News / Europe

Spain, France Reverse Roles as Economic Fortunes Diverge

A man talks from a public phone booth covered with various personal ads including job offers, jobs wanted and rooms for rent, in Madrid, Spain, Nov. 6, 2013.
A man talks from a public phone booth covered with various personal ads including job offers, jobs wanted and rooms for rent, in Madrid, Spain, Nov. 6, 2013.
Reuters
One year ago, when Spain's Mariano Rajoy traveled to Paris to meet France's Francois Hollande for their annual bilateral summit, only one question was on the agenda: if and when Spain would seek a European bailout for its crippled public finances.
 
As the Spanish prime minister and the French president prepare to meet again in Madrid on Wednesday at 1450 local (1350 GMT), many believe their countries have reversed roles.
 
Of course, there is no question of France requesting any international bailout, and Spain has not shaken off all its woes, but the mood and the economic momentum have shifted across the Pyrenees.
 
Thanks to resolute action to pass harsh economic remedies and tough spending cuts, and steps by central banks in Europe, the United States and Japan to head off the crisis, Spain has managed to kick-start its economy at a time when French economic activity and reforms are stalling.
 
French business activity shrank in November after eking out growth for two months and exports are languishing as high unit labor costs eat away its competitiveness and key reforms are delayed. But some analysts point out that France has stronger economic fundamentals in the long term.
 
Spain emerged from its two-year recession in the third quarter and is on track to grow again, albeit at a slow pace, in the last three months of the year.
 
It has regained part of the competitiveness lost during a decade-long property boom fuelled by cheap credit and which ended in a 41-billion-euro rescue of Spanish banks last year.
 
As a result, exports and foreign investment are on the rise and the Spanish government is on track to register a net lending position against the rest of the world for the first time in decades.
 
Spain, which recently overtook its northern neighbor as Europe's second-biggest carmaker, moved from having a trade deficit with France of more than 6 billion euros in 2007 to a first surplus of about 1.5 billion euros in 2012.
 
Rajoy, who has spent most of 2013 fighting corruption allegations at his People's Party and trying to extinguish growing calls for secession in Catalonia, is now pushing hard the line that the worst of the crisis is over and Spain will soon surprise on the upside.
 
Promoting Spain, Rajoy had achieved a degree of success.
 
The Madrid government revised up its 2014 growth forecast to 0.7 percent from 0.5 percent previously and Rajoy's PP was up in a November official opinion poll, breaking with two years of continuous falling support but still way down from its level in the November 2011 elections.
 
Spain flourishes, France struggling?
 
Spain's upbeat message widely contrasts with France's depressed mood and many analysts now say Spain might become the euro zone's success story with France turning into a growing worry for its European partners.
 
In another sign of a diverging trend between the two countries, Standard & Poor's cut France's credit rating earlier this month by one notch to AA from AA+, giving a thumbs-down to its economic policies, while Fitch revised the outlook on Spain's BBB rating to stable from negative.
 
France's rating is still much higher than Spain's but, coming just a few days apart, the two moves highlighted a different attitude towards the two neighbors.
 
With the French economy slipping into negative territory in the third quarter, Hollande's approval rating fell this month to a record low of 15 percent, according to a Yougov survey.
 
This, however, is only one part of the picture and there are reasons to consider the euro zone's second-largest economy as a stronger proposition in the longer term.
 
“There's a readjustment of opinion following the irrational fears two years ago that it was game over for Spain ... As often in such cases consensus is moving a little too fast,” Deutsche Bank European economist Gilles Moec said.
 
France's banks, unlike those of Spain, have needed no bailout to weather the global financial crisis and euro zone debt storm. Its political and economic clout due to its size and its U.N. Security Council seat mean it can pull its weight on the international stage.
 
A much bigger economy of 2 trillion euros compared to 1 trillion euros for Spain, no real estate crisis, no major debt problem for households and a bigger number of world-class blue chips speak in its favor.
 
For most of 2013, France has secured debt yields 200-basis-point lower than what Spain pays to issue its 10-year paper and its recent track record on cutting the deficit, curbing debt, securing higher credit ratings and limiting the rise in unemployment has also been better.
 
And the number of French jobless is expected to remain stable over the next two years at about 10 percent, a high level but far from a Spanish unemployment rate of more than 25 percent which is not expected to start falling until 2015 as growth remains elusive.

Same reform, different perception
 
The European Commission forecasts the Spanish economy will contract by 1.3 percent this year and then grow by 0.5 percent in 2014 and 1.7 percent in 2015.
 
France's GDP, in the meantime, is seen expanding by 0.2 percent in 2013, 0.9 percent in 2014 and 1.7 percent in 2015.
 
The EU executive, worried by the two countries' lack of growth, earlier this year gave them two extra years to cut their deficit below the European ceiling of 3 percent of GDP and asked them to use this time to reform their economies.
 
Despite being from different political families, the reform roadmap of center-right Rajoy and center-left Hollande look similar on paper, as new pension, tax and labor laws are in the making in Paris and Madrid.
 
One major difference, however, has been Rajoy's zeal at using his strong majority in parliament to have Spain taking Germany-inspired austerity medicine, when Hollande, who also enjoys a parliamentary majority, has dug in his heels.
 
This has lead to diverging public perceptions.
 
“The problem for France is more that the tidying of public finances is done without structural reforms,” Moec said. “Spain had its back to the wall, there were no other options. In France it's flabby and gloomy. It's not Greece, it's not Spain, but it's not working.”

You May Like

Egypt's Suez Canal Dreams Tempered by Continued Unrest

Seen as a potential driver of recovery, Cairo’s plan to expand waterway had been raising hopes to give country much needed economic boost More

Ebola Maternity Ward in Sierra Leone First of its Kind

Country already had one of world's highest maternal mortality rates before Ebola arrived, virus has added even more complications to health care More

Malaysia Flight 370 Disappearance Ruled Accident

Aircraft disappeared on March 8, 2014; with ruling, families of 239 passengers and crew can now seek compensation from airline More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Groundbreaking Hand-Painted Documentary About Van Gogh in Productioni
X
George Putic
January 29, 2015 9:43 PM
The troubled life of the famous 19th century Dutch painter Vincent van Gogh has been told through many books and films, but never in the way a group of filmmakers now intends to do. "Loving Vincent " will be the first ever feature-length film made of animated hand-painted images, done in the style of the late artist. VOA’s George Putic reports.
Video

Video Groundbreaking Hand-Painted Documentary About Van Gogh in Production

The troubled life of the famous 19th century Dutch painter Vincent van Gogh has been told through many books and films, but never in the way a group of filmmakers now intends to do. "Loving Vincent " will be the first ever feature-length film made of animated hand-painted images, done in the style of the late artist. VOA’s George Putic reports.
Video

Video Rock-Consuming Organisms Alter Views of Life Processes

Scientists thought they knew much about how life works, until a discovery more than two decades ago challenged conventional beliefs. Scientists found that there are organisms that breathe rocks. And it is only recently that the scientific community is accepting that there are organisms that could get energy out of rocks. Correspondent Elizabeth Lee reports.
Video

Video Paris Attacks Highlight Global Weapons Black Market

As law enforcement officials piece together how the Paris and Belgian terror cells carried out their recent attacks, questions are being asked about how they obtained military grade assault weapons - which are illegal in the European Union. As VOA's Jeff Swicord reports, experts say there is a very active worldwide black market for these weapons, and criminals and terrorists are buying.
Video

Video Activists Accuse China of Targeting Religious Freedom

The U.S.-based Chinese religious rights group ChinaAid says 2014 was the worst year for religious freedom in China since the end of the Cultural Revolution. As Ye Fan reports, activists say Beijing has been tightening religious controls ever since Chinese leader Xi Jinping came to office. Hu Wei narrates.
Video

Video Super Bowl Ads Compete for Eyes on TV, Web

Super Bowl Sunday (Feb. 1) is about more than just the NFL's American football championship and big parties to watch the game. Viewers also tune in for the world famous commercials that send Facebook and Twitter abuzz. Daniela Schrier reports on the social media rewards for America’s priciest advertising.
Video

Video Theologians Cast Doubt on Morality of Drone Strikes

In 2006, stirred by photos of U.S. soldiers mistreating Iraqi prisoners, a group of American faith leaders and academics launched the National Religious Campaign Against Torture. It played an important role in getting Congress to investigate, and the president to ban, torture. VOA's Jerome Socolovsky reports.
Video

Video Freedom on Decline Worldwide, Report Says

The state of global freedom declined for the ninth consecutive year in 2014, according to global watchdog Freedom House's annual report released Wednesday. VOA's William Gallo has more.
Video

Video MRI Seems to Help Diagnose Prostate Cancer, Preliminary Study Shows

Just as with mammography used to detect breast cancer, there's a lot of controversy about tests used to diagnose prostate cancer. Fortunately, a new study shows doctors may now have a more reliable way to diagnose prostate cancer for high risk patients. More from VOA's Carol Pearson.
Video

Video Smartphones About to Make Leap, Carry Basic Senses

Long-distance communication contains mostly sounds and pictures - for now. But scientists in Britain say they are close to creating additions for our smartphones that will make it possible to send taste, smell and even a basic touch. VOA’s George Putic reports.
Video

Video Former Sudan 'Lost Boy' Becomes Chess Master in NYC

In the mid-1980’s, thousands of Sudanese boys escaped the country's civil war by walking for weeks, then months and finally for more than a year, up to 1,500 kilometers across three countries. The so-called Lost Boys of the Sudan had little time for games. But one of them later mastered the game of chess, and now teaches it to children in the New York area. VOA’s Bernard Shusman in New York has his story.
Video

Video NASA Monitors Earth’s Vital Signs From Space

The U.S. space agency, NASA, is wrapping up its busiest 12-month period in more than a decade, with three missions launched in 2014 and two this month, one in early January and the fifth scheduled for January 29. As VOA’s Rosanne Skirble reports, the instruments being lifted into orbit are focused on Earth’s vital life support systems and how they are responding to a warmer planet.
Video

Video Crowded Republican Presidential Field Off to Early Start for 2016

It seems early, but the 2016 U.S. presidential election campaign is already heating up. Though no one has officially announced a candidacy, several potential Republican contenders have been busy speaking to conservative groups about making a White House run next year. Many of the possible contenders are critical of the Obama administration’s foreign policy record. VOA national correspondent Jim Malone reports.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid