Doing Business in THE BASQUE COUNTRY SPECIAL REPORT | Tuesday March 27 2012

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Inside this issue Energy A new wave- Peace shifts power plant at Mutriku (right) highlights a big push in alternative technologies the focus to Page 2 Interview Gamesa chief Jorge Calvet has put global expansion on the agenda at ’s leading wind turbine maker Page 2 Profile Mondragon, one of growth and Spain’s 10 biggest companies, is a co-operative – and proud of it Page 2 Food and tourism Basque cuisine is important as a cultural export but is also a big attraction investment for tourists, who account for 5 per cent of GDP Page 3 Financial sector A three-way With Eta abandoning its foreign investors and seen as a tri- merger has strengthened Basque umph in , is regarded in the savings banks, bringing a stability armed struggle, the region Basque country itself as one more to match local prosperity Page 3 enters a new era in better step in a long peace process. “It’s fantastic news, though in day- Interview Socialist premier shape than the rest of to-day life of course there’s no big Patxi López says the end of Eta’s change,” says Mercedes Oleaga of armed struggle could unleash the Spain, writes Victor Mallet region’s full potential Page 3 Naider, a consulting firm. Ignacio Sánchez-Asiaín, director-general of Motor industry The Basque undreds of employees made Kutxabank, agrees. “Things have region is home to every part of redundant sounds like bad been changing for a while – it’s a the car production process and news for any economy, but process,” he says. “I think the declara- output includes the in this case it is a sign of tion of peace had more impact in Mercedes-Benz Vito light van Hpolitical progress: the Spanish interior Madrid than here.” (pictured) from ministry, following the example of the There remains a risk that extremist a plant at Basque regional government, has this splinter groups from Eta, akin to the Vitoria month laid off more than half the 789 “Real IRA” in Northern Ireland, will Page 4 bodyguards who protected officials try to launch bomb attacks or shoot- from the threat of assassination by the ings in defiance of the Eta leadership militant Basque separatist group Eta. and so maintain one of western To the delight of most of the 2.2m ’s last remaining separatist Bilbao by night: the Basque economy, though small, has proved remarkably resilient Dreamstime residents of the Basque country in conflicts. northern Spain, and to the relief of Basque politicians, however, are investors and business people once already shifting their focus from anti- In previous crises, the Basque econ- suffered less when it ended in 2007. high proportion of small and medium- Europe, was an early participant in menaced with death if they failed to terrorism to the new landscape of omy did not fare so well, sometimes “Up to now, it’s been a little less sized industrial companies in special- the industrial revolution, and boasts pay “revolutionary taxes”, Eta on democratic politics, in which radical, recording unemployment higher than serious, because exports have done ised areas such as machine tools, strong companies with local roots October 20 2011 announced the “defin- pro-independence groups – know as the rest of Spain. Today, however, the well,” says Mr Sánchez-Asiaín. Basque industry is comparable to the such as BBVA (banking), itive cessation” of its military opera- the izquierda abertzale or “patriotic post-Franco conversion of an economy Basques take pride in their culture much larger German Mittelstand, and (electricity), CAF (trains) and Gamesa tions after more than 800 killings in left”– are expected to build on earlier based on heavy industries such as of hard work and entrepreneurialism, indeed has many commercial ties to (wind turbines) – and the big Mon- half a century. successes now they are no longer steel and shipbuilding to one focused and are not averse to comparing its German counterparts. dragon co-operative group – in both Patxi López, lehendakari or premier banned for having links to Eta. on high technology and services is themselves favourably with those It helps that the Basque country, industry and finance. of the region, calls it “a new era” and And then there is the economic cri- largely complete. they regard as the more feckless linked by the and the says: “We had 30 years in which abso- sis. By the standards of northern Bernabé Unda, regional industry inhabitants of southern Spain. With a nearby iron mines to northern Continued on Page 4 lutely everything was contaminated – Europe, unemployment in the Basque secretary, was once head of the big the economy and investment were country of more than 11 per cent of shipyard in Bilbao and recalls the threatened by the existence of the the workforce is worryingly high, but time when it had 5,000 employees. terrorist gang.” that is less than half the jobless rate Now it employs 5 per cent of that The defeat of Eta by Spanish and in Spain as a whole. number, relying on flexible subcon- French security forces has in fact The Basque economy, though small, tractors and specialising in complex, been inflicted on the separatists over has proved remarkably resilient since one-off vessels such as dredgers and many years. the collapse of Lehman Brothers back pipe layers. “People feel relief and satisfaction, in 2008, in spite of its dependence on “Our economic situation isn’t great, but not an explosion of happiness or the vulnerable automotive and renew- but it’s much, much better than that emotion,” says Iñigo Urkullu, leader able energy industries. Exports of the rest of Spain,” says Juan Carlos of the moderate Basque Nationalist reached a record €21bn last year. Martínez, editor of , the party or PNV. “In the past three The small but growing tourism Bilbao-based newspaper. years, we’ve lived without visible industry – with visitor arrivals of The parts of Spain most stricken by attacks, and with the belief that more than 2m – also broke records. the crisis are those where the housing things were moving towards the end Per capita income in the region in bubble was biggest, mostly on the of Eta, though there was extortion.” 2010, on a Mediterranean coast. The Basque The October announcement, while basis, was 133 per cent of the - country on the Bay of Biscay avoided obviously attractive to potential pean Union average. the home construction frenzy and so Global networking sharpens businesses’ foreign focus

Delegations are now With one of its aims of the South American Overseas links accepted by the Spanish being to “strengthen rela- country’s leading electricity government, but when the tionships between US and providers. Embassy-like Basque community first Basque institutions, both BBVA, a bank with delegations go tried to establish the Brus- private and public”, the US Basque roots, has estab- sels office in the 1980s, the delegation noted in its lished itself as one of Mex- beyond forging region’s right to have repre- founding description that ico’s largest retail banks, cultural ties, says sentation overseas was the existence of the Bilbao while also owning a stake challenged in the national Guggenheim museum, and in ’s Garanti bank. Miles Johnson constitutional court. its ties with New York’s Meanwhile, Gamesa, the This resulted in a de facto Guggenheim would be used wind turbine manufacturer, delegation being opened to build broader relation- and the workers’ collective The Basque country’s high that used a Basque govern- ships with the US city. conglomerate Mondragon, level of autonomy within ment-established company “This is an important way have significant operations Spain, which extends to col- called Interbask, which had to expand abroad,” Mr in , among other lecting its own taxes, is also an office in Brussels. Echenique says. countries. reflected in its government’s By 1994, the challenge in “In the past few years, we A recent example of the separate foreign policy. the Spanish constitutional have sent representatives of region’s overseas promo- This is designed to pro- court had been rejected, the Basque government, tional activities was a trip mote the region’s political and the Basque regional with the support of the by the Basque government and business interests government was permitted Spanish government, to in October last year to abroad. to establish a formal delega- emerging market countries Texas. One of the most impor- tion in the Belgian capital. Patxi López, the lehen- tant planks in this strategy, Mr Echenique says that dakari or Basque regional adopted by the region’s suc- the all-time high figure for Delegations offer leader, announced a discov- cessive governments, has Basque exports, of €21bn in infrastructure to ery of shale gas in the been a network of embassy- 2011, is evidence that the Basque country of a possi- like permanent delegations region is succeeding in its businesses that ble 180,000 cubic metres, or in cities around the world. international strategy for want to expand enough to supply the region Serving to establish con- business. for 60 years at today’s con- nections with Basque While remains the abroad or attract sumption levels. diasporas, and promote the largest foreign market for Two survey wells will be region’s culture and lan- the region, buying €4bn of inward investment drilled this year, to assess guage, these delegations products last year, Brazil the commercial and envi- also help to provide infra- and China are in the top 10, along with businesses, as ronmental viability of the structure to Basque busi- while Turkey, Mexico and well as to the Middle East shale gas reserves, by nesses that are seeking to are in the top 20. and the US,” he adds. Heyco, a Texan company expand abroad, and to Outside Europe, sizeable Several of the Basque that specialises in uncon- attract inward investment. diasporas have prompted country’s largest compa- ventional energy. The first of these offices the establishment of Basque nies, or companies with This month, in a further to open its doors, more than delegations in Basque roots, have trans- international relations 20 years ago, was in Brus- and Chile. The latter office formed their client base push, a delegation of sels. Other delegations are was reopened in 2004 after a over the past decade with Basque businesses and poli- to be found in Argentina, previous incarnation had rapid internationalisation ticians visited India as part Chile, Mexico and the US. been closed in 1973. into emerging markets. of a drive to strengthen ties Guillermo Echenique, The Basque delegation in Iberdrola, Spain’s largest with Asian governments. head of foreign activity for the US, however, has relied power utility, which is Mr Lopez declared the the Basque government, less on forging cultural headquartered in Bilbao, Basque country the “model says: “The network of ties since it opened in 2007, last year purchased Elektro, student” that could act as a offices we have, along with and has focused more on an electricity distribution bridge between India and a network of consultants in fostering business, technol- company that serves 2.2m Spain, as well as Europe. other countries, has helped ogy and research links clients in São Paulo state “This is a policy that is Basque companies to inter- with the world’s largest in Brazil, for €2.4bn, clearly working,” says Mr nationalise.” economy. thereby turning it into one Echenique. 2 ★ FINANCIAL TIMES TUESDAY MARCH 27 2012 Doing Business in the Basque Country Wave of innovation is fuelled Global drive by investment in alternatives puts wind in Energy group’s sails

Victor Mallet explores products from a quality initiatives that aim to Interview point of view”. Jorge Calvet Closer to home, Mr build on the region’s Calvet has also begun to strengths as an Miles Johnson and invite these same suppliers to join Gamesa as it enters industrial exporter Victor Mallet find the offshore UK wind Gamesa’s chairman power market in the next two years. It has been ho said alternative in confident mood considering where to locate energy was easy? So its operations. corrosive is the wet, While Gamesa has salty air on the sea As Gamesa, Spain’s leading enjoyed success abroad, the Wwall at Mutriku that the suppos- wind turbine manufacturer, company, like others in the edly stainless steel plaque com- expands into countries field of , memorating the opening last July thousands of miles from its has struggled with the of one of the world’s first wave- home market, the group combination of the driven power stations has already has intentionally stayed financial crisis, falling started to rust. close to its roots in the energy demand, low gas And so high were the waves in Basque country. prices, and the expected one of the autumn storms for After starting life in 1976 disappearance of billions of which the Bay of Biscay is notori- as a Basque developer of of government green ous that they surged around the industrial equipment, as energy subsidies. sea wall and smashed through the well as devising technology In Spain, a moratorium doors of the power station’s con- for cars and then emerging was called at the start of trol room. businesses such as 2012, scrapping renewable The Basque government has microelectronics, by the energy subsidies and no nevertheless chosen Mutriku, a 1990s Gamesa had decided new wind farms are being fishing port in one of the narrow to focus on renewable built. coves of Spain’s north coast, as energy in the form of wind But as the world has the site of what it says is the first turbines. changed during the such electricity generating sys- Since floating on the financial crisis, creating tems to be attached to the grid, Madrid stock exchange in new challenges for although similar systems have 2000, growing to become a Gamesa, Mr Calvet believes been installed in Scotland and the member of the blue-chip the attractions of wind Azores. Ibex 35 index, Gamesa has farm investments, have in At a cost of €6.7m – of which expanded steadily into certain ways been boosted. €2.3m is for the power plant foreign markets such as “Insurance and pension and the rest for the huge China, where it now has funds today have a big sea wall that contains it and six manufacturing plants. problem: where to invest? simultaneously protects the har- When Jorge Calvet, Even sovereign bonds are a bour – the project is based on an Gamesa’s chairman and risky proposition, so they ingenious technology known as chief executive, took over have to look for other long- OWC, for “oscillating water col- in 2009, 35 per cent of sales term investments,” he umns”. were in Spain, with 33 per Voith Hydro, a joint venture of cent going to one large Wind farms Voith and Siemens, supplied the customer, Iberdrola, which can generate equipment to turn wave power Making waves: interior and exterior of the Mutriku plant, which uses ‘oscillating water columns’ technology Corbis; Victor Mallet also owns just under a a very good into electricity. The waves enter fifth of Gamesa. return, says chambers open to the sea in the Today, 98 per cent of its Gamesa’s outer wall and compress the air Green capital Vitoria-Gasteiz ticks all the boxes for accolade sales are outside Spain, Jorge Calvet within, forcing the air up through with Iberdrola’s a turbine and thus generating At first glance, Vitoria-Gasteiz, the modestly and big industrial vehicles. Another big local sea, Vitoria is set on a plain with plenty of contribution having halved. power. The same process works in sized administrative capital of the Basque employer is Aernnova, a high-technology aircraft space. “We have been able to says. “Wind farms are reverse as the wave retreats and country, seems to have nothing in common component maker. The city is not resting on its laurels, and is globalise, not just typically a 20-year the water level falls, sucking the with the larger and better known cities of For Mr Maroto, an important characteristic of implementing 10 green urban projects linked to internationalise. I make a investment, and they can air back down through the tur- Stockholm and Hamburg. the 2012 award is that it has gone to a city that the award that will be partly financed by big difference between the generate a very good bine in the other direction. But like those two northern European cities, is not in “green” northern Europe and to one sponsoring companies taking advantage of tax two concepts. The company return.” This is not a large power sta- the Basque capital has been awarded (for with a population of 260,000 inhabitants – in incentives. in two years has entered Mr Calvet recognises the tion: its maximum capacity is just 2012) title of European Green Capital by the other words to the kind of medium-sized town Probably the most ambitious plan – mirroring into 32 countries, and won challenges the sector faces, 296KW and it could produce European Commission. in which the overwhelming majority of similar projects in Seoul and Chicago – is for an numerous customers.” but is confident that wind enough electricity for about 600 It may be hyperbole for Javier Maroto, the Europeans actually live. “inner greenbelt”. It will involve restoring a Part of Mr Calvet’s technology can become people in the course of the year, city’s mayor, to describe an annual award that Vitoria ticked all the right boxes for criteria buried stream from under one of the town’s international strategy has more price efficient the government estimates. Among is far from famous as “the environmental such as air quality, public transport, the number main avenues, replacing car parking spaces with been to bring to new relative to conventional other drawbacks, the internal Nobel Prize for cities”, but it sends a useful of parks and the recycling of waste. The city trees and bicycle lanes and adding hanging markets the same suppliers energy sources, so it will machinery has to be power- signal to investors about the lifestyle benefits includes a historic old town, a pedestrian gardens down the walls of large buildings. the company has used in continue to make up an sprayed with fresh water every of choosing a medium-sized town as a base avenue of tall plane trees, and broad “It’s revolutionary for a city,” says Mr Maroto, Spain, many of these being important part of the half an hour to wash off the corro- for industrial operations. commercial avenues. “It’s grown a lot in the “because normally a city is taking space from from the Basque country. energy mix in many sive . In the case of Vitoria, multinationals have past 50 years, and it’s been possible in the nature and urbanising it.” “We are a very countries. But the Mutriku plant is only already made that choice. They include modern era to urbanise in a more thought-out This, he says, is exactly the opposite. important employer in the “Governments are not one example of a series of initia- Mercedes-Benz, which makes its Vito vans way,” says Mr Maroto. Unlike Bilbao, which is Basque country, and I going to have the financial tives aimed at promoting the here, and Michelin, which makes tyres for cars squeezed in a valley between the hills and the Victor Mallet think it is very important means to support this region as a centre for innovation. that we are an engine for industry as they have. So This is especially so in the field our supplier base in the it is our duty to lower the of alternative energy, in which Basque country. cost of energy, without prominent investors include “I feel a duty to help having to depend on locally rooted companies such as Bernabé Unda, the Basque logical phase of the motor indus- not simply a matter of cutting Bil- already revolutionised the US them in the current state subsidies.” Iberdrola and Gamesa, both big in country’s industry minister, says try and the likely jobs involved. bao’s electricity costs. energy sector. of the economy of Spain, Having been in the job , and other interna- the aim is to build on the region’s A joint venture between , The manufacture of transform- “You have the resources in the and to give them for almost three years, Mr tional power groups such as strengths as an industrial the Spanish energy group, and the ers and other electrical equipment ground,” says Mr Unda. “Then opportunities to follow us Calvet says: “I sometimes Alstom. exporter, promoting innovation Basque government’s energy is big business in this part of the you have to take the next step: in our globalisation feel like putting a banner The sea shelves deeply off the and investment abroad, so that agency is expected to install Basque country, and the aim is to exploration to examine how via- moves,” he says. on top of my desk that Basque coast, which makes it companies can not only survive between 7,000 and 13,000 recharg- nurture research and product ble and expensive it is to extract This has seen several says ‘the perfect storm’. impractical for offshore wind tur- the current economic crisis but ing points in the region by 2020. development at local companies and which environmental condi- medium-sized, often family- We have had the bines standing on the seabed, but continue to compete internation- Officials say their “very ambi- in order to create exports. tions need to be applied...By owned, Basque suppliers of macroeconomic downturn, the regional and national govern- ally afterwards. tious” aim is to have 41,000 elec- Not all the regional govern- 2016 or 2017, we could be exploit- tools, components, and lower demand for ments are investing some €20m in “We’ve reduced the budget,” he tric vehicles on Basque roads by ment’s energy investments are ing the gas and supplying it to the software follow Gamesa electricity, and the what is called the Biscay marine says, “and cut 26 per cent of our then. focused on renewables. In fact, grid.” into markets including financial crisis, and energy platform or Bimep, an off- [departmental] running costs to Iberdrola and the Basque gov- the largest of all is the €100m Even if the wave-power plant at Brazil, China, and India. subsidies gone.” shore zone for research and devel- maintain or increase investment ernment, meanwhile, plan to dedicated to exploring natural gas Mutriku generates as much elec- “It is a way we can help But with Asia’s demand opment of marine technology, in research and development and invest €60m over three years in a deposits in the Alava province tricity as hoped over the next dec- them to grow with some for wind energy still including wave power. in internationalisation.” “smart grid” electricity project in around the capital Vitoria- ade, and even if thousands of kind of risk mitigation,” he strong, Gamesa’s global Up to 30 scientists are expected Given the importance of vehi- and around the industrial port of Gasteiz. Basques join the 100 or so who explains. presence has provided a to conduct research with Bimep, cles and vehicle components in Bilbao. Some 230,000 electricity Extraction of the gas, which is have already bought electric cars, He adds: “This is a shelter, and means Mr for which the biggest cost will be Spanish and Basque exports, it is meters will be replaced with dig- estimated at 184bn cubic metres, it looks as though conventional, commercial relationship, Calvet remains staunchly the laying of electrical cables to no surprise that the Basque coun- ital readers and 1,100 substations or enough to supply the Basque carbon-based fuels will provide and we are not becoming optimistic for the future. carry 20MW of power from the try has decided to promote elec- adapted to improve efficiency and country for 60 years, would most of the Basque country’s an NGO of any kind. We “Everything that could experimental installations to the tric vehicles in order to avoid reduce failures. require use of the controversial energy, at least for the foreseeable know [the Basque happen has happened, just shore. missing out on the next techno- Again, the smart grid project is “fracking” process that has future. suppliers], so we know the not all in the same place.” Collective approach pays big dividends

co-operative, making him production plants, across industries and “The economic cycle of a sales after a sharp Profile probably one of Europe’s including 12 in China and continents, Mondragon crisis does not happen in contraction meant Mondragon lowest paid corporate six in Brazil. suffered like any other all sectors all at the same opportunities arose for leaders weighted against Its collective model business during the time, so this enables us to agile parts manufacturers. Employees are sales. makes it unique, but, like economic crisis. Revenues exchange people between “Suddenly, carmakers At the same time, more many other Spanish fell by 11 per cent from businesses, and make had an opportunity to sell partners in the than 90 per cent of companies, Mondragon has 2008 to 2009, with Mr adjustments.” cars, but they didn’t have business, writes Mondragon’s collective steadily diversified its sales Aldecoa and his fellow During 2009, more than components,” Mr Aldecoa workers have salaries that away from Europe. Last members of the co- 600 workers were says. Miles Johnson are the same, or higher, year, €3.59bn of the total of operative’s general council reallocated to new “A client said ‘I need to than those working in €5.71bn sales in its being forced to reassess businesses, and 2,000 make 1,000 more cars this equivalent companies. industry division were how the business was agreed to work flexible month, as there is an In a world where bankers “Our workers are international. being run. hours. Salaries were opportunity to sell them’, and executives often argue partners in the business,” The collective’s credit frozen, and the company and knew I needed 40 per that high pay is directly he says, speaking from an union, Caja Laboral, and changed its raw materials cent more components in correlated with success office overlooking the its use of workers’ share While diversified and commodities sourcing the next 15 days.” and talent, Mondragon, mountains of Mondragon, a capital and loans, has over across industries to lower cost countries. Informing workers of the the Basque workers town of less than 25,000 its history allowed it to “In our business, the opportunity, Mondragon José María Aldecoa: sanity on salaries Victor Mallet co-operative, is proud to inhabitants which grew up avoid the short term and continents, maintenance and suddenly had the parts offer an alternative model. around the co-operative vacillations of a stock Mondragon development of the co- manufacturers working 10 owners who want to have within the company, with Founded in 1956, with its and technical university. market that would have operative is in everyone’s hours a day to complete a good business in five or many educated in the roots in a technical college “Our aim is not simply been unlikely to tolerate suffered during the interest, as they can earn the order. “We have to 10 years,” he says. associated technical set up by a Catholic priest, to maximise profits. We its business model. more or less, depending on explain the opportunity to “In a regular company, college. the need to have a competitive Each year, Mondragon economic crisis how conditions turn out. our workers, and then they the worker thinks: ‘You, “It is obvious that the is one of Spain’s top 10 business, otherwise there publishes the number of “People will then realise will understand,” he says. the boss, pay me, and if system of salaries of our largest companies by sales, is no co-operative, but jobs it has created, and has that it is good not to raise The co-operative later the company closes I directors has nothing with worker-owned 100 per cent of our profits often set job creation as a Convinced of the need salaries or to have flexible structure means that the get compensation, and it is compared to finance, which businesses including the are reinvested in the priority target in its constantly to keep the hours, as that will interests of the business not my problem’. Here, the is madness, but it is fine, Eroski supermarket chain, co-operative.” annual strategy plans. company’s partner-workers guarantee the future of our and its workers are more company is ours, and if as we earn enough to live banking, electrical Mondragon employs a As the Harvard informed of its fortunes, project,” says Mr Aldecoa. closely aligned than in there is no company there on, and we don’t lack domestic products and car total of 83,000 people, of International Review Mondragon called various One example of this more typically structured is no work.” anything,” he says. parts manufacturing. whom just under half are remarked, “most large meetings and came up combination of direct corporations, Mr Aldecoa While directors have left “We don’t need a boat in José María Aldecoa, co-operative members. global corporations, by with the solution of communication with argues. to join higher paying Marbella, or a Ferrari. The Mondragon’s chairman, Several of its companies contrast, develop strategies moving some workers into workers and flexibility “Workers are in the competitors, the majority moral compensation we get earns no more than eight are industry leaders to increase earnings different businesses, or came during 2009, when double position of wanting of the highest ranking from working in a project times that of the lowest working across global through job reduction”. asking them to work policies across western to earn a salary in the executives at Mondragon like this is a great paid workers within the markets, with 77 overseas But while diversified flexible hours. Europe to stimulate car short term, but also are have been promoted from satisfaction.” FINANCIAL TIMES TUESDAY MARCH 27 2012 ★ 3 Doing Business in the Basque Country Three-way merger strengthens region’s savings banks

Bilbao and the surrounding in 2008, Spain as a whole Madrid-listed BBVA is the In July 2010, Bilbao Biz- to those that were most isfactory asset quality”, as the territory it knows best, Financial sector region managed to adapt to has been impoverished by biggest and best-known kaia Kutxa (BBK), now the affected. There were cajas well as “good management, even if Mr Sánchez-Asiaín the opening of the Spanish the crisis, says Ignacio bank with Basque roots. leading partner in Kutxa- increasing credit at 30 to 40 pure real estate exposure acknowledges that “these The banks have a economy in the 1970s, when Sánchez-Asiaín Sanz, direc- Another important local bank alongside the smaller per cent a year,” says Mr that is lower than its peers, days, size is necessary”. stability to match heavy industries were tor-general of Kutxabank, institution is the Caja Labo- Kutxa and Vital, took over Sánchez-Asiaín, noting that sound earning generation The now-completed exposed to brutal interna- the new Basque bank ral, part of the Mondragon CajaSur, a failed savings the Basque cajas avoided and robust capitalisation”. merger between the three local prosperity, tional competition and formed out of three merged co-operative group. bank previously run by the construction bubble in Perhaps inevitably, cen- Basque cajas, after all, had says Victor Mallet needed to be supplemented cajas or savings banks. Yet Many of the recent head- Roman Catholic priests in the decade to 2007. tral bank and central gov- been under consideration or replaced with smaller, the Basque country has lines, however, have been Kutxabank is relatively ernment officials eager to for years. Each was centred high-technology businesses. been spared the worst. generated by Kutxabank small – its €74bn in assets complete the restructuring on one of the region’s three The impression of financial Last year, the value of “Up to now, it’s been a and its component parts, ‘We are strong makes it about the same of the Spanish banking sec- provinces and had refrained solidity given by the impos- Basque exports hit a record little less serious, because because of its involvement in capital terms size as the listed, Madrid- tor are turning to the from encroaching on the ing bank buildings on the high in spite of the euro- exports have done well,” he in the nationwide upheaval based Banca Cívica – but its strong to buy the weak, and territory of the others, so Gran Vía Don Diego López zone’s sovereign debt crisis says at the Kutxabank among Spanish savings but you never capital strength and the Kutxabank has been cited there were only minor over- de Haro in central Bilbao is and the economic slow- headquarters. banks. (Kutxa is Basque for know what solidity of its Basque retail as a possible buyer of laps to deal with when the not an architectural illu- down. What’s more, the 11.2 Mr Sánchez-Asiaín is a caja, so Kutxabank means banking franchise have Banca Cívica. merger was consummated sion. per cent unemployment member of a family promi- “caja-bank”, the same as you’ll need’ earned it credit ratings Part of its potential fire- in January. Since the 17th century, rate in the region is less nent in Basque and Spanish the Catalan Caixabank). higher than those of its power consists of its hold- And for all the Basque manufacturing industries than half the Spanish aver- finance. His father José Some Spanish cajas Spanish rivals. ings in scores of industrial country’s industrial prow- based originally on the age. Companies providing Angel was chairman of the collapsed and had to Córdoba, taking it off the Half the salaries and two- companies – including a 5.5 ess, Mr Sánchez-Asiaín is exploitation of iron ore services such as rubbish Banco de Bilbao and then of be rescued after lending hands of the state Fund for thirds of the pensions per cent stake in Iberdrola, under no illusion that this deposits and trade with collection say this is one BBV (later BBVA) after it too much to property Orderly Bank Restructur- deposited each month in the electricity group, that is going to be an easy year. northern Europe have made part of Spain where munici- merged with Banco de Viz- developers and homebuyers ing, with the help of an Basque banks go straight to could be sold to realise capi- “We’re not in talks with the Basque country one of palities almost always pay caya, while his brother during the home construc- asset protection scheme to Kutxabank’s branches, tal gains. Banca Cívica. We’re not in the most prosperous regions their bills on time. Francisco heads the Iberian tion boom, although it insure against losses. executives say. But Kutxabank, having talks with anyone,” he says. of Spain, with a banking With domestic demand business of Nomura Securi- was those in the south and “When you look at the Fitch, the credit rating swallowed CajaSur, may “We are strong in capital sector to match. having fallen since the col- ties. east of the country that cajas, growth at all costs agency, noted its “stable not be in the mood for terms, but you never know Not without difficulty, lapse of Lehman Brothers In Spain and beyond, the were generally hardest hit. was what brought problems retail funding base and sat- extra risk-taking outside what you’ll need.” Tempting morsels keep bars busy, as chefs expand

he Basque country is Food and tourism so often known for its work ethic and indus- Miles Johnson finds trial strength that its Tcontribution to lighter things Basque cuisine serves in life can be overlooked. an important role as a San Sebastián, which stakes a cultural export – and claim to being the geographic centre of Basque food, is lauded whets the appetite, too as one of the best places to eat in Europe, with the quality on offer in the most humble bars said to outshine expensive eater- ies across the continent’s capital cities. Taste of success: Juan Mari Arzak prepares a chocolate omelette in the kitchen of his three Michelin star restaurant in San Sebastián Reuters Any visit to the Basque coun- Contributors try would be wasted without under 1m foreign visitors each San Sebastián, created in 2009 various Basque kitchens for The Sagardi restaurant group take Basque food to other parts Victor Mallet trying pintxos – -like small year, according to the region’s to maintain and expand on the work experience. is an example of a company try- of Spain, and outside Spain; that Madrid Bureau Chief dishes often constructed with statistical agency. traditions of Basque cooking. One of the main draws of ing to establish Basque cuisine has been our mission,” says Mr artisanal attention to detail – Mixing both Spanish and A collaboration between the Basque bar cuisine is that you outside the region, both in other Lopez de Viñaspre. Miles Johnson that are on offer in bars across French influences, and the prod- Mondragon co-operative and do not have to enter a formal parts of Spain and across the “I think Basque cuisine has a Madrid Correspondent the region. ucts of the Cantabrian sea and chefs including Mr Arzak and restaurant setting to enjoy it, world. very large respect for natural Ferran Adria, the Catalan the fertile earth of the region’s Martín Berasategui, the young meaning visitors to the region Established in 1996 by the products and high quality ingre- Andrew Baxter chef who has borrowed from valleys, Basque food is owner of an eponymous three can find themselves supping on Basque chef Iñaki Lopez de dients. That is something that is Commissioning Editor aspects of Basque cuisine in his grounded in fresh fish, stews pintxos without realising it. Viñaspre and partners, the respected across the world. The Steven Bird own work, has gone even fur- and peppers, and prepared with Basque communities “The food here is wonderful,” group has since grown to 19 res- food needs to be authentic, that Designer ther in his praise for the city’s subtlety. says Marina Tikhova, a Russian taurants within Spain, as well is very important for the Basque food. This tradition has produced in Latin America and tourist visiting Bilbao to watch as one in Buenos Aires and country.” Andy Mears “In terms of the average qual- such leading chefs as Juan a football match between Man- another in Santiago, Chile. Mr Lopez de Viñaspre cites Picture Editor ity of the food,” he says, “in Mari Arzak, who runs the elsewhere are helping chester United and Athletic Bil- Two more will open this year the work of Gaston Acurio, the terms of what you can get at three Michelin star Arzak promote the cuisine bao that brought tens of thou- in Europe, in Oporto and Peruvian chef and restaurateur For advertising details, contact: any place you happen to walk restaurant in San Sebastián, sands of tourists into the city Amsterdam, while plans are who is credited with raising the Maria Gonzalez into, maybe it is – probably it is, and who helped pioneer the so- to new audiences earlier this month. under way to search for part- profile of his country’s food Phone +34 91 564 1810 yes – the best in the world”. called New Basque Cuisine “There is a very different feel ners to open in New York, Lon- around the world, as an exam- Fax +34 91 564 1255 This wealth of food has lured movement of the 1980s, the from other parts of Spain. I am don and Paris. ple of how Basque cuisine could Email: [email protected] an increasing number of visitors region’s answer to France’s nou- Michelin starred restaurant in going to have to come back For its existing foreign restau- too be marketed globally. to a region already known inter- velle cuisine. Lasarte-Oria, the university is when the weather gets better.” rants Sagardi usually finds a “In the past, no one had heard All FT Reports are available on nationally for the Guggenheim Investment in cultural infra- the only one of its kind in Aside from bringing people local investor who will take a of Peruvian food, and now it has FT.com. Go to: museum in Bilbao, and for its structure has both contributed Spain. into the Basque country, its stake in the venture, while become fashionable. We are www.ft.com/reports natural beauty. to the local Basque economy Students registering for the food serves an important role as allowing the company’s staff to lucky to be less well known in Follow us on twitter at Tourism, while less important and enabled entrepreneurs to next academic year will be a cultural export, with Basque have control over the restau- some ways. With Italian food, it www.twitter.com/ to the Basque country than export food. taught courses ranging from communities in Latin America rant. This ensures the style and can be very hard to differenti- ftreports other parts of Spain, still makes One example is the Basque raw materials and products, and elsewhere helping to pro- quality of the food to remain as ate, as there is so much on offer. up about 5 per cent of its gross Culinary Centre foundation, a biology, psychology, and design, mote the cuisine to new audi- it would be if it were in Spain. “We will be new for many peo- domestic product, with just cooking university based in as well as being placed into ences. “We have always aimed to ple outside Spain.”

Key economic statistics End of Eta’s armed struggle Unemployment Per cent ‘can unleash our full potential’ 25 Spain 20 Interview contaminated – the hit record highs last year. Basque sectors, such as economy and investment “We all know that in the machine tools, electrical 15 Patxi López were threatened by the Basque country possible equipment and vehicle Basque existence of the terrorist foreign investments parts and to move into Country Victor Mallet finds gang. sometimes were not made profitable markets abroad 10 “Eta used to extort for fear of terrorist actions, without abandoning their the Socialist money from businesspeople, and likewise some Basque domestic operations. premier is looking blackmailing them with companies fled the terror “We call this 5 the threat of terror, and and went to other parts of ‘multilocalisation’, because 1990 95 2000 05 10 11 forward to a some were even Spain,” says Mr López. what we want to avoid is new era of growth assassinated for not giving Iñigo Urkullu, leader of ‘delocalisation’, the danger GDP per capita in. We have freed the moderate Basque being that a Basque €’000 ourselves from that and Nationalist party (PNV) – company goes somewhere Patxi López, the Socialist the Basque country can which is the largest single else and moves there 30 politician and current now develop its full party in the regional permanently. The big Basque Country lehendakari, or premier, of potential.” parliament but was kept opportunity is that a Spain the Basque country, is only Eta was born in the era out of office after the 2009 Basque company can have 20 one in a long line of of the dictator Francisco election by an unusual left- subsidiaries abroad, Spanish and Basque Franco, who ruthlessly right deal between the because that allows it to Patxi López: hoping for a peace dividend leaders who have suppressed regionalism and Socialists and the Popular do business there. campaigned at some the Basque and Catalan party – nevertheless “The weight of industry possible and necessary. of Eta’s victims to be 10 personal risk against the languages in favour of accuses Mr López of failing in the Basque country “This government knows recognised, is trying to violent separatists of Eta Spanish; Mr López, for to present a proper [economy] is much higher that you have to have promote tolerance in and demanded an end to example, has always been programme or economic than in the rest of recourse to debt when it’s communities divided by 0 their armed struggle for called Patxi, but had to be plan before or after the Eta Spain . . . Small and necessary to implement the years of conflict and – 1995 96 98 2000 02 04 06 08 10 independence. baptised Francisco Javier. declaration. medium enterprises public policies and income most delicate of all – But Eta’s announcement While Basques have Basque public debt, Mr represent 85 per cent of is insufficient,” he says. would like to see Eta R&D expenditure on October 20 last year of known for years of Eta’s Urkullu says, has in three Basque companies, and “Thanks to this, in the prisoners who accept the “definitive cessation of declining influence, people years risen from a sometimes their small size Basque country we’ve democratic principles Gross domestic expenditure on R&D (as a % of GDP) its military activity” after in Madrid and further negligible €642m to €5.5bn makes it hard to go abroad managed to sustain all reintegrated into society. 2.0 more than half a century afield were more wary of and will grow by a further to compete, so we’ve put in public services and social “The primary demand we of violence happened on the dangers of what was €1bn by the end of 2012. place programmes that policies, and give a boost all make is the definitive 1.8 Mr López’s watch, and he western Europe’s only Mr López retorts with a encourage alliances to the economy and stop disappearance of Eta. The Basque Country does not hide his delight at remaining and sustained list of his three main between companies to win job destruction. And we first condition is that it 1.6 the arrival of peace and armed conflict. economic development big contracts.” have a more than must dissolve itself, but the likely economic That makes what has programmes, named All these economic reasonable level of debt. In policies, including prison 1.4 advantages that will result. happened all the more “Resist”, “Compete” and development programmes the past, in previous crises, policy, can help with this,” “We’re in a new era,” he important for restoring “Lead”. cost money, however. Can we had much higher Mr López says. 1.2 Spain says in an interview in the confidence in a region that These are aimed at the hitherto creditworthy debts.” “For the moment the premier’s office in the is both an industrial helping companies to Basque country sustain the Meanwhile, the Basque signs, our convictions, are 1.0 capital Vitoria. “We had 30 exporter and a tourist survive Spain’s grave rapid growth of its debt? government continues to that this is something 2003 04 05 06 07 08 09 10 years in which absolutely destination. Tourist economic crisis, to invest Mr López insists that seek a definitive end to irreversible, and we must everything was numbers and exports both in innovation in strong the borrowing is both Eta. It wants the sufferings accelerate the end.” Sources: Thomson Reuters Datastream; /Basque government 4 ★ FINANCIAL TIMES TUESDAY MARCH 27 2012 Doing Business in the Basque Country Cluster effect drives sector’s competitiveness

A worker at Daimler’s plant in Motor industry Vitoria puts the finishing touches to the millionth Vito light van to Business and research be produced there hub boosts integration tegic objectives of companies, of supply chain, writes using a global view,” he says. Miles Johnson This collection of companies, a mix of foreign multinationals and indigenous manufacturers, o part of the Basque allows the different parts of the country’s rich indus- production process to be in trial heritage can rival proximity to each other, and its €10bn annual turn- reduces the risk of one part suf- Nover car industry as the driving fering if a large component force of the region’s economy. maker were to close down. Generating 18 per cent of the “The mix we have here is region’s total gross domestic quite unique. Other regions product, the sector and its asso- may have a vehicle manufac- ciated companies employ more turer, then foreign parts manu- than 76,000 people globally, and facturers. But if the big brand account for almost 40 per cent of decides to close, the others will all car parts exported from then move. We are not as Spain. dependent, as we export 80 per The Basque car sector has cent of production,” says Mr grown over several decades to Saperas. such an extent that a region of The steps taken by the Basque less than 7,800 square kilometres car industry to internationalise is home to every part of the car in recent years have produced production process, from steel impressive results. factories to engineering compa- Now, 80 per cent of total sales nies and technical universities. are to outside Spain, with a ris- More than 30 multinational ing proportion derived from companies connected to the countries beyond Europe, and automotive industry have facto- this is expected to result in ries and offices in the region. record total sales for this year. They include Michelin, the tyre Sales outside the EU more manufacturer, Valeo, the com- than doubled between 2006 and ponents manufacturer, and 2009 from 14.6 per cent of the Daimler, which has a produc- total to 32.5 per cent, while sales tion plant in Vitoria. within the EU, excluding Spain, Other companies involved in fell over the same period from different stages of the car pro- 56.6 per cent to 46.2 per cent. duction chain include Arcelor- “In the past, we used to talk Mittal, the steelmaker, which about exporting by selling to has six production sites and a France or . Now, you research centre in the Basque have to prove you can sell parts country, and Saint-Gobain, the to many parts of the world to be French construction materials able to survive. We have done company. that, and that is why some of Exemplifying this integrated our members have not only sur- approach is the Automotive Basque automotive sector to Originally thought up in 2006, among others, and is one exam- commercial needs, demonstrate vived but have grown,” says Mr Intelligence Center, a business increase their international the AIC was funded at first by ple of a local company with a what we do together to clients Saperas. and development hub for the competitiveness. the local administration and the wide international footprint, and look at international expan- During the economic crisis sector located outside Bilbao. “We felt the industry was very , but is now sus- with production plants in Brazil, sion more efficiently. There are sales fell in 2010 to €10bn, com- The wavy-roofed steel and glass vertically oriented, from the tained by contributions from its Mexico and China. many synergies,” he says. pared with the €11bn generated building opened just over three final clients downwards,” says industry members. Another is CIE Automotive, Oriel Saperas, director of the in 2009, but the AIC expects an years ago and contains numer- Inés Anitua, managing director The industry in the region is which is one of the companies AIC’s competitive intelligence increase in international sales ous companies, both Basque and of the AIC and of ACICAE, the very close-knit, with an interest- The mix of companies with a base in the AIC and is department, produces sweeping to help total revenues for 2011 foreign, that have operations in Basque country’s automotive ing mix of companies, says Ms reduces the risk of one quoted on the Madrid and São opinion pieces on important come in above, or at least the region. industry cluster. Anitua. More than 30 foreign Paulo stock exchanges. developments in the sector, as match, the 2009 figure once final Serving as a research and “We wanted to start working groups have invested in the part of the production “We have many [opportuni- well as confidential intelligence numbers are calculated. development centre, industry more horizontally, to think dif- region, which has its “own glo- process suffering if a ties] to work with other compa- reports commissioned by mem- “This structure has enabled infrastructure hub and training ferently. In Europe we have a bal players”, she adds. nies in our sector on different bers and companies outside the us to grow together at all lev- site, among other functions, strong knowledge [base] and the Mondragon Automoción, part large component projects,” says Iñigo Loizaga, a cluster. els,” says Ms Anitua. “We have the AIC is aimed at forging col- car industry was born here, so it of the Mondragon co-operative technical operator with CIE “People receive a lot of infor- achieved something unique here laboration between the numer- is important we can sustain that group, supplies parts to Honda, maker were to close Automotive at the AIC. “We can mation. We can organise this that will keep the sector ous companies related to the knowledge.” Ford and Renault-Nissan, also work together on certain into something to suit the stra- strong.”

Bay of Biscay

Mungia San Sebastián- Lekeitio FRANCE A8 Donostia Portugalete Zumaia Guernica Ondarroa Bilbao Barakaldo E70 Hemani BISCAY Zalla Elgoibar AP1 GUIPUZCOA Andoain A18 Durango Tolosa Elorrio Llodio Zumarraga E804 Mondragon Amurrio BASQUE COUNTRY Beasain Oñati A15 Zigoitia E80 Zuia N622 A10 AP68 Barrundia Asparrena ALAVA Agurain Valdegoval/ E5 Gaubea Kuartango Vitoria- Gasteiz Pamplona Arraia-Maeztu Lantarón A1 Ribera Baja E80 Miranda de Ebro AP1

SPAIN Biasteri

AP68 Eltziego A12

20 km

Peace shifts the focus to investment

Continued from Page 1 from the effects of the eco- country to follow us nationalist strands, prompt- nomic crisis. abroad,” says Jorge Calvet, ing elected officials from Another advantage in the Basque companies, and chairman of Gamesa, “to the izquierda abertzale to eurozone sovereign debt cri- the government, are taking give them opportunities to regard capitalists and capi- sis is that the region – a twin-track approach to follow us in our globalisa- talism with deep suspicion. unlike – enjoys survive and expand, betting tion . . . Asia is booming and In practice, this has fiscal independence under where possible on innova- to us Asia has been abso- meant supporting the idea the Spanish constitution, so tion through research and lutely critical.” of a wealth tax in Guipúz- is not obliged to make large development, and investing With peace in the Basque coa province and opposing annual transfers of its abroad to take advantage of country all but assured, infrastructure projects such wealth to poorer parts of dynamic markets from local politicians and busi- as expansion of the port at Spain such as Andalusia. China to Brazil. ness leaders face an awk- Pasajes and the building of That does not protect it Mondragon, for example, the high-speed rail lines entirely from in is moving into healthcare Mercedes that will link the region to the rest of the country or for the elderly as a promis- Oleaga: the rest of Spain. the economic troubles else- ing business area in coun- international As one Basque peace where in the eurozone. tries with ageing popula- drive is negotiator puts it, the Mr Urkullu, of the opposi- tions. “Internationalisation important for region’s moderate political tion PNV, accuses Mr is very important for companies parties now fear that what López, the Socialist lehen- Basque companies,” says used to be a controllable dakari, of financial irre- Ms Oleaga of Naider. policing problem when Eta sponsibility for expanding Many suppliers in niche ward reality. While foreign was active could become an the region’s public sector industries, too small to ven- and domestic investors rel- uncontrollable political debt from just €642m to ture abroad on their own, ish the absence of violence, problem, as its sympathis- €5.5bn in less than three have ridden on the coat- they are less happy about ers continue to win office in years. tails of larger enterprises the re-entry into conven- regional and local elections. Mr López retorts that such as Gamesa and Mon- tional politics of Eta’s radi- If Eta keeps its word, “one takes on debt when dragon. They have both cal allies. however, the two sides will times are bad” and boasts expanded in China and Founded in opposition to at least conduct their argu- of the plans the government India. the dictator Franco, the ments with speeches and has promoted to help busi- “We are asking our sup- groups’ ideology has Marx- policies, rather than bombs nesses extract themselves plier base in the Basque ist-Leninist as well as or bullets.