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Spain Dithers Over EU

Europe, touted only recently as possibly the 21^st century superpower, presently displays a mood of pervasive gloom and seems almost paralysed by the prospect of a future that may well be claimed by the United States and China. Many in the EU had believed that the passage of the Lisbon treaty would liberate the Continent from nearly a decade of indecision and constitutional introspection. The treaty was expected to streamline the decision-making processes and give the EU a stronger voice in international affairs. Instead, it is now perceived as having muffled its profile with the new roles of Union president and foreign policy chief, filled by politicians best known for being ‘unknown’, without having gained space for meaningful progress.

Into this Europe, the arrival of Jose Luis Rodrigues Zapatero, the Spanish prime minister, with a reputation for turning Spain into what was Europe’s child prodigy until 2007, must have, at first sight, been a big boost to European morale.

No other European economy had grown as much, created as many jobs or absorbed as many immigrants. The dynamism of the Spanish economy had seen over 20 million employed (2007), a figure that sat uncomfortably with the fact that the country was known to have had an active population of just 12 million people.

In a nutshell, Spain was credited with creating over a quarter of all the new jobs in Europe.

Disillusionment was not slow in coming. After a financial crisis engulfed much of the developed world, Spain met its Waterloo in its real estate bubble and inadequate fiscal policies that led to the dubious record of having destroyed more wealth and employment than any other nation in Europe. Zapatero now faces a herculean task in his priority of creating jobs.

Spain’s unemployment rate of 19 per cent showed the enormous expansion of the informal sector where many unemployed earn extra money while continuing to receive government subsidies. The Spanish prime minister was slow to see the financial crisis coming and when it hit, he took long to react.

In an alarming turn of fortunes, Spain, which excelled at creating employment in Europe during the ‘miracle period’ between 1994 and 2007, has now excelled at destroying jobs over the last two years. Companies in Spain are now reluctant to hire new workers because of the high costs of retrenching workers under the country’s labour laws. Almost 60 per cent of the job losses in Europe have taken place in Spain.

Public support for Zapatero has been dwindling in the face of prolonged economic recession and a loss of confidence abroad, especially among EU member states, in his fiscal policies. And the ongoing crisis in Greece has raised serious questions about whether the weaker members of the eurozone, particularly in southern Europe, will be at all able to manage their fiscal deficits. Spain has now been joined by Portugal in a fight to calm investors.

People have begun to lose confidence in Zapatero. It was an unkind cut when just last month, a hacker was reported to have accessed the official site of the Spanish EU presidency and replaced Zapatero’s image with Bean, the bumbling and childishly obnoxious British character played by the actor Rowan Atkinson.

The caricature became a symbol of the prime minister’s inability to tackle the crisis in a way that earned credibility in Europe.

Not to forget that the EU has been badly bruised by the fallacy of creating a monetary union without political unity. In theory, the EU has just established a new president in Brussels. But with the incumbent unable to spell out the fine print of eurozone economics, the authority and expertise to manage the situation has fallen on the president of the European Central Bank (ECB), at least for the sixteen nations that rely on the euro as their common currency. The central bank’s sole responsibility of keeping inflation in check has no formal policy instruments to come to the rescue of an ailing member country like Greece where the severity of the crisis has led to a widely resented austerity drive by the government.

And as investor alarm over Greek and Spanish indebtedness increases, the crisis has highlighted the fundamental weakness of the European monetary union. With no strong political arm to ensure that members observe debt limits set by the treaty, the ECB president Jean-Claude Trichet only last week lectured European governments on the need to swiftly pare their budget deficits. His message was simple: “When you share a single currency with others, the counterpart is that you have to have a sound fiscal policy”.

Will Zapatero take up the gauntlet? Matters have not been helped, however, by the latest missive from Washington informing the EU of US President Barack Obama’s cancellation of his presence at the forthcoming US-EU summit in Madrid in May, adding, however, that he had nothing against Spain or the EU.

Washington further said that Obama was “unimpressed” with the summit in Europe last year in Prague where EU leaders were seen bickering among themselves in efforts to gain from proximity to the US president! Obama seemed sceptical about the EU’s ability to make a difference on the global scene.

Back in Madrid, Zapatero has understandably refused to see it as a snub. Et tu, Obama?

M.N.Hebbar is a veteran journalist and commentator on European affairs based in Berlin