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

Philippines, Muslim Rebels Try to Salvage Peace Pact

Peace process faces major setback after botched military operation to find terrorists results in bloody gunbattle between government forces, Moro Islamic Liberation Front fighters More

Republicans Expect Long, Expensive Presidential Battle

Political strategist says eventual winner will be one who can put together strongest coalition of various conservative groups that make up Republican Party More

Video New Wheelchair Is Easier to Use, Increases Mobility

Engineers have come up with a lever-operated design that makes use of easily accessible bicycle technology More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

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