Wednesday, March 02, 2005

SPAIN'S ECONOMY PROSPECTS are not that good, according to a professor of ESADE, the high-ranking business school in Barcelona. Zapatero's government has announce a list of 100-ish measures for the liberalization and the modernization of the country's economy, but it more marketing than anything else: it's a wish-list, a roadmap, more than anything else, with no schedule, no budget allocation, etc. and with a strong interventionist flavor, no matter the 'liberalization' label. Anyway, they'll have to do something quick, otherwise the ESADE professor says that it may become necessary to drop the Euro and return to a floating currency:
The economy ministry has also promised to liberalise the telecommunications, transport and postal services markets, provide incentives for investment in technology and strengthen consumer rights. The policy reforms, many of which will require parliamentary approval, are designed to address concerns about Spain's long-term economic growth.

In spite of outstripping average gross domestic product growth rates in the eurozone over the past 10 years, the gap between Spain and its neighbours is starting to close.

More worryingly, the economy ministry's calculations show that GDP per worker grew just 3.9 per cent between 1998 and 2004, compared with 5.4 per cent in the eurozone and 16 per cent in the US. During the same period the current account deficit has moved from surplus to deficit and inflation levels have constantly remained above the European average.

Tourism and construction, principal drivers of the economy, are showing signs of a slowdown, while local and international manufacturers have begun shifting production to eastern Europe and Asia at a rate of one or two facilities a week, according to some private sector estimates.

TRW, the US car parts maker, recently announced plans to close a plant in Burgos, in the north of the country, with the loss of more than 300 jobs. Spain long ago ceased being viewed as a low-cost production option for the automotive industry.

"If this situation continues we'll have to drop the euro and return to a floating rate currency to avoid mass unemployment and bankruptcies," said Luis de Sebastián, economist at the Esade business school in Barcelona. "Returns from tourism are no longer compensating for our lack of export competitiveness."

Economists point to state bureaucracy, labour market rigidity, "cartelism", low research and development spending and abuses by former state monopolies as the main culprits for the country's receding competitiveness.