Having lived and worked in Spain, on and off, for more than 25 years and having paid close attention to their economic situation in the last 4-5 years, make no mistake - the attempt by Sr. Zapatero to build a "socialist" state is severely damaging Spain's economic prospects.  Here are two examples of where socialist ideology is causing (or will cause) long term damage to Spain's economic prospects:

Firstly, Sr. Zapataro's oft declared intention NOT to make the necessary changes to make the workforce more flexible and productive via changes in working practices, employment contracts and national insurance contributions by employers despite constant urges to do so for years by the OECD, IMF, EU, World Bank and other major international bodies.

As a result Spanish labour is expensive versus most other EU countries, for example in the automotive industry; it is inflexible, e.g. use of collective bargaining and maintenance of restrictive practices; and SMEs have to hang on to underperforming staff since they can't afford to fire them - which in turn affects the performance of the business.

In addition, the poorly performing educational system (due to years of political mismanagement by the left and right), has left it as one of the worst performing European countries in the regular Pisa survey on educational standards.  This in turn generates a legacy of a poorly trained, low skilled workforce versus other major EU countries - technology and R&D being examples of where Spain lags behind its EU peers tremendously.

Secondly, obsession with developing renewable energy at the expense of other more traditional sources, e.g. fossil fuels, hydroelectric and nuclear.  Spain has no oil or gas and very little coal.  It also has limited water supplies except in the under populated north-west so it requires a proper mix of energy sources to balance political and economic risk and to make industry competitive via sensible market prices.  France took the nuclear option many, many years ago - not much heard about that, either domestically or internationally, and they are now the cheapest generator of electricity in western Europe.  France regularly supplies its neighbours, e.g. UK and Spain, with capacity to make up their own shortfalls due to a lack of a long term, coherent energy policy in both countries (something Britain may finally be about to address with the construction of new nuclear power stations).  Sr. Zapatero believes in being green regardless of the damage this will do to Spain's competitiveness and economy.

Currently, wind and solar power are subsidised enormously by the Spanish government - to the extent that in the last 12 months alone the government has accumulated a "debt" of ?5bn, and rising as more wind and solar capacity come on line.  Its stated aim is to do away with these subsidies by raising electricity prices to at least cost levels over the next couple of years.  Well both wind and solar power are much more expensive than oil, gas, hydro or nuclear plus, and, in the case of wind farms especially, you cannot control when they generate their power.  Their output has to be put straight into the grid so there are an increasing number of cases where wind generated capacity is too much or too little at a particular time and wind farms have to be stopped in cases of over production or other sources used to make up shortfalls where demand exceeds supply.  If the current development plans continue and existing nuclear power stations are phased out (part of govt plan) then Spain will have an over reliance on expensive, difficult to control, energy production.  Unless of course Sr. Zapatero has a plans to nationalise the wind!

The impact on businesses is also enormous - it's a roller coaster, from boom to bust in a matter of a few years.  Isofoton is a classic example.  On the back of the generous subsidies on solar PV power and resultant boom in the building solar "farms" in Spain, it became one of the world's leading manufacturers of solar panels and related parts.  It grew quickly, employed lots of people, was a showcase as one of Spain's "new" companies.  Since last year when the government decided to place limits on installed solar PV capacity and reduce the preferential tariff (still higher than cost paid by the public and hence subsidised) Isofton's business has fallen off a cliff.  It has laid off hundreds of staff and appears to be on the brink of collapse.  No doubt there are many other smaller business facing similar problems because of badly thought out and poorly implemented government intervention.

In short, Zapatero is a socialist dreamer with little or no sense of reality about the long term impact of his policies on Spain and its people and is taking Spain firmly back towards a culture of reliance on the state for everything - just as this culture was beginning to be broken by the Aznar govt.

If I had young children in Spain I would be very concerned about what the future holds for them in this country.  I hope I'm proved wrong but I think that if Spain continues down this path much longer then it is going to revert to being a semi-developed country (in terms of GDP per capita) where the majority of the population is largely reliant on the state from cradle to grave, directly or indirectly, but with a small elite who will continue to benefit financially to an enormous scale.  Of course, if the EU can be persuaded to continue to pump billions of Euros into the Spanish economy, as they have done for the last 30 years, then I suppose Sr. Zapatero won't care.

 

Comments: