The Spanish Model

 by Isidro López and Emmanuel Rodríguez

Prior to the debacle of 2008, Spain’s economy had been an object of particular admiration for Western commentators. [1] To reproduce the colourful metaphors of the financial press, in the 1990s and early 2000s the Spanish bull performed much better than the moping lions of ‘Old Europe’. In the decade following 1995, 7 million jobs were created and the economy grew at a rate of nearly 4 per cent; between 1995 and 2007, the nominal wealth of households increased threefold. Spain’s historic specialization in sectors such as tourism and property development seemed perfectly suited to the age of globalization, which in turn seemed to smile on the country. Construction boomed as house prices soared, rising by 220 per cent between 1997 and 2007, while the housing stock expanded by 30 per cent, or 7 million units. All feeling of being merely the biggest country of the continent’s periphery was dispelled by a new image of modernity, which did not just catch up with but in some ways surpassed standard European expectations—at least when Spain’s dynamism was compared to the ‘rigidities’ of the Eurozone’s core. Add to this the 2004 return to power of the Socialist Party, under a youthful José Luis Rodríguez Zapatero, and the effect of such quintessentially ‘modernizing’ laws as those on same-sex marriage, and the mixture acquired the bouquet of a young red wine: extremely robust on the palate.
In stark contrast, the financial crisis has given the country a completely different image of itself, with effects on Europe that remain to be calculated. Over the past year, Spain has on several occasions hovered on the brink of classification as a case for Eurozone bail-out, following Greece, Ireland and Portugal. Its construction industry, which in 2007 contributed nearly a tenth of the country’s gdp, has suffered a massive blow-out, leaving an over-build of unsold housing worse than Ireland’s, and the semi-public savings-and-loans sector waterlogged with debt. The effects of the housing-market collapse have reverberated throughout the economy: unemployment is running at over 20 per cent, and more than double that rate among the under-25s. A deep recession has been compounded by draconian austerity measures, supposedly aimed at reducing a deficit currently standing at over 10 per cent of gdp to 3 per cent by 2013. The political fall-out of the crisis is putting additional strain on Spain’s decentralized governmental structures, in which the seventeen Autonomous Communities administer a large proportion of public spending; in Catalonia and elsewhere, the ac budgets are also running deficits. The Spanish bull’s prostration also carries implications for the Eurozone as a whole. At over 45 million, the population of Spain is almost twice as large as those of Greece, Ireland and Portugal put together; its economy is the fourth largest in the Eurozone, with a gdp of $1,409bn, compared to $305bn for Greece, $204bn for Ireland and $229bn for Portugal. The scale of a Spanish bail-out, were Madrid to run into difficulty in financing its debts, would be likely to capsize the Eurozone’s current tactics for dealing with its indebted periphery—heavily conditional imf–ecb loans, so far made available to Greece, Ireland and Portugal with the aim of ‘tiding them over’, while safeguarding the exposed positions of big German, French and British banks. So far, the wager has been that, after a dose of austerity and labour-market reform, Spain’s pre-crisis economic model can be resuscitated in leaner, fitter form. Is this a viable proposition?

Read the rest of this article in New Left Review 69, May-June 2011