With Spain having spent weeks in the cross hairs of jittery world markets, Prime Minister José Luis Rodríguez Zapatero went on the offensive on Wednesday, defending the country’s solvency and saying his government had “the will” to reduce its fast-growing deficit. But in an address to Parliament, the Socialist prime minister disappointed some by failing to spell out a clear plan of attack to reduce the country’s 19 percent unemployment rate, the highest in the euro zone, or a time frame for labor reforms that analysts say are crucial for the country to stay competitive. Instead, he reassured Spaniards that “recovery is not far away,” and reiterated a goal that seems an increasingly tall order: to cut $68 billion in state spending without slicing into the social benefits that he considers the hallmark of his administration. Last week, Mr. Zapatero said the government would extend unemployment benefits.
After two decades of dizzying growth — and the collapse of a housing bubble — there is a pervasive feeling in Spain that the party is over and that Mr. Zapatero is offering little more than palliatives for a national hangover. “They really haven’t offered anything,” Gayle Allard, an economist and expert in the Spanish labor market at IE University in Madrid, said of the government. Faced with urgent problems like 4.3 million unemployed, “they do not have a strategy, and they do not have a response.” For months, Mr. Zapatero called the crisis “a slowdown,” a term many Spaniards thought vastly underestimated its scope. Now, critics and defenders alike say the government’s response has been belated, incoherent and erratic, even as markets are paying increasingly close attention.
Elected in the boom year of 2004 promising social change, Mr. Zapatero has watched his credibility sink amid the economic anxiety. Polls have lately shown him trailing the opposition Popular Party, even though it is embroiled in corruption scandals and has not presented a coherent competing economic plan. In Parliament on Wednesday, the leader of the opposition, Mariano Rajoy, reiterated his call on the Socialists to pick a new leader. In his speech, Mr. Zapatero offered few new details on the austerity plan he announced in January to cut Spain’s deficit in half, to 5.7 percent of gross domestic product by 2013.
Experts agree that Spain is not Greece, and is unlikely to need similar help from the European Union. Its public debt is at 55 percent of gross domestic product, far below the 80 percent average for the European Union. Its banks have never needed a bailout, and its infrastructure is widely considered the best in the Mediterranean. Spain has nevertheless become the biggest euro-zone economy to stumble, brought low by the collapse of a housing boom that has left 800,000 newly built homes sitting empty. Analysts worry that Spain’s recovery will be delayed or undercut by a rigid labor market and generous unemployment compensation — and a government that has yet to tackle the problem.
Instead, the government is banking on growth. “We went through a period of large change in the cycle, and the economy underwent last year a period of shock. Now, we’re reaching normalization,” José Manuel Campa, a deputy finance minister, said last week in an interview. Mr. Campa, who is expected to travel soon to New York to speak to investors, said there was “broad consensus” in the government that economic growth was expected to be flat this year, but that it would start to rise “very slowly” next year.
Yet some saw Mr. Campa’s reassurances as at odds with Mr. Zapatero’s approach. “Mr. Campa goes on a road show one day to reassure European investors that if the Spanish economy has to cut government spending in order to grow, it will,” the columnist Joaquín Estefanía wrote in El País this week. “The next day,” he continued, Mr. Zapatero announces “that he will extend unemployment benefits to workers who aren’t already enrolled.”
Experts say that waiting for growth is not an effective strategy for fighting the economic downdrafts, and argue that Spain needs a radical structural overhaul of the labor market. To dismiss an employee, to cite one example, Spanish companies must pay 45 days for every year worked. The government and labor unions have begun talks to lower that number to 33. As a result of that and other rigid labor laws, in the past decade Spain has had one of Europe’s largest rises in pay but one of its lowest increases in productivity. In the past, that gap might have been closed through a currency devaluation. But that avenue is closed for members of the euro zone, so instead Spain faces a grinding process of wage deflation.
In the meantime, the unemployment payments have helped create a class of the comfortably unemployed. In a cafe near the Prado museum on a recent afternoon, José Díaz, 45, said he was fired in December from his job in an electronics store in Gerona, in Catalonia, but was in Madrid on vacation. “I’m taking advantage of the fact that I’m on a break,” Mr. Díaz said. He said that he had paid off his mortgage, that his wife had a job and that he was only two months into two years of unemployment benefits, which equaled about 25 percent of his salary. “I’m privileged,” he said. In addition to busting the federal budget, the generous job benefits make businesses wary of taking on full-time employees. Instead, they favor temporary contracts that have become common among younger workers and the newly hired, who absorb the brunt of the crisis. A full 40 percent of Spaniards between the ages of 16 and 25 are unemployed, which many fear is causing long-term damage to the country.
Some argue that as a socialist, Mr. Zapatero is in a better position to tackle reform than are the conservatives. He could say that “the current system is socially divisive” and “mainly penalizes the young, women and immigrants,” said Charles Powell, a history professor at CEU San Pablo University in Madrid. Instead, analysts say, he is dancing around the issue. “Nobody is being realistic about this,” said Ms. Allard, the Spanish labor market expert. “No one is saying publicly that this is a system where 70 percent are overprotected, underproductive and overpaid and the rest of them are paying for it.”