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Posted Sunday, Feb. 29, 2004; 15.48GMT
Nevertheless, jobs remain a problem. The growth spawned by Aznar’s policies has halved the unemployment rate from more than 22% in 1995 to about 11.2%. That’s a spectacular improvement, but Spain still tops the E.U.’s unemployment charts. What’s more, up to a quarter of the new jobs are short-term contracts, a particular bane for younger workers. Many others rely on competitive advantages that are evaporating as Spain becomes richer. Nowhere are jobs more precarious than in manufacturing, particularly among foreign-owned firms attracted by Spain’s low wages in the late 1980s and now keen to find even lower wages elsewhere. In January, Dutch consumer-electronics giant Philips announced that it was closing a 29-year-old lightbulb plant near Barcelona. Soon after, the Korean electronics manufacturer Samsung even though its Spanish production was profitable last year said it was shutting a plant near Barcelona and shifting production to Slovakia.
It’s not just lower wages that make the new members of the E.U. a challenge to Spain; their entry will also mean painful reductions in E.U. payments to Spain, which are largely indexed to its relative poverty within the Union. Spain is far and away the biggest net beneficiary of E.U. funds in absolute terms some €8 billion last year. José Manuel Campa, professor at the IESE business school in Madrid, says E.U. funds have paid for between 30% and 50% of infrastructure construction in Spain in recent years.
The funds won’t dry up overnight, but their imminent disappearance is a warning call to Spain. “We are at a crossroads,” says Xavier Cuadras Morató, professor of Economics at Barcelona’s Pompeu Fabra University. “We have to stop thinking in terms of being competitive with low-salary, low-productivity jobs and start investing more in technology and education.”
For now, those kinds of investments appear to have taken a backseat to a national passion no less precarious for real estate. Construction has continued unabated despite an estimated 2.7 million empty dwellings in Spain. Banks are offering flexible-rate mortgages starting as low as 2.4%, says Campa. With inflation at 2.7%, that amounts to a negative mortgage rate. “If we get interest rates rising, it would really hurt the housing market,” says Campa. “And since mortgage rates are flexible, people would face higher monthly payments and have to lower their consumption.”
Even without that scenario, many Spaniards say they have trouble making ends meet. A recent study in the Basque Country one of Spain’s richest regions found that 18- to 35-year-olds spend an astronomical average of 79% of their monthly income on housing. The Socialist candidate for Prime Minister, José Luis Rodriguez Zapatero, has promised to subsidize rents for young people so they pay no more than 35% of their wages on rent. But he has given no details on how the scheme would work or how to create a strong rental market among a population disposed toward buying. For his part, the Popular Party candidate, Mariano Rajoy, has pledged to help put 900,000 affordable homes for young people and families on the market, and guarantee them 30-year mortgages.
Spain’s corporate world has some adjusting to do, too. Spain’s investments for research and development are less than half the E.U. average, and the private sector is responsible for much of the lag.
It would be wrong to understate how far Spain has come; it was only a generation ago, after all, that Spain emerged from almost 40 years of somnolent self-sufficiency under Franco. Since then the economy has undergone a miraculous transformation. As they tackle further changes, Spaniards will discover whether all those construction cranes are set on firm foundations.
With reporting by Samuel Loewenberg/Madrid, Rod Usher/Badajoz and Enrique Zaldua/Barcelona
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