His Way Works
Spain's Zapatero may have quietly found the secret to balancing high economic growth and social harmony.
By Stryker Mcguire and Eric Pape
Newsweek International
April 24, 2006 issue - Shortly after José Luis Rodríguez Zapatero became Spain's prime minister, his chief economic adviser ran a little business-school experiment. Go out and start a company, Miguel Sebastián told a handful of aides. Sure enough, they were quickly caught up in the morass of red tape that ensnarls most startups looking to hire (and, if need be, fire) employees in one of Europe's least business-friendly labor markets. "It was so complicated they quit," says Sebastián, formerly chief economist for Spain's second-largest bank. "The P.M. was appalled."
For Spain's young leader, just 43, it was the first of many crystallizing moments. Taking power two years ago this week, in the aftermath of the infamous Madrid bombings, Zapatero came to office as a lefty bent on reforming Spain's hidebound and highly conservative social landscape. But quickly he came to recognize a fundamental fact of political life: if he were going to transform Spanish society with his left hand, he would have to manage the economy with his right.
He's done so with a quiet dexterity that many Spaniards—and certainly the rest of Europe—have barely noticed. Neighboring France and Italy, in particular, would do well to start paying attention. With their political elites paralyzed, and their populaces terrified by the prospect of tough reforms, Europe's traditional powers see no third way between their unsustainable social-welfare systems and so-called Anglo-Saxon capitalism. Zapatero may have found just that: in only two years he's given Spain its first budget surplus in two decades. In that time, joblessness has dropped from 12 percent to 8.7 percent. Having created 60 percent of all new jobs in the European Union last year, the Spanish economy is projected to grow by 3.3 percent in 2006—impressive by European standards.
Zapatero has managed this feat largely by following in the footsteps of his right-wing predecessor José María Aznar, embracing dramatic fiscal reforms and adding his own tax cuts and entrepreneurship incentives. But he's maintained his left-wing support with equally striking social reforms. Half of his government's cabinet ministers are women. New legislation cracks down on gender violence and promotes equal incomes in the workplace. Gay men and women are not only free to marry but can adopt children. Divorce has been made easier; mandatory religious education in state schools is a thing of the past. Smoking has been restricted in public spaces and amnesty granted to hundreds of thousands of illegal immigrants. "We are witnessing social changes that were unimaginable three or four years ago," says Manuel Monzón, a Barcelona film producer.
Zapatero's successes are the more remarkable for the fact that they were so unexpected. He was projected to lose to Aznar's hand-picked heir, Mariano Rajoy, in the 2004 elections. But then came the Madrid bombings of March 11, and the government's misguided efforts to pin the blame on Basque terrorists when the evidence in fact pointed to Al Qaeda. Three days later, angry voters turned away from Aznar's Popular Party at the polls and swept Zapatero's socialists into power. Whether he was actually prepared to govern remains an open question. But compared with his seasoned predecessor, he did seem a political lightweight—dubbed "Bambi," no less, by pundits even before he took office.
Tyro or no, Spain's new leader has smartly taken a leaf from another social democrat once derided as a "Bambi" for his supposed inexperience and naïveté—Britain's Tony Blair. Like Blair, who in 1997 began as prime minister by embracing 18 years of Thatcherite economic reforms, Zapatero was quick to see that he could only sell the social measures he ran on against a background of strong growth.
That heady combination of social freedom and economic vibrancy seems to have given the entire country a lift. Thickets of construction cranes spread across Madrid and Barcelona, which have become havens for cutting-edge architecture. (Tourists may ogle the new Richard Rogers-designed Terminal 4 at Madrid's Barajas airport; but from Bilbao to Sevilla, homegrown talent like AMP Arquitectos and Eduardo Arroyo, together with international stars like Zaha Hadid, Rem Koolhaas, Herzog & deMeuron and Frank Gehry are producing some of the most striking designs in the world.) Indeed, whole towns are turning into cities across much of the Mediterranean coast. Spain has a higher percentage of homeowners today than at any time in modern history, and in a country where less than a generation ago unemployment ran over 20 percent, many people are no longer afraid to leave jobs in search of new ones. Prosperity feels increasingly normal, spurring Spaniards to borrow: they owe 4.5 times as much for home loans than they did in 1997. In up-and-coming Valencia, says Paco Latorre, who's helping prepare the city for the 2007 America's Cup, "you can feel this desire here to be in the vanguard—a desire for progress, modernity, the future."
Zapatero himself sees no contradiction between his social and economic platforms. For starters, he is quick to remind skeptics that Spain's success was set in motion not by Aznar but by the socialist Prime Minister Felipe González, who in the 1980s began privatizing some of the country's 200 state-owned companies. Moreover, Zapatero has long recognized the importance of winning over the business community; he was wooing leading industrialists and financiers well before the conservatives' meltdown propelled him into office. Prior to the election, in fact, Sebastián, who is not a member of the Socialist Party, ran a sort of economic tertulia, or salon, for independent economists out of a flat on Calle Ferraz near party headquarters. The tertulias attracted less interest than Sebastián might have hoped. (Spain's movers and shakers didn't expect the socialists to win, after all.) But once in power, Sebastián carried on the tradition in his offices at Moncloa, the presidential complex on the outskirts of Madrid, where attendance, needless to say, improved. "Zapatero made more of an effort than Aznar," says one businessman who frequented the meetings.
Zapatero can hardly rest easy. More than a third of employed Spaniards work in temporary jobs. Inflation stands at 4.2 percent, the highest in the euro zone. There are fears of a bursting real-estate bubble. And interest rates in Europe are creeping up at a time when consumer spending and housing growth—both prime economic motors—have been slowing. Already, 54 percent of Spanish households report having trouble making ends meet each month, according to the National Statistics Institute.
But the new government is preparing a slew of measures to keep up the mo-mentum, starting with labor laws. In a matter of days or weeks, Zapatero plans to announce reforms hammered out during six months of "social dialogue" with unions and employers. (Employers resort to short-term employment contracts because it's now difficult and expensive to fire workers.) Just how radical those reforms are—or aren't—will be a measure of Zapatero's modernizing credentials.
Under the guidance of Sebastián and Finance Minister Pedro Solbes, also not a party member, the government will soon introduce a tax cut. Top rates on individuals will be shaved from 45 to 43 percent; corporate taxes will drop from 35 percent to 30 percent—though only over a five-year period, to the disappointment of many. Perhaps most ambitious is the government's National Reform Program, unveiled late last year. It's designed to tackle weak points of the Spanish economy by doubling laggardly R&D spending, building up the anemic information technology sector and creating special government fund to encourage private venture capitalists in cutting-edge businesses.
None of these changes are revolutionary, to be sure. "The government has just sat on a model that still runs," says the opposition Popular Party economist Alvaro Nadal. "It hasn't taken the tough measures that need to be taken." And economic conditions could change. Last month the International Monetary Fund praised the Spanish economy's "remarkable performance" but warned that growth is "increasingly lopsided"—the result of supercharged domestic spending (household debt equals 110 percent of gross disposable income) and an external current account deficit of more than 7.5 percent of GDP. Dollar for dollar, only the United States has a deficit larger than Spain's.
Ironically, the remainder of Zapatero's term may be judged by neither his social reforms nor his economic management. Last month, after behind-the-scenes talks with the government, the Basque separatist group ETA declared a "permanent ceasefire," ostensibly ending 38 years of struggle. Terror put Zapatero in office. If the ceasefire holds—and the prospects are encouraging—it may now cement his standing.
Nicolás Sartorius of the think tank Alternativas expects ETA's stand-down to be the "star issue" of the second half of Zapatero's term. His first is ending on a happy note. Spaniards were not always convinced that Zapatero and New Spain were a good fit. But with the economy booming, the social landscape transforming and terror on the wane, even detractors can look toward the next few years with a confidence and optimism uncommon anywhere else in Europe.
With Mike Elkin, Cathleen Mcguigan and Alex Mcrae
© 2006 Newsweek, Inc.
© 2006 MSNBC.com
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