New Members of the Club

By joining the European Community on Jan. 1, Spain and Portugal have declared an end to centuries of economic isolation. Their tariff walls will gradually be dismantled, and the two countries will take on both the risks and rewards of in creased trade with their neighbors. For an assessment of what this change will mean for the economies of Spain and Portugal, TIME invited Jose Luis Leal, Spain's Minister of the Economy in 1979 and 1980, to the Madrid meeting of its European Board of Economists. His conclusion: Spain and Portugal might suffer a few short-run shocks from E.G. membership but would ultimately benefit. Leal admitted, though, that the two nations were "jumping into the unknown."

Economic reform has been slow in both Spain and Portugal since the two countries ended authoritarian regimes and established democratic governments in the 1970s. The Spanish government has encouraged the shrinking of old-line industries, including steel and shipbuilding, as a way of shifting resources to businesses with brighter futures. But in the process, unemployment has risen to about 20%, from 5.3% in 1977. in Portugal, political instability, which has resulted in 16 governments in the past twelve years, has held back economic progress. The country's per capita annual income is $1,900, less than a third of the E.C. average.

Paradoxically, the depressed economic conditions in Spain and Portugal could give them an advantage in trade with the rest of the E.C. Reason: wages are comparatively low in both countries, and that helps keep prices modest. Leal pointed out that some Spanish agricultural prices are 17% to 20% less than those of other E.C. countries. Joining the Community should enable Spain to boost its exports of fruits, vegetables and wines. Portugal is likely to increase its shipments of textiles and shoes.

The danger, though, is that industries will be hurt by imports once trade barriers come down. To give Spanish and Portuguese manufacturers a fighting chance, the E.C. will let the two countries drop their tariffs over a seven-year period. Increased competition could eventually make businesses stronger by encouraging them to be more efficient and innovative. In addition, a freer exchange of products and ideas with the rest of Europe will help Spain and Portugal gear up their lagging economies for the 21st century. Said Leal: "For four centuries we have looked at our problems in a very inward way, and now we will be forced to look outward."