Greek debt crisis effects Spain indirectly

After the imple­men­ta­tion of the insti­tu­tion­al inno­va­tions includ­ed in the Treaty, the sec­ond big pri­or­i­ty of the Span­ish EU Pres­i­den­cy was coor­di­nat­ing eco­nom­ic poli­cies so as to encour­age recov­ery.11It has been dis­cussed to what extent this should be the first and not the sec­ond pri­or­i­ty of the semes­ter. Finan­cial Times pub­lished an edi­to­r­i­al titled ‘A stum­bling Spain must guide Europe’, with the sub­ti­tle ‘Mes­sage for Zap­a­tero: for­get Lon­don, it’s the econ­o­my!’ The edi­to­r­i­al called the pro­gramme pro­posed by the Span­ish Pres­i­den­cy ‘remark­ably ano­dyne’ and said it was a big mis­take to focus on the fine-tun­ing of insti­tu­tion­al reforms rather than address the prob­lems of the ‘real world’, such as the eco­nom­ic cri­sis. How­ev­er, the unprece­dent­ed Greek debt cri­sis dom­i­nat­ed the semes­ter and it end­ed up affect­ing Spain indi­rect­ly. It is true that crises usu­al­ly pro­vide an oppor­tu­ni­ty for rotat­ing pres­i­den­cies to enhance their lead­er­ship roles, but that was not the case this time. Spain’s trou­bled eco­nom­ic sit­u­a­tion pre­vent­ed this from hap­pen­ing, or at least blocked it. Spain’s fis­cal sit­u­a­tion was nev­er near­ly as seri­ous as Greece’s. Still, that did not stop peo­ple from com­par­ing the two coun­tries, thus rais­ing doubts about Spain’s neu­tral­i­ty and its author­i­ty for lead­ing the debate on how to address the Greek prob­lem or on how to reform Euro­pean eco­nom­ic gov­er­nance.22Because of the Greek cri­sis and the poor state of the Span­ish econ­o­my – deep reces­sion, soar­ing unem­ploy­ment, a bloat­ed bud­get deficit and a swift increase in pub­lic debt – the Span­ish offi­cials tasked with lead­ing the Ecofin had to spend a lot of time reas­sur­ing inter­na­tion­al investors or deny­ing that Spain could be com­pared with Greece.

Nev­er­the­less, the sin­gle biggest result of the Span­ish Pres­i­den­cy was the deci­sion to artic­u­late a joint response aimed at defend­ing the sta­bil­i­ty of the Euro and enhanc­ing eco­nom­ic coor­di­na­tion among EU coun­tries. Although it would not be accu­rate to say that the Span­ish Pres­i­den­cy played the main role in pro­duc­ing this impor­tant out­come – as said, the Span­ish gov­ern­ment had to act in a reac­tive, defen­sive way, yield­ing the lead­ing role to France, Ger­many and the Eurogroup Pres­i­den­cy – the truth is that the final out­come of the Pres­i­den­cy with regard to eco­nom­ic deci­sions has undoubt­ed­ly been out­stand­ing.

Spain began its Pres­i­den­cy by rais­ing the pos­si­bil­i­ty of strength­en­ing the EU’s say over how mem­ber states run their economies, and, although the ini­tial reac­tion from Ger­many and the UK was neg­a­tive, the Span­ish term ulti­mate­ly made impor­tant strides in this direc­tion. It is true that in Jan­u­ary the Span­ish gov­ern­ment was not think­ing so much about a more force­ful role for Euro­pean insti­tu­tions in short-term fis­cal con­sol­i­da­tion as in medi­um- and long-term mech­a­nisms for finan­cial super­vi­sion and coor­di­na­tion of struc­tur­al reforms. But the dra­mat­ic devel­op­ments in the pub­lic debt mar­kets dur­ing this six-month peri­od led things toward the for­mer of the two options. Despite the waver­ing and lack of lead­er­ship seen in Feb­ru­ary and April, the EU final­ly decid­ed to bail out Greece. And what is more impor­tant, Ecofin, hold­ing an extra­or­di­nary meet­ing on 9–10 May 2010, adopt­ed the key deci­sion to cre­ate a 750 bil­lion Euro finan­cial sta­bil­i­ty fund for trou­bled gov­ern­ments, mov­ing to give a firm response to spec­u­la­tors. It is an impres­sive sys­tem geared towards pro­tect­ing the Euro, to the point where a Euro­pean mon­e­tary union can final­ly be con­sid­ered com­plete and, what is even more nov­el, a true eco­nom­ic union is now begin­ning to take shape. Many mem­ber states, in par­tic­u­lar Spain, have clear­ly seen the new, direct link that has been estab­lished dur­ing this Pres­i­den­cy between the cre­ation of the new fund, rig­or­ous appli­ca­tion of the deficit lim­its of the Sta­bil­i­ty and Growth Pact and the adop­tion of eco­nom­ic reforms encour­aged by Brus­sels in areas that, in prin­ci­ple, fall out­side EU juris­dic­tion: the labour mar­ket, sav­ings banks, pay for civ­il ser­vants and retire­ment ages and pen­sions.

But on the econ­o­my there was even more dur­ing the semes­ter. While the finan­cial over­sight mech­a­nisms agreed in late 2009 – the Euro­pean Sys­temic Risk Board and three addi­tion­al mea­sures – are close to being approved by the Euro­pean Par­lia­ment, the Coun­cil added com­ple­men­tary mea­sures on hedge funds and cred­it-rat­ings agen­cies dur­ing this Pres­i­den­cy.

As for approval of the Europe 2020 Strat­e­gy, which replaces the semi-failed Lis­bon Agen­da of 2000, the cli­mate of eco­nom­ic urgency has caused it to go rel­a­tive­ly unno­ticed, even though it was the main declared pri­or­i­ty of the Span­ish Pres­i­den­cy and the oth­er Trio Pres­i­den­cy mem­bers, Bel­gium and Hun­gary. In any case, on the basis of the Commission’s pro­pos­al in ear­ly March 2010, the Euro­pean Coun­cils of March and June 2010 approved the broad out­lines of a new and more sus­tain­able pro­duc­tive mod­el for the entire EU for ensur­ing eco­nom­ic growth and job cre­ation in the future .33Accord­ing to the pres­i­dent Van Rompuy, who chaired the Euro­pean Coun­cil meet­ing on 25–26 March, the strat­e­gy sums up the Euro­pean mod­el of social mar­ket econ­o­my with a strong envi­ron­men­tal dimen­sion. “To pro­tect this mod­el, eco­nom­ic per­for­mance should be very strong.” It remains to be seen if the new strat­e­gy have sharp­er and more real­is­tic goals than the Lis­bon Agen­da. It iden­ti­fies five basic goals and nation­al plans to achieve them in the areas of employ­ment, inno­va­tion, edu­ca­tion, sus­tain­abil­i­ty and the fight against pover­ty. But it remains to be seen how seri­ous­ly mem­ber states and EU insti­tu­tions will take these goals and what the con­se­quences will be if they fail to do so.

    Footnotes

  • 1It has been dis­cussed to what extent this should be the first and not the sec­ond pri­or­i­ty of the semes­ter. Finan­cial Times pub­lished an edi­to­r­i­al titled ‘A stum­bling Spain must guide Europe’, with the sub­ti­tle ‘Mes­sage for Zap­a­tero: for­get Lon­don, it’s the econ­o­my!’ The edi­to­r­i­al called the pro­gramme pro­posed by the Span­ish Pres­i­den­cy ‘remark­ably ano­dyne’ and said it was a big mis­take to focus on the fine-tun­ing of insti­tu­tion­al reforms rather than address the prob­lems of the ‘real world’, such as the eco­nom­ic cri­sis.
  • 2Because of the Greek cri­sis and the poor state of the Span­ish econ­o­my – deep reces­sion, soar­ing unem­ploy­ment, a bloat­ed bud­get deficit and a swift increase in pub­lic debt – the Span­ish offi­cials tasked with lead­ing the Ecofin had to spend a lot of time reas­sur­ing inter­na­tion­al investors or deny­ing that Spain could be com­pared with Greece.
  • 3Accord­ing to the pres­i­dent Van Rompuy, who chaired the Euro­pean Coun­cil meet­ing on 25–26 March, the strat­e­gy sums up the Euro­pean mod­el of social mar­ket econ­o­my with a strong envi­ron­men­tal dimen­sion. “To pro­tect this mod­el, eco­nom­ic per­for­mance should be very strong.” It remains to be seen if the new strat­e­gy have sharp­er and more real­is­tic goals than the Lis­bon Agen­da.

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained there­in.