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by Euro Reporter
2015-03-18 09:41:04
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Explaining the pain in Spain

spain_400_02The number of Spaniards with a job fell by more than 18 per cent between mid-2007 and the beginning of 2014. That is a staggering sum, and it helps explain why Podemos, the anti-establishment party, is expected to win a large share of the vote in Spain’s elections later this year. The literalist explanation is that Spain’s real GDP fell about 6 per cent lower at the same time as Spanish labour productivity rose around 12 per cent. You could blame the euro crisis, the overhang of private debt, fiscal austerity, an undercapitalised banking system, and the strictures of the single currency for the former, and perhaps attribute the latter to the Spanish government’s reform programmes.

While we don’t want to dismiss the importance of policy errors and unsuitable exchange rate regimes, much of Spain’s suffering in the bust can be explained by the structure of its economy in the long boom that preceded it. On the eve of the downturn, Spain had the misfortune of looking like a Mediterranean hybrid of Nevada and Michigan. Compared to those US states, which ostensibly benefit from their membership in a functional monetary union, Spain has actually done quite well.

Spain’s traumatic employment losses were incredibly concentrated. Of all the jobs lost between the peak in the third quarter of 2007 and the trough in the first quarter of 2014, 48 per cent were in construction and 28 per cent were in manufacturing. For perspective, construction only accounted for about 13 per cent of all Spanish workers at the time that total employment peaked, while manufacturing only accounted for about 15 per cent. By comparison, employment in the rest of the Spanish economy fell by around 6 per cent peak-to-trough.

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Revival of ‘Ghost Airport’ Stirs Hope in Spain

The “ghost airport” of Castellón on Spain’s east coast had become a symbol of the country’s reckless spending and its boom-to-bust construction crisis. Could it now turn into an emblem of Spain’s economic revival? Four years after its inauguration, the airport is finally preparing to welcome its first commercial flights in mid-September. Ryanair, the low-cost carrier, said last week that it would fly three times a week between London Stansted and Castellón and twice a week between Bristol and Castellón. The airline said it expected nearly 18,000 passengers to fly the new routes in 2015, gradually rising to about 60,000 passengers a year. Ryanair said it planned to use Boeing 737-800 jets, which have 189 seats. At the time of the airport’s inauguration, in March 2011, Carlos Fabra, the longstanding head of Castellón’s provincial government and the driving force behind the project, shrugged off concerns about spending over 150 million euros, or $157 million, on an airport for which there was no apparent demand. He even suggested that the airport could initially serve as a tourist attraction, with visitors given access to the empty runway and other areas normally off-limits to the public.

Separately, following a lengthy trial, Mr Fabra was convicted of fraud and received a four-year sentence. He entered prison in December. Management of the airport was taken over last year by SNC-Lavalin, a Canadian company with activities ranging from infrastructure to engineering and mining, and the airport was certified for air traffic in December. When it took over, SNC-Lavalin forecast that the Castellón airport would welcome 200,000 passengers in 2017 and 1.2 million in 2029. It also predicted that more Spanish airports would come under private management, even as the sector continued to be dominated by a state-controlled company, Aena, which was floated last month in an initial public offering.

As part of the Castellón deal, SCN-Lavalin received €24 million in subsidies from the Spanish authorities to help cover the initial years of operation. The company is to begin repaying the subsidies once the airport starts receiving more than one million passengers a year. Up to now, the only traffic has been some private flights, including with the local soccer team, Villarreal. The modest turnaround for Castellón’s airport comes as Spain is showing broader signs of an economic revival after its gross domestic product grew 1.4 percent last year. But the country continues to struggle with public debt equivalent to almost 98 percent of its gross domestic product. That debt in part reflects the cost of a decade-long construction boom that came to an abrupt halt in 2008, with the world financial crisis, leaving Spain littered with empty highways, half-built sports centres and unsold apartment blocks.

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Spain's anti-corruption parties shake up old politics

The emergence of two new parties has blown Spanish politics wide open. The rise of the far-left Podemos party and centrist Citizens means the next general election, at the end of this year, is set to be a four-horse race. For over three decades the Socialists (PSOE) and centre-right Popular Party (PP) have alternated in power, accounting for over 70% of the vote in past general elections. But the impact of austerity policies and a focus on corruption has created unprecedented uncertainty. And the "indignant" protest movement, which camped out in Madrid's central square in the summer of 2011, changed the nation's viewpoint on corruption.

The shift has been highlighted by an opinion poll that puts the one-year-old Podemos in the lead on 22.5%, the Socialists second with 20.2%, the PP third on 18.6% and Citizens, or Cs as the party has branded itself, with 18.4%. A former PP treasurer revealed wholesale illegal financing of his party while the Socialist regional government in Andalusia oversaw a fraud totalling hundreds of millions of euros diverted from funds meant to help the unemployed.  Both are now stuck with the label of "la casta" (the caste), a term coined to great effect by Podemos.

Podemos is the brainchild of a group of leftist political science university lecturers, headed by gifted orator Pablo Iglesias.  Only four months after they were founded, they attracted 8% share of the vote in last May's European elections. 'Going it alone' Podemos argues Spain's crisis was a swindle on the part of the country's financial and political elite and vows to renegotiate its debt to its creditors in the same way as Greece's radical Syriza government is doing. Under Podemos, evictions of homeowners would be halted and welfare guaranteed for families hit by Spain's 24% unemployment rate.  "We didn't set up Podemos to become like the PSOE or PP - historical parties for our children and grandchildren to join as heirs of the founders," says the party's chief political analyst, Carolina Bescansa, a university lecturer. "Our idea was to create a tool to allow people to join a participative process."  Podemos plans to open up government and submit major governmental decisions to referendums.

 


         
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