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A New Course for Spain: Beyond the Crisis William Chislett Photo: Ben Chislett

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A New Course for Spain: Beyond the Crisis William Chislett Photo: Ben Chislett A New Course for Spain: Beyond the Crisis William Chislett Photo: Ben Chislett William Chislett is a writer who has lived in Madrid since 1986. He covered Spain’s transition to democracy (1975-78) for The Times of London and was later based in Mexico City for the Financial Times (1978- 84) covering Mexico, Central America and Cuba. He is an associate researcher at the Real Instituto Elcano, which has published three books of his on Spain. He writes a monthly essay on Spain for Elcano called Inside Spain. He has spoken on Spain at the universities of Harvard, Princeton, Chicago, Suffolk, Georgetown, Williams College, London School of Economics and Oxford, and at the literary festivals of Oxford and Gibraltar. He has been a visiting scholar at the King Juan Carlos I of Spain Centre, New York University, and at Bilkent University, Ankara. In 2013, Oxford University Press published his book Spain: What everyone needs to know. A New Course for Spain: Beyond the Crisis William Chislett Published by the Real Instituto Elcano de Estudios Internacionales y Estratégicos © 2016: William Chislett © 2016: Real Instituto Elcano The information contained herein has been compiled from sources believed to be reliable but, while all reasonable care has been taken to ensure that the information is not untrue or misleading at the time of publication, the Real Instituto Elcano de Estudios Internacionales y Estratégicos makes no representation that it is accurate or complete and it should not be relied upon as such. All opinions and any mistakes are solely those of the author. www.realinstitutoelcano.org Design and layout: Quinteral Servicios Gráficos, S. L. Printed by: Quinteral Servicios Gráficos, S. L. Legal number: M-1751-2016 Free copy. No sales allowed In memoriam Sir Raymond Carr (1919-2015) and Michael Jacobs (1952-2014) ‘To see what is in front of one’s nose needs a constant struggle’. George Orwell Prologue and acknowledgements This is the fourth book on Spain that I have written for the Real Instituto Elcano since it was founded in 2001, and as in those books I view the country from an international perspective. Readers of these books will know that I have a penchant for the latest comparative statistics: there is no shortage of opinions in today’s interconnected world, but too often a scant regard for facts. It is said that a picture is worth more than a thousand words as a complex idea can be conveyed with just a single image. The same can sometimes be said of figures, particularly when contrasted with those of other countries. Spain has changed considerably since my first book, The Internationalization of the Spanish Economy, was published in 2002. The country at that time was in the middle of a more than decade-long economic boom and was riding high. It had finally reclaimed its seat at the table of world affairs after moving remarkably smoothly from the dictatorship of General Franco (1939-75), which was born out of a terrible Civil War (1936-39), to democracy and from autarky to a free-market economy. It had joined the European Economic Community in 1986 and was a founder member of the euro zone in 1999. It seemed that nothing could go wrong. As we now all know, and some warned at the time, this was not the case. The global financial crisis of 2007-08, sparked by the sub-prime mortgage crisis in the US and the collapse of Lehman Brothers, which almost brought down the world’s financial system and led to a credit crunch, took a heavy toll on Spain’s vulnerable economy, excessively based on bricks and mortar. The spectacular collapse of the real estate and construction sectors caused the unemployment rate to skyrocket to 27% in 2013. This shook the country’s economic, political, institutional and social foundations and produced a period of profound reflection about where the country had gone wrong. The euro zone’s fourth-largest economy became mired in uncharted territory, with a crisis on five fronts: economic (the need for a more sustainable economic model), financial (soaring budget deficit and public debt and a massive private sector debt burden), institutional (a major loss of confidence in the political elite and in many of the institutions), social (a jobless rate that left at one point more than 1.8 million households with no breadwinners) and constitutional (the illegal push in Catalonia for independence). The Spanish economy was still smaller, and the income of Spaniards was still lower, in 2015 than it was in 2007. The depth and scale of the crisis was such that Spain could have gone under, but it has pulled through. There is now a glimmer of light in what has been a very long tunnel, thanks to some of the measures taken, the innate strengths of the country, particularly the extended family-based network, and the common sense of its people, something that I have witnessed after spending more than half my life in Spain. A NEW COURSE FOR SPAIN: BEYOND THE CRISIS I first came to the country as a young correspondent in 1974, the year before Franco died, and covered the transition until 1978 for The Times of London. I returned to Spain for good in 1986 after reporting from Mexico for the Financial Times and working in London. Since then I have moved regularly between Madrid and a village in Castile- La Mancha where my wife and I bought a house in 1976 and which has served as a microcosm of the tremendous changes that have taken place in the wider Spain. This book seeks to explain how Spain moved from crisis to incipient recovery by looking at the reforms and the main sectors –macroeconomic fundamentals, exports, banking, investment abroad, foreign direct investment in Spain, etc–. It also looks at the challenges ahead including the new political situation with the erosion of the two-party system –the Popular Party and the Socialists– that has alternated in power since 1982 and the emergence of two new parties, the anti- austerity Podemos and centrist Ciudadanos. The book was completed shortly after the inconclusive general election on 20 December 2015, which ushered in a period of uncertainty and the possibility of fresh elections. I would particularly like to thank Emilio Lamo de Espinosa, the Chairman of the Real Instituto Elcano (RIE), and Charles Powell, RIE’s Director, for commissioning this book and continuing to put their faith in me. It has been a pleasure to work with them since the non-partisan Institute was founded in 2001 under the honorary presidency of King Felipe VI, and in such a convivial and intellectually stimulating atmosphere. I am honoured to have played a modest role in putting the RIE on the global think-tank map and, in particular, make Spain better known abroad for reasons other than the longstanding stereotypes of siesta, fiesta, flamenco and bullfighting that still distort the country’s image. I am also grateful to the following people: Simon Anholt, Rafael Arenas, Miguel de Avendaño (for careful copy-editing), María Dolores de Azategui, Tobias Buck, Esther Cases, Alicia Coronil, Professor Jim Davies, Guillermo de la Dehesa, Gabriel Elorriaga, Carlos Espinosa de los Monteros, Carmen González Enríquez, Gonzalo Escribano, Alfonso Galobart, José Carlos García de Quevedo Ruiz, Ian Gibson, Ferdi Grafe, Jorge Hay, the late Edward Hugh, Alejandra Kindelán, Manuel de Lope, María Mercedes Manjavacas Mínguez, Simon Manley, Amanda Mars, Lola Martínez Brioso, Ignacio Molina, Antonio Muñoz Molina, Valeriano Muñoz, Iliana Olivié, Andrés Ortega, Miguel Otero-Iglesias, Santiago Pantín, Paul Preston, Balbino Prieto, Bill Reinhardt, José Manuel Romero Moreno, María Romero Paniagua, Tomás Riestra Giner de los Ríos, Concepción Sanz Gómez, Eduardo Serra, María Solanas, Carlos Solchaga, Federico Steinberg, José Juan Toharia and Ana de Vicente Lancho, Last, but not least, my ‘international brigade’ of friends in the village of Buendía where I spend most weekends. Madrid and Buendía, January 2016 www.williamchislett.com CONTENTS Preface, Emilio Lamo de Espinosa, Chairman of the Real Instituto Elcano Chapter 1. Overview 21 1. How Spain Landed Itself in a Mess 21 2. Austerity Measures: Pain and Gain 26 3. The Dysfunctional Labour Market 29 4. Demographics: a Rapidly Changing and Greying Population 36 5. A Resilient and Tolerant Society 41 6. Education: a Lot to be Desired 48 7. Spain’s Global Presence: on the Rise 55 8. The Growing Importance of the Spanish language 57 9. Spain’s Image: Still Out of Sync with Reality 58 10. The Marca España (Spain Brand): Increasingly Recognised 63 Chapter 2. The New Mould of Politics 67 1. The Landmark 2015 Election 67 2. The Need for Political Reform 76 3. The Hot Topic of Catalan Independence 79 Chapter 3. The Economy: From Bust to ‘Poster Boy’ 85 Chapter 4. Foreign Trade 103 1. Exports of Goods: a Success Story 103 2. Exports of Services: Holding Firm 111 3. Imports: Recovering 112 Chapter 5. Economic Sectors 115 1. Agriculture: Small but Dynamic 115 2. Automotive Industry: Moving up a Gear 117 3. Construction and Real Estate: Rising from the Rubble 118 4. Energy: a Leader in Renewables 120 5. Tourism: a Mainstay of the Economy 122 Chapter 6. Banks 127 1. What Led to the Banking Crisis 127 2. The Steps Taken to Resolve the Crisis 129 3. The Results of the Reforms and Banks’ Performance 133 A NEW COURSE FOR SPAIN: BEYOND THE CRISIS Chapter 7. The Inexorable Rise of Spain’s Multinationals 139 1. How the Multinationals were Formed 139 2. A Cross-Section of the Main Multinationals 151 Chapter 8. Foreign Direct Investment in Spain 161 Chapter 9.
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