The Debate on the State of the Crisis

Ignacio de la Vega. Professor. IE Business School

2 July 2009

José Luis Rodriguez Zapatero keeps using the social slant of his government to defend his position in any parliamentary or television debate. But it could very well boomerang on him.

The latest Debate on the State of the Nation Address delivered by Spanish premier José Luis Rodriguez Zapatero in the month of May will go down in history as one of the tensest and most important of recent terms of office. The economic backdrop against which it took place had given rise to both expectations and hope.

The second Zapatero government came to the debate with clear signs of exhaustion. The global crisis has reared its ugliest head in Spain, with more than 4,000,000 unemployed - double the average rate in Europe. Then there is the dramatic lack of finance that is affecting many solvent SMEs, the low-level impact to date of the star measures included in the E Plan and the ICO Plan, the deeply engrained lack of diversification of Spain’s production model, the shortage of potential allies in parliament heightened by the demands of autonomous regions in the negotiation of finance models and, finally, the ferocity of the opposition in the lead-up to the European elections, in which the Popular Party were the clear winners.

The President behaviour was typical in that he attempted to bring large doses of optimism to the situation, charged with rhetoric and devoid of any sound measures for support or continuity over time. He clung to the social slant of his government and accused the other parties, especially the PP, of being enemies of social welfare. Thus he provided PP leader Rajoy with the perfect counterargument, namely that the best way to equip a country with an advanced social welfare system is to create quality employment and an economic fabric with a potential for growth that stretches beyond economic cycles. In short, what is needed is the total transformation of the business model hitherto applied by ‘Spain Ltd’.

The PP needs to show a commitment to the future and offer clear measures for laying down the foundations for what is to be a difficult recovery. Many of these measures are not very popular, but they are necessary. Beyond a clearly defined set of formulas, Rajoy needs to place his party at the disposal of the Spanish parliament to rewrite a government agreement, showing himself to be a statesman and not simply the leader of a political party. If it were up to me, my immediate choice of urgent measures to combat the crisis would include the following:
-A labour market reform on which to base every other activity. The current system creates high-volatility employment exclusively during positive cycles and is damaging for lower-qualified workers.
-An overhaul of the public administration system, which is old, inefficient and redundant.
-Restructuring of the financial system with a clear commitment to the temporary capitalisation of institutions with problems and the return of trust to the markets.
-Surgery on our education system, which is obsolete, asymmetric and far-removed (including Bologna) from market requirements.
-Commitment to the development of a new growth model based on innovation, the modernisation of production systems and the urgent diversification of our production models.
-Recovery of the values of work, honesty, sustainability and social solidarity.
- The promotion of entrepreneurialism as an engine for employment, innovation and the creation of collective wealth in our society.

Spain has a historic opportunity to change the trend in the wake of the Debate on the State of the Nation. Let’s hope it marks the beginning of a new social contract.

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