Spain must take advantage of the crisis and the exhaustion of its economic model as an opportunity to transform itself into a much more innovative country.

(Madrid) IT IS GOING TO BE IMPOSSIBLE for us Spaniards to maintain our prized status as the eighth world power if our economy does not turn itself around.

This sums up the experts’ verdict on the situation that the Spanish economy is in. The crisis and its consequences are already inevitable, due to external causes like the idiosyncrasy of Spain’s pattern of economic growth itself. However, we can turn this change of cycle into an opportunity to plant the seeds for the construction of a modern and innovative country with a good quality of life.

It has barely taken a few months for our country to go from being the number one ranked country in the EU in terms of economic growth to being singled out as one of the countries that will suffer the consequences of the international crisis the most.

A WORN-OUT MODEL

There are various reasons for this. The first is that the Spanish production model appears to be worn-out. The engines of the economic boom of the last decade, the construction and tourism sectors, are undergoing serious changes, which are having negative repercussions for the unemployment rate.

Not even our financial sector is being spared. The injection of liquidity approved by the savings bank Caja Castilla La Mancha (CCM) in order to avoid its bankruptcy proves that our banking system is not immune to the international crisis, as emphasized by the second vice-president of the government and the Minister of Economy, Pedro Solbes.

The case of CCM is a defect in a financial system that has stood out for its strength and for having been an example of supervision and regulation for the rest of the countries in the area, who have made mistakes regarding control over financial innovation. But we are dealing with the first financial entity in Spain to be subject to intervention since the beginning of the crisis, and it is no trivial matter.

The fall of the Castillian-Manchego bank undermines the morale of those of us who had seen few positive signs in the Spanish economy. It confirms the suspicion that 2009 will be a year of hardships, and that we are still far from a change in trend. Besides, the rescue took place during a key moment, just before the expanded G-20 summit in London took place, where the international financial system was discussed.

In this sense, the strength of the banking system has not been able to resist the onslaught of the international credit crisis. The second big problem with the Spanish situation is the paralysis of the financial sector and the halt to private consumer spending and business activity that the lack of credit means.

VICIOUS CIRCLE

Furthermore, it is a vicious circle. Businesses make fewer orders, trim production in order to adjust to the new portfolio and lay off workers. Then the unemployed consume less, due to the drop in their income, and businesses rack up even fewer sales. Meanwhile, some sectors start contaminating others and, little by little, the economy is infected with pessimism and inactivity. Lastly, the most pressing of all of the current crisis’ problems is unemployment. Four million unemployed workers in an economy whose workforce consists of only slightly more than twenty million is an overwhelming figure.

According to the Association of Economists, one of the essential characteristics of the Spanish economy is industry’s reduced weight in the economic structure: 17.5 percent of the GDP comes from this sector, as opposed to the European Union average of 20.3 percent. Spain is not an extremely industrial country, and this weighs on the business culture, productivity, innovation, the need to import technology, a system of training that is not in accordance with the labor market’s demands…and it also influences the way in which we react to the crisis.

INDECISION, CONFUSION

Taking these problems into account, we now need to talk about solutions, and this is where we are met with the most surprise. There is no shortage of predictions regarding the situation of our economy, nor ambitious billion dollar rescue plans. Nonetheless, the western countries need a strategy for the future. Their leaders appear to be disconcerted, indecisive and unambitious.

Barack Obama has recently set in motion a stimulus plan for the financial sector. Although the measures were well-received by the markets, many economists have stated that the new American president’s plan leaves several unknowns unresolved.

With respect to the European Union, the clearest thing of all is the disagreement in the heart of the community regarding the measures that must be carried out to stimulate the economy. During the first months of the crisis, mutual mistrust and a lack of solidarity reigned supreme. The atmosphere has calmed down during the last few weeks, but all of the attempts to set in motion some common actions to fight the crisis have run into brick walls. It is worth pointing out the cancellation of an extraordinary European summit on employment, which was going to be held on May 7 in Prague, but has fallen off the agenda due to a lack of ideas.

GUNS IN THE GLOVE COMPARTMENT

Back home, there is also a noticeable lack of ambition. All of the European governments have their hands tied up in many issues related to the economy, especially those that deal with monetary policy. Nonetheless, Spain still has some big guns in its pockets, such as its fiscal policy, a robust financial arm and the tranquility of having a stable and powerful currency.

José Luis Rodríguez Zapatero’s government increased the stimulus package that it set in motion a few months ago to curb the effects of the international crisis. Previously, the authorities had made several lines of credit available to citizens, which are reaching agents through the Official Credit Institution. According to the latest figures, this institution mobilized some 2.8 billion euros through March 17.

Another measure put into practice by the president is the creation of the Asset Acquisition Fund, with a value of more than 30 billion euros. The objective of the initiative was to give some liquidity to the banks so that they would began to channel resources towards businesses and consumers. The Spanish economy’s stimulus package also foresaw a transfer of funds from the Department of Public Administration to the national city halls in order to finance public works, such as the VIVE Plan (Innovative Vehicle, Ecological Vehicle), set to finance a part of the citizens’ automobile purchases.

TIMID DECISION

The measures stand out because of their timidity. At the last cabinet meeting, various business-directed measures were passed, among which can be found a greater risk coverage for certain businesses, the modification of the Insolvency Law and the expansion of deductions for investment in research, development and innovation.

The president’s desire to reach all of the nooks and crannies of our country’s economic structure cannot be denied.

However, Zapatero and his economic ministers still haven’t undertaken those structural reforms that they themselves claimed were necessary well before the crisis hit. The elections in Galicia and the Basque Country have upset the balance of forces in the Parliament, and as such, the passage of the next laws will depend on the ruling party’s ability to reach agreements with the forces in Parliament. The crux of the matter lies in whether the socialists will be able to engineer a consensus that gets these reforms, which are vital to the economic health of the country, off the ground.

Among those laws on the waiting list that must be passed this year are: the Science Law, the Service payment Law, the Regulation of Free Access and the Practicing of Service Activities, the Port Law, the regulation of renewable energy and the Commerce Law. These are measures that are more important for the economy than the greater part of the fiscal packages passed up to this point.

STRUCTURAL REFORMS

We are looking at some important decisions, but they are still hard nuts to crack, and the government still hasn’t given signs that it wants to act on them. This is about reforms to the labor market and the tax system. An ambitious approximation of the economic crisis requires addressing all of these issues.

It is true that we have just come out of a fiscal reform that was carried out during the past presidential term, but the new tax law has even more room for improvement. On the contrary, the labor market has been showing signs of inefficiency for various tax years. The precariousness, the rigidity of the fixation of salaries and the lack of worker mobility are some of the problems that have remained in the market in spite of the economic boom and the high rate of job creation during the last decade. If we don’t roll up our sleeves and get to work with these reforms, the Spaniards’ great economic achievements of the last fifteen years will just be a reflection of what we could have been.