can remember, there was talk of industrial reform of the mining sector, and social and labor conflict in the affected areas. Back then, a small subsidy must have seemed a reasonable price to pay for social peace. The price is no longer reasonable, however, when the subsidy accounts for 4/9 of the cost of producing the coal.

Postponing the inevitable closing of the coal mines is only part of the solution. An alternative needs to be provided to the maybe 100,000 people that would have to relocate were the mines to be closed overnight. What can we done with €600 million per year to ease the transition to the unavoidable future when the mines will be no longer in operation, and the mining comarcas deserted?

The decline and fall of Spanish mining (May 16, 2004)

In Spain, mining and Asturias (a province and Autonomous community on the North of the country) are synonimous. According to this site,

In the 1960's the mining industry of Asturias suffered enormous economic losses, to the point that the owners of the mines asked the government to nationalize them. Thus, HUNOSA (a new holding of which the Spanish govenrment owned 77%) was created on March 9, 1967. Started with an initial capital of 3,380 million pesetas, by 1979 HUNOSA had accumulated 65,000 million pesetas in losses. In 1980 the Government agreed with HUNOSA to carry out plans to reduce the weight on mining in Asturian economy. From 1980 to 1990, the number of miners was reduced from 22.000 to 18.000. Because of the mining crisis, Asturias went from being the sixth region of Spain in per capita income in 1955 to twenty-first in 1985, with an unemployment rate above the national average.

Since the 1920's, successive Spanish governments had already helped mining by imposing the obligation to use Spanish coal on all industries. Then the Francoist oligarchy that owned the mines became public employees through HUNOSA, and it was not until 1979-1980, under the first democratic government after Franco's death in 1975, that something was done. This is consistent with other disastrous economic policies of the 1970's, when Franco's govenrments shielded the Spanish people from the oil crisis at huge costs to the state, which anded up blowing up in the face of all Spaniards around 1980. In 1980, the only possible solution to the problem was already a reduction in the number of miners, but for the following 10 years jobs in the industry were reduced only by 9%, probably due to union resistance. The unions had, apparently, won their first collective bargaining contract as late as 1972, when the industry was already on its deathbed. The story contunues:

By 1991, France and Belgium had closed all their pits and Germany only kept open the most productive. Meanwhile in Spain, agreements are signed until 2002, imposing a severe reduction of jobs in the industry, and the closure of the least profitable pits. In 3 years, the number of employees in the industry dropped from 18.000 to 12.000 thanks to early retirement. Even though, at the beginning of the 1990's mining was employing 21,6% of Asturias' workforce.
From 1986, Spain received EEC subsidies due to end in 2002, when all unprofitable mining in the EU must be shut down.

What actually happened is that the European Coal and Steel Community treaty expired in mid-2002, and the EU's general rules on competition came into effect. As a result, subsidies not necessary to counter the effects of dumping by third parties are considered illegal. The
European Commission explains:

This Regulation provides that state aid may be granted for the restructuring of the hard coal industry, taking into account the social and regional aspects of the restructuring as well as the need to maintain, as a precautionary measure, a minimum quantity of indigenous production to guarantee access to reserves.

Apparently, in 2003 Spain continued to subsidize the industry, which now has to return €600 million to the Government. According to Cadena Ser,

It all begins on January 1 2003, when the criteria to award public aid to mining changed. Brussels made the subsidies conditional on prior EU authorization, to enforce the application of the new rules and competition is not distorted. But the People's Party government did not comply with that requirement and awarded the 2003 subsidies without EU approval. In Brussels, nobody moved a finger.

"It all begins"??? What an understatement. The story really begins after WWI, when Spain's mining operations failed to be mechanized like their European counterparts, and in the name of "social peace" 80 years of Spanish governments decided to maintain and subsidize a labour-intensive industry. There were 52,000 miners as late as 1958, a testament to everyone's lack of imagination on the issue of how to employ the people of Asturias.
As for the recently ousted PP government, the fact that Spain was unprepared to justify that the mines qualified for aid under the new rules means that Spanish mines were known not to be profitable enough. The PP government, in power since 1996, and the PSOE regional goverment, had up to 6 years (depending on when the new rules were decided on) to evaluate the likelyhood the Spain's mines would qualify for subsidies, and do something about helping Asturias in case the mines had to be shut down. Nothing was done by either of them.
Again according to Cadena Ser, citing "sources in the industry",

[...] for nearly a year and a half, the EU commisioner for Energy allowed the former Ministry of Economy under Rodrigo Rato, close to commissioner Loyola de Palacio in the PP, not to answer Brussels' demands for an explanation of the rules by which Aznar's government was awarding subsidies to mining operations.
But all changed on March 14. That day the PP lost the elections and, barely two weeks later on March 30, Loyola de Palacio sent the Spanish government an ultimatum and started an investigation of the subsidies, since without authorization they might be illegal, incompatible with the common market, and subject to being returned to the EU.

Apparently, De Palacio gave Spain one month, knowing that the transfer of power would barely be completed by then and, for their part, responsible PP officials did nothing to comply. Apparently it was the unions that told the new government about this situation, already after the ultimatum had expired.