Friday, May 21, 2010

AS POLITICAL U-turns go, José Luis Rodríguez Zapatero’s on May 12th was spectacular. Spain’s Socialist prime minister announced spending cuts of €15 billion ($18 billion) over two years. His vision of an expanding welfare state was dumped. With it may have gone Mr Zapatero’s political future. As he set out cuts in civil-service pay, social programmes and pensions, Mr Zapatero had the look of a man who has seen the writing on the wall. Yet his political death will take time. The next election is not due until 2012, and a fractious opposition seems unable to topple his minority government. He will call the shots for almost two more years.

Slicing the budget is a short-term fix that does nothing for growth. The budget deficit of around 10% of GDP is no longer cyclical; part has become structural. Mr Zapatero’s budget cuts will not take Spain out of crisis, says Pablo Vázquez of the Foundation for the Study of Applied Economics. It is even more urgent to reform the labour market and pensions.

Mr Zapatero is skilled at sounding as if he means business, but his record is of painful slowness to deliver.
At least he passed the measures without cutting the cuts, as I suspected. Still, the measures still need to be passed by parliament, where he enjoys a plurallity of votes only. He needs support from other parties, and at both his right and his left, for different reasons, are against the cuts.