I can summarise and simplify what I intend to write about today by saying that there is one overarching reason why some countries will not follow Greece down the road to perdition: Greece is governed by a hard Left government still fighting the battles of the past (as witnessed by its claims for German war reparations), while Spain, among other countries, is governed by the Centre-Right.

The latest news from Spain is that the country is now firmly out of recession and has taken a clear direction towards growth.

There was a brutal decline in revenues at the start of the crisis, a harsh round of cost cutting and lay-offs, and a decisive turn towards foreign markets followed by gradual recovery. Earnings and revenues have risen steadily since 2009, and staff levels are growing once again.

However, the downturn lasted much longer in Spain. The economy returned to growth only in September 2013. Even today, unemployment – at close to 24 per cent – remains shockingly high. But the renewed sense of confidence is now echoed across the broader economy. Every other day, growth forecasts for Spain are revised upwards. The government in Madrid now expects gross domestic product to expand by 2.4 per cent this year. Some private sector economists predict growth of three per cent – twice as fast as Germany and ahead of all the other large eurozone economies.

Meeting with us journalists in Madrid last week, Secretary of State for Trade Jaime Garcia Legaz was proud of what his government did to reverse the crisis.

The first plank, undertaken in conjunction with the Socialist Opposition, was a constitutional amendment that forbids Parliament from approving a budget that is not balanced, taken in the wider sense of the word and taking into account the economic cycle.

Secondly, it cut costs and then cut them again. Spain has a many-tiered system of governance, with provinces and city councils having a share of revenue and expenditure, so it was not easy to get them all in line. But successive tweaking has brought the economy under control.

Thirdly, what lifted the economy were exports. It found new opportunities around the world, significantly anywhere except in Europe, and Spanish flair and technical expertise as well as other factors I will be mentioning shortly, boosted exports to such an extent that its exports growth now surpasses that of Germany.

Fourthly, Spain reformed its labour laws, which previously had been skewed in favour of workers (as it was thought by the Socialist government that put them there) but which actually harmed employment. These laws insisted that an employee who was sacked had to be paid for a number of weeks per year he had worked. The new laws cut down on the number of weeks per year and on the maximum amount of years to be considered.

The system that was in place worked against taking on staff rather than against sacking workers. Companies shied away from hiring more workers because they did not want to face the huge costs if they had to downsize later. In fact, some companies folded rather than downsize.

This worked against SMEs rather than against the big companies because the SMEs, being small, were more vulnerable.

As a result of the change in labour legislation, companies have been encouraged to take on more workers because the risk is now lower.

There is, of course, an obverse side to this. Most of the new jobs that have been created are temporary or what we could call definite contracts. But in a country where unemployment rose to 28 per cent, with areas which had patches that were even worse than that, where an entire generation had seen its future disappear and young families and couples moved back to living with parents, where jobs had disappeared and where the alternative to hunger was to emigrate, a job with a definite contract was far better than nothing.

Much like the rest of the currency bloc, Spain is enjoying two crucial economic tailwinds: one is the recent decline in the value of the single currency, which makes it easier for companies to sell their goods abroad. The second is the sharp fall in the price of oil, which gives a financial boost to big energy importers such as Spain. The oil price drop alone is expected to add roughly 0.5 per cent to Spanish GDP this year, mostly by lifting household spending.

Economic growth began in earnest last year but Prime Minister Mariano Rajoy was laughed at both in his own country and outside it for claiming the country had come out of recession. But growth has taken on a momentum of its own and now is widely acknowledged.

Talking to ordinary citizens, the situation is not as rosy as the State Secretary makes it out to be. There is still widespread anger even among people who have a stable job and who do not seem to have suffered from the ravages of the crisis.

Shortly after the Arab Spring, and months before the Occupy Wall Street movement took off in the United States, thousands of Spanish ‘indignado’ protestors filled Madrid’s central Puerta Del Sol to demand a better political and economic system. This was the 15-M protest movement.

Since then, a new movement or rather political party has emerged, Podemos, which quickly rose to national prominence in last year’s European Parliament elections.

As the Secretary of State remarked, Podemos has never been in government. To my mind, it encapsulates the protest vote in much the same way that the Movimento 5 Stelle (Beppe Grillo’s party) did in Italy.

Spain will get no less than five elections this year, the first one being today in Andalusia, which has always been governed by the Socialists and with an average standard of living that is well ahead of the rest of Spain.

When Syriza was elected to power in Greece, there was much talk that the next step was Spain with Podemos and much hugging between the leaders of the two parties.

There are, however, huge differences which are instructive to see what may happen in Greece and what may not happen in Spain. Greece has had not one but three bailouts so far, and its problems are far from being solved. Its present rulers engage in rhetoric mostly against Germany rather than reform should be reformed, the only exception being stricter enforcement of taxation. Union rights and privileges are protected and reinforced as well as labour rights. Underlying all, there is a sense of entitlement, that Europe owes the Greeks something.

There is no such theme song in Spain. On the contrary, there is the realization that Spain (like Ireland and, to a lesser extent, Portugal) can only rely on its own hard work, focus on what makes it competitive and go out and get export orders.

Secondarily, the Secretary of State told us, there is much retraining going on and the government promotes and encourages retraining. And slowly, people who had gone away to find work are trickling back home.

Basically, Spain has changed its development model from one based on construction and real estate to one based on exports. There are still areas that depended on the previous model which have yet to be restructured. But the huge banking sector, with Sanander being one of the European giants, but also with under reconstruction Bankia, is now working at solving its load of Non-Performing Loans and has emerged from the European Central Bank’s stress tests with flying colours.

Four years on, and the project remains incomplete at best. Exports indeed account for a larger share of national output than during the pre-crisis construction boom, and the car sector in particular has flourished. The real driver of recovery today, however, is no longer the external sector: The recuperation is based very much on private consumption now. Imports are once again rising more rapidly than exports.

There is no blueprint for emerging from a recession, and even in united Europe it is mostly every country that has to find out its way forward. Nor is the German model which must be copied by every other country. But there are macroeconomic rules that must be followed. Spain has understood this and is flourishing, at least in parts, while Greece seems determined to defy the rules of economic logic and expects the rest of Europe to pay for this.

 

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