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

    US Internet Giants, EU Reach Deal to Combat Online Hate Speech

    Facebook, Twitter, Google and Microsoft commit to ‘quickly and efficiently’ act to clamp down on use of social media to incite violence, terror

    Video Tunisia’s Ennahda Party Begins a New Political Chapter

    Party now moves to separate its political and religious activities; change described by party members as pragmatic response to political and economic challenges facing Tunisia today

    Virtual Reality Fine-tuned at Asia Tech Show

    Microchip designers hope to improve resolution for users of systems that can turn your bedroom into the ocean floor

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Tech Startups Showcase Wares at Amsterdam Conferencei
    X
    Serginho Roosblad
    May 30, 2016 5:11 PM
    More than 20,000 tech enthusiasts, entrepreneurs and lovers of digital technology came together in Amsterdam recently at the Next Web Conference to discuss the latest developments in digital technology, look to the future and, of course, to connect. In recent years, there has been an explosion of so-called startup businesses that have created devices and applications that have changed the way we live; but, as Serginho Roosblad reports for VOA, there are pitfalls for such startups as well.
    Video

    Video Tech Startups Showcase Wares at Amsterdam Conference

    More than 20,000 tech enthusiasts, entrepreneurs and lovers of digital technology came together in Amsterdam recently at the Next Web Conference to discuss the latest developments in digital technology, look to the future and, of course, to connect. In recent years, there has been an explosion of so-called startup businesses that have created devices and applications that have changed the way we live; but, as Serginho Roosblad reports for VOA, there are pitfalls for such startups as well.
    Video

    Video US Military's Fallen Honored With Flags

    Memorial Day is a long weekend for most Americans. For some, it is the unofficial start of summer -- local swimming pools open and outdoor grilling season begins. But Memorial Day remains true to its origins -- a day to remember the U.S. military's fallen.
    Video

    Video Rolling Thunder Rolls Into Washington

    The Rolling Thunder caravan of motorcycles rolled into Washington Sunday, to support the U.S. military on the country's Memorial Day weekend
    Video

    Video A New Reading Program Pairs Kids with Dogs

    Dogs, it is said, are man's best friend. What some researchers have discovered is that they can also be a friend to a struggling reader. A group called Intermountain Therapy Animals trains dogs to help all kinds of kids with reading problems — from those with special needs to those for whom English is a second language. Faiza Elmasry has more on the New York chapter of R.E.A.D., or Reading Education Assistance Dogs, in this piece narrated by Faith Lapidus.
    Video

    Video Fan Base Grows for Fictional Wyoming Sheriff Longmire

    Around the world, the most enduring symbol of the U.S. is that of the cowboy. A very small percentage of Americans live in Western rural areas, and fewer still are cowboys. But the fascination with the American West is kept alive by such cultural offerings as “Longmire,” a series of books and TV episodes about a fictional Wyoming sheriff. VOA’s Greg Flakus recently spoke with Longmire’s creator, Craig Johnson, and filed this report from Houston.
    Video

    Video Chinese-Americans Heart Trump, Bucking National Trend

    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Reactions to Trump's Success Polarized Abroad

    What seemed impossible less than a year ago is now almost a certainty. New York real estate mogul Donald Trump has won the number of delegates needed to secure the Republican presidential nomination. The prospect has sparked as much controversy abroad as it has in the United States. Zlatica Hoke has more.
    Video

    Video Drawings by Children in Hiroshima Show Hope and Peace

    On Friday, President Barack Obama will visit Hiroshima, Japan, the first American president to do so while in office. In August 1945, the United States dropped an atomic bomb on the city to force Japan's surrender in World War II. Although their city lay in ruins, some Hiroshima schoolchildren drew pictures of hope and peace. The former students and their drawings are now part of a documentary called “Pictures from a Hiroshima Schoolyard.” VOA's Deborah Block has the story.
    Video

    Video Vietnamese Rapper Performs for Obama

    A prominent young Vietnamese artist told President Obama said she faced roadblocks as a woman rapper, and asked the president about government support for the arts. He asked her to rap, and he even offered to provide a base beat for her. Watch what happened.
    Video

    Video Roots Run Deep for Tunisia's Dwindling Jewish Community

    This week, hundreds of Jewish pilgrims are defying terrorist threats to celebrate an ancient religious festival on the Tunisian island of Djerba. The festivities cast a spotlight on North Africa's once-vibrant Jewish population that has all but died out in recent decades. Despite rising threats of militant Islam and the country's battered economy, one of the Arab world's last Jewish communities is staying put and nurturing a new generation. VOA’s Lisa Bryant reports.

    Special Report

    Adrift The Invisible African Diaspora