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Spain Smacked by a Dose of Economic Reality

Spaniards, used to socialist largesse, are struggling with market economics — and their prime minister is in heavy denial.

by
Soeren Kern

Bio

June 14, 2008 - 12:10 am

A national truck driver’s strike in Spain may be winding down, but it has brought the already-troubled Spanish economy to a standstill. It has also highlighted what happens when a welfare state goes wild. Some 90,000 self-employed hauliers say they are protesting the soaring cost of diesel fuel, which has climbed to 1.30 euros/liter (about US$8 per gallon) from 0.95 euros one year ago. Skyrocketing fuel prices are, clearly, a big problem all over Europe. But what really irks Spanish truckers is their exposure to the reality of market economics.

They are angry that an economic downturn in Spain has reduced the demand for their services. There is now too much trucking supply for too little trucking demand, which according to the basic laws of economics implies lower transport prices.

So the truckers want the government to bail them out via artificial price supports. They are demanding that the government impose a market-distorting minimum transport tariff, a solution that would allow hauliers to continue with business as usual while passing the additional costs over to consumers.

The government has proposed setting aside 55 million euros to encourage early retirements from the over-saturated sector. But the striking truckers are not interested in compromise. Indeed, they are betting that the government will cave in to their demands. After all, the Spanish government always gives in to labor unrest.

In the meantime, the truckers are determined to share their pain with the rest of Spain. The strike is effectively shutting down a large chunk of the economy because most goods in the country are shipped by lorry, due to inadequate rail-freight infrastructure. Many factories have been forced to close production lines for lack of supplies. Spanish consumers, panicked that they will run out of food, have emptied supermarkets in towns and cities across the country. As for petrol: Some 75 percent of service stations in Barcelona have run out of gasoline; nearly half of the service stations in Madrid have been closed.

Spain complains

But truckers are not the only Spaniards taking some extra time off. Indeed, job walkouts protesting exposure to market economics have become a national sport in Spain. According to the Spanish Confederation of Employers’ Organizations (CEOE), Spanish workers held 334 strikes during the first four months of 2008, which resulted in the loss of 14.3 million man-hours of labor. These figures represent a 72 percent increase over the same period in 2007. During all of 2007, there were 852 strikes in Spain that resulted in the total loss of 22.5 million man-hours.

Considering all these grievances, it seems strange that Spanish voters in March gave Socialist Prime Minister Jose Luis Rodriguez Zapatero another four-year term in office. After all, pre-election polls showed that the majority of Spaniards knew full well that Spain was not on the right track, economically or otherwise.

Maybe they allowed themselves to be persuaded that everything would somehow be okay, thanks to Zapatero’s postmodern relativistic political discourse, which posits that all problems are by definition imaginary. Or perhaps they were bribed by the 22 billion euros — a whopping 2.1 percent of Spain’s GDP — in handouts that Zapatero promised to bestow upon them if re-elected.

In any case, Spain’s myriad market disequilibriums are coming home to roost, and all at the same time.

For example, Spain has been reeling from the collapse of a housing bubble that for the last 15 years has enabled the notoriously uncompetitive economy to post some of the highest growth rates in the European Union. Millions of Spaniards are now struggling to accept the fact that they were lulled into a false sense of never-ending prosperity.

At the same time, the generous financial subsidies that Spain has received since joining the EU in 1986 are drying up. During the past 20 years, Spain cashed in on some 100 billion euros — equivalent to nearly one percent of its GDP every year — by way of EU Structural and Cohesion Funds, which are designed to narrow the gap between the EU’s wealthy and poor countries. But now that Spain has reached a per capita GDP of 98.5 percent of the EU average — it was 72 percent in 1986 — the country will begin paying more into the EU than it receives back.

The implication is that Spaniards will have to strike less and work more. But that seems an unlikely prospect. Spain recently led a block, including Belgium and Greece, which sought to prohibit British workers from working more than 48 hours a week. Spanish Socialists complain that if Brits work more than Spaniards, Britain will have an unfair competitive advantage.

Problem? What problem?

Just before the March elections, Zapatero insisted that the Spanish economy would grow by 3.3 percent in 2008; since his re-election, however, the government has revised that figure downwards on an almost daily basis. Indeed, Spanish economic growth has slid to 0.3 percent in the first quarter of 2008 from 0.8 percent in the last three months of 2007. Standard & Poor’s, the ratings agency, predicts that Spain’s growth will slow this year to 1.8 percent from 3.8 percent in 2007 and to 1.6 percent in 2009.

But that’s not all. Annual consumer inflation jumped to a 13-year high of 4.6 percent in May. And according to the Labor Ministry, the number of registered jobless shot upwards to 2.35 million in May, the worst figure since post-Franco recordkeeping began in 1979. The National Statistics Institute says the unemployment rate jumped to 9.6 percent in the first three months of 2008 from 8.6 percent in the previous quarter, the biggest jump since the first quarter of 1993, when the Spanish economy slipped into recession. Some financial analysts fear the unemployment rate could spiral to 13 percent in 2009.

So far Zapatero’s post-modern approach to Spain’s economic crisis seems based on three reality-evading pillars: denial, passing the blame, and more denial. His Plan A has involved a pop psychology campaign advising Spaniards that “pessimism does not create jobs.” Plan B blamed “radical liberalism,” which in euro-speak means the free market. Zapatero now wants to implement Plan C, a global advertising campaign in the world financial press designed to highlight his economic management skills.

Spaniards, having grown accustomed to three decades of spoon-feeding by Socialist largesse, are in for a long, hot free-market summer.

Soeren Kern is Senior Analyst for European Politics at the Madrid-based Grupo de Estudios Estratégicos / Strategic Studies Group. Follow him on Facebook.
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