Wednesday, March 19, 2008

Spain Overtakes Italy GDP, But Staring at a Crunch

The ANNOTICO Report

There is a well-established pecking order of prejudice in western Europe. The British look down on the French, the French look down on the Italians, the Italians look down on the Spanish, the Spanish look down on the Portuguese - and everybody fears and ridicules the Germans.

But the Spanish have upset this xenophobic hierarchy. Spain is now richer, more fashionable and more dynamic than Italy. However,  Spain, like the US, is going through the end of a housing boom and the start of a credit crunch. Unemployment - never below 8 per cent,  - has risen for the past five months in a row. Much of the economic miracle has been driven by consumption and construction. A weaker economy threatens to expose unresolved problems, such as high levels of personal debt and low productivity.

 

 The Spanish prime minister, Josi Luis Zapatero, has had the luxury of "identity " politics, has shown little interest in either foreign policy or economics.  That is all about to change.

Spain, Italy and Identity Politics

 

The Financial Times 

By Gideon Rachman

March 17 2008

There is a well-established pecking order of prejudice in western Europe. The British look down on the French, the French look down on the Italians, the Italians look down on the Spanish, the Spanish look down on the Portuguese  and everybody fears and ridicules the Germans.

But the Spanish have upset this xenophobic hierarchy. Spain is now richer, more fashionable and more dynamic than Italy. It boasts Europes most lauded chef (Ferran Adri`), its trendiest film director (Pedro Almodsvar) and its richest football club (Real Madrid). Barcelona has become Europes most talked about city  invoked longingly as a model by every run-down metropolis in Europe. Spain is chic now, just as Italy was chic in the 1960s.

These cultural changes reflect changes in the real world. In 2006 Spains per-capita gross domestic product overtook that of Italy. The average Spaniard is now richer than the average Italian  an unimaginable idea when the country was emerging from Francoist isolation in the early 1980s.

Spanish governance also looks like a model of staid predictability compared with the frenetic instability of Italy. Josi Luis Zapatero, Spains socialist prime minister, won re-election to a second term on March 9. By contrast Italian administrations still struggle to survive - let alone govern.

Next months Italian elections look likely to lead to the fall of a leftwing coalition, after just one term in office, and the return to power of Silvio Berlusconi  a flamboyant tycoon, who is regarded as a sinister buffoon in much of the rest of Europe. Mr Zapatero is not a big figure on the European stage  but at least he does not attract ridicule.

The Spanish prime ministers low international profile reflects his intense focus on his own country. Mr Zapatero is an unusual political leader, in that he does not seem to be particularly interested in either foreign policy or economics. In his first term in office, he specialised in identity politics  encouraging the Spanish to re-examine the countrys civil war; legalising gay marriage and fast-track divorce; pushing through gender-equality laws. If there were a prize for the most politically-correct prime minister in Europe, Mr Zapatero would certainly win it.

When the going is good, there is plenty of time for identity politics. But the Spanish miracle is about to be put to the test, in ways that will demand that Mr Zapatero displays a more conventional set of political interests and skills

Like all politicians, the Spanish prime minister will have been buoyed by the ultimate accolade  re-election. But this months election might have been one that it was better to lose.

Spain, like the US, is going through the end of a housing boom and the start of a credit crunch. Unemployment  which never fell below 8 per cent, even in the good times  has risen for the past five months in a row. Much of the Spanish economic miracle has been driven by consumption and construction. A weaker economy threatens to expose unresolved problems, such as high levels of personal debt and low productivity.

Economic troubles will test the stability of the new Spain. The economic boom has sucked in an extraordinary number of immigrants from Latin America, north Africa and eastern Europe. In the past eight years, the Spanish population has risen from 39m to more than 45m. Mr Zapatero legalised 700,000 illegal immigrants in his first term in office. They are likely to be among the first to lose their jobs in a downturn.

The conservative oppositions unsuccessful attempt to use illegal immigration against Mr Zapatero during the election suggests that the Spanish people are  so far  reasonably comfortable with rapid social change.

But the bitter tone of Spanish politics suggests the opposite  a society that remains deeply divided. William Chislett, author of a new book on the country, Spain: Going Places (Telefsnica), observes that parliamentary life has become vicious over the past four years.

Some of this viciousness stems from the Zapatero governments deliberate re-opening of debate about the legacy of the Spanish civil war. The other source of poison is the continuing argument over the terrorist bombings of March 2004, which killed 191 Madrid commuters. While al-Qaedas terrorism brought about a spirit of national unity in the US, in Spain the opposite happened.

The conservative Popular party blamed its defeat in the 2004 elections, which came just a few days after the Madrid bombings, on a backlash caused by terrorism. Many in the party continued to insist  against the evidence  that Basque separatists had played a role in the bombings. The PP leadership seemed to have trouble accepting the legitimacy of the Socialist victory in 2004.

The fact that Mr Zapatero has now won re-election may force the conservatives to recognise the governments legitimacy without further equivocation. That, in turn, could help drain some of the bitterness from Spanish politics. If Mr Zapatero is now compelled to concentrate on the economy, rather than social issues, that too may help to normalise and banalise Spanish politics.

But, in other ways, Mr Zapateros second term looks like being much tougher than his first. For the past 20 years, successive Spanish prime ministers have been able to enjoy the domestic and international benefits of presiding over a national renaissance. Now, like the Italians before them, the Spanish are about to discover that la dolce vita does not last forever.

gideon.rachman@ft.com

http://www.ft.com/cms/s/0/12dd0ea0-f443-11dc-aaad-0000779fd2ac.html?nclick_check=1

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