Spain on track as Zapatero bows out
The Financial Times - April 2011
As dark clouds reappear over the eurozone in the form of a likely financial rescue of Portugal, one bright spot is the improving condition of Spain’s economy and public finances. Thanks to courageous deficit-cutting and structural reforms, Spain is no longer perceived in financial markets as a hapless domino doomed to follow Greece, Ireland and Portugal into the arms of the International Monetary Fund and the European Union. The lion’s share of the credit goes to José Luis Rodríguez Zapatero, Spain’s socialist premier, who disclosed last weekend that he would not seek a third term in next March’s general elections.
Far from injecting uncertainty into Spain’s political outlook, with the risk that the nation might be sucked more deeply into the eurozone’s debt crisis, Mr Zapatero’s announcement looks like a wise move. With nothing to lose except his historical reputation, he has every incentive to continue the reforms he started – admittedly, in the nick of time – after the Greek debacle erupted last year.
Even so, his socialist comrades and the opposition conservative Popular party will both need to show responsibility for Spain’s future over coming months. The socialists must resist the temptation to seek electoral advantage by distancing themselves from Mr Zapatero’s fiscal austerity and labour market reforms. For its part, the opposition should not try to force him from office prematurely by toppling his minority government in a parliamentary vote. Such actions could revive market anxieties and jeopardise Spain’s hard-earned successes.
For Spain is not entirely out of the woods. Unemployment stands at 20.5 per cent of the workforce, the highest in the EU; the jobless rate among youths under 25 is a shocking 43.5 per cent. The central government’s fiscal retrenchment efforts are undermined by indiscipline in autonomous Spanish regions such as Catalonia and Valencia. Spain’s public sector banks require extensive recapitalisation and restructuring, but it is no easy process: last week, an important merger of four savings banks fell apart. Finally, Spain’s banks have a large exposure to Portuguese debt, amounting to $108.6bn last September.
Having suffered the nation’s worst economic crisis since the end of Francoism in the 1970s, Spaniards appear disinclined to re-elect the socialist party. With the passage of time, however, they may come to appreciate the services Mr Zapatero performed for his country in its hour of need