Spain(s)

(From The Economist)

NO LONGER is José Luis Rodríguez Zapatero the accidental prime minister. In March 2004, luck helped to bring the leader of Spain's Socialists to power: he was trailing in the polls until a cack-handed attempt by the ruling centre-right People's Party to blame the Madrid train bombings three days before the election on Basque separatists. This time he consistently led his PP rival, Mariano Rajoy, and duly won re-election on March 9th. Yet his second term promises to be far harder than his first.

For one thing, the Socialists again fell short of an absolute majority in parliament, so Mr Zapatero will need a regional party's backing (see article). His best bet is to dump the left-wing Catalan separatists in favour of their moderate rivals, Convergence and Union (CiU). The CiU may well demand still more autonomy for Catalonia, but it is broadly liberal on economic policy. This matters, for the economy will be Mr Zapatero's biggest headache.

Spain has been one of the European Union's biggest success stories. Thanks to the macroeconomic stability afforded by the euro, lavish EU subsidies, a property boom and a huge influx of immigrant workers, the economy has grown by some 4% a year. Over the past four years, Spain has created two-thirds of all new jobs in the euro area's biggest four countries. But the good times have come to an abrupt end. GDP growth has slowed sharply, unemployment has shot up, house prices are falling and inflation has risen. EU money is running out and immigration will follow the economy down. Consumer confidence is at a 13-year low.

Spain's vote was the first post-credit-crunch election in a big Western country. Economic woes did indeed cost Mr Zapatero some support. Yet he persuaded many voters that the slowdown was not really his fault; and that the sensible choice in such risky times was his reliable finance minister, Pedro Solbes. The PP failed to come up with a convincing cure for the ailing economy. Mr Solbes presides over a healthy budget surplus worth 2% of GDP, giving him plenty of room for tax cuts and a splurge of public spending on infrastructure.

Yet fiscal expansion will not be enough, for the end of the good times is exposing deeper weaknesses. Successive Spanish governments worked strenuously to get the country into the euro, then sat back, accepting the benefits in lower inflation and interest rates, but failing to promote the more competitive markets that the discipline of euro membership requires. Spanish labour laws are too restrictive. Rising costs are denting the competitiveness of manufacturing, which makes up a big chunk of the economy. Productivity is held back by poor education and training. Immigration and the property bubble made up for these failings for a while, but no longer.

In search of bipartisanship

Economic liberalisation is hard, as many other European governments have found, because reforms tend to be fiercely opposed by unions and other vested interests. That makes it desirable to seek bipartisan support for the more controversial ones, such as labour-law changes. In the past four years, Spanish politics has been characterised by a rancorous bitterness. But Mr Rajoy's concession speech was dignified, and Mr Zapatero wisely responded with a promise to work “without tension, without confrontation”.

Defusing Spain's regional tensions also demands a new bipartisanship. Here Mr Zapatero threw caution to the winds in his first term, drawing up a new statute for the Catalans and negotiating with ETA, the violent Basque separatist group, in the teeth of PP opposition. Yet the Catalans always seem to demand more concessions, and other regions tend to copy them. The talks with ETA failed (the terrorists seem to have been responsible for the killing of a retired Socialist councillor in the Basque country two days before the election). And Basque nationalists are threatening to go ahead with a referendum this autumn on their future status in Spain.

Unity among politicians helps solve big questions of national identity. Britain had to adopt a bipartisan approach to settle its Northern Ireland problem. Spain's experience suggests that it needs to do the same.