The final blow on the economy

Pedro Solbes, the Socialist Finance Minister met the business council in Madrid yesterday to explain the Socialist economic programme for the next four years. During the closing statements the President of the Council directly stated the Council's preference for PSOE to run the economy after the Sunday election. Diaz Ferran thanked Solbes for lowering the tax on businesses from 35 to 30% and said 'on March 10 we'll be knocking on your door to continue working together as we did these past four years'.

The statement was an important one to reassure investors and businesses that Zapatero and Solbes make the best team to deal with the current global credit crunch. However, the big surprise of the day came when Manuel Pizarro, PP's strongman on the economy, went to Onda Cero radio and accused Diaz Ferran of favouring PSOE because he was going to personally benefit from it and slagging off the entire business council.

I think after yesterday's debate, Zapatero got the big 'mo' for the last four days of the campaign. Rajoy and Pizarro are looking like dead men walking. Pizarro's accusations yesterday weren't just pure bitter rant, they actually show how when things don't go their way, PP leaders attack anyone on their way in the most intransigent of ways.

Moreover, the monthly consumer trust index (ICC-ICO) shows a greater trust on the economy by the electorate. Trust on the future of the economy has gone up 5.9%, current domestic situation (6%) and that of the country in general (5%). Seems PP's economic catastrophism message is deflating like a balloon.

The need for an urgent clear message on the economy and more importantly, stick to it.

Jose Blanco, PSOE's secretary of organisation, points out in his blog that the economic slowdown in Spain is being fueled by the economic data in those regions governed by PP.

Navarra (10.15%), Murcia (9.63%), Valencia (8.14%), La Rioja (7.87%) and Madrid (7.7%), all governed by PP, are the regions where unemployment has risen the most. On the other hand Socialist regions such as Galicia (3.99%), Extremadura (3.59%) and Andalucia (4.4%) have the lowest unemployment rises in the country.

There is a very simple explanation for this. While in the last four years the Zapatero government has focused in switching the national economic model to a more competitive system, PP regions have stuck to the model they know best, unsustainable construction. The central government on one hand has invested in R+D, education and scholarships to improve human capital and high-tech employment, while PP regions have the lowest investments on those fields.

The Spanish economy is ready for a global crisis because public finances are healthy. However, if we want the country to switch economic models to higher efficiency, quality of labour and high value-added production, we need to target those regional economies that lag behind. And those ones are clearly conservative-led ones as unemployment data shows.

Time to speak up. The economy has become by far the most important issue in the campaign, PSOE needs a clear and coherent message to counteract PP's economic demagogy. Once that message is found, and I think regional differences between PP and PSOE regions is a key issue, PSOE should repeat it consistently to let it sink into the electorate's mind. There is too much at stake to let PP win in the last metres of the race.

Rajoy shoots himself on the foot (again).

Late last night a jubilant Rajoy announced that he had convinced Manuel Pizarro to be his number 2 in the list for Madrid. Pizarro, former CEO of Endesa, is a business tycoon that became notorious this last year when he battled the Zapatero Government when the control of Endesa was being disputed between EOn and Gas Natural, both also energy companies.

It seems curious to me that Rajoy, the defender of the 'great Spanish nation', could offer the ministry of the economy to a man who fought long and hard to sell Endesa to Germany's EOn even though Gas Natural's, a Spanish company, offer was better. I'd say it seems obvious now that Pizarro was opposing Gas Natural's bid mainly on political terms, guided by PP, and that effort is paying off now with a PP offer to go on its lists.

Rajoy is happy, he got a proper economist, unlike Arias Cañete before, that can actually speak economics to debate with PSOE's heavyweight Pedro Solbes. However he should have read the law before announcing Pizarro's name. Under the incompatibility of public office law, Pizarro won't be able to participate in any Cabinet meeting or take any decission on issues related to Endesa, because of his recent post in the company. In practice this means that pretty much the Finance Minister of the Central Government of Spain wouldn't be able to take decissions related to the energy market! such decissions include, tariff policy, the future of nuclear energy, future infrastructure plans and even a Finance Minister's key role, the Budget, specifically the section on energy policy.

So there you are once again image over substance is the greatest ill of PP. Rajoy has put up a person partisan to the core, with no experience on fiscal or employment policy and on top of that cannot exercise his post's competences because of incompatibility, but Rajoy must be thinking, hey! but everyone know who he is. Are we going back to PP's policies of friends in government? We surely are. I don't want a half-minister in the key department under the current global economic slow-down just because he's been a good ally of Rajoy these last years . Rajoy once again doesn't think for the good of the country he just thinks about how to win at any cost, imagine what he would be like in government!

The economy: PP's lies.

PP has found two months before the general election in the economic slow-down a new argument to attack the Zapatero Governmennt.

Rajoy argued today in COPE, the Church's radio station, that PSOE has blown in these last four years the previous PP government's sound economic indicators.

The reality is very different and Rajoy knows it, here are some arguments of why the Spanish economy is slowing down today.

1) Oil prices are at an all time high. Oil prices are having a great impact on inflation today across the globe. And in Spain is no different. However Rajoy seems to forget that the reason for the escalation of oil prices today is due to the war in Iraq and the instability that suffers the Middle East. The Bush Administration is responsible today for the escalation in oil prices due to the unlawful war his administration undertook in Iraq, and that same war was supported by the PP Government under Aznar and of which Rajoy was Vicepresident. Therefore Rajoy and his party are directly responsible today of inflation in our country.

2) The slow-down in the construction industry, engine of economic growth in Spain, is due to a necessary change in the economic priorities of the Government. The Zapatero Government has focused on switching the Spanish economy to one of sustainable development and diversification, including greater exports, productivity and value-added production (high-tech for example). Many economists have been warning of the possible burst of the construction bubble in Spain, and construction companies have moved swiftly, with that idea in mind, by diversifying their businesses. Ferrovial, ACS, Sacyr or Acciona have entered the energy, services and other industries to prevent the potential burst from affecting their profits. The Government as well has been preventing the burst, happening today in the UK for example, by providing a soft landing. It was the Aznar Government which promoted that kind of unsustainable growth, even today regions under PP (Murcia, Valencia, Madrid) maintain that economic model and are the ones suffering greater from the economic slow-down. PSOE was left no alternative than reforming the Spanish economy to compete with other developed economies as well as protecting the environment.

So there you are, if Rajoy wasn't so prone to lying and hiding the facts, would realise that the Zapatero Government has been modernising the Spanish economy these last four years to make it competitive. And has done so with a GDP growth of over 3.8% as well as creating half of the new jobs in the EU. The economic slow down of these last two months are due to PP's economic policy from 1996 to 2004 based on construction and a war in Iraq that has put oil prices up to an all time high.

Four more years for Zapatero will mean further modernisation of the Spanish economy to compete with those of developed countries such as Germany, Ireland or the Scandinavian countries. A Rajoy Government would mean more of the kind of growth based in speculation and unsustainable development seen in the late 90s and evident today in the regions they still control.

Business wants PSOE to stay.

Gerardo Diaz Ferran, president of the Spanish business council, has said today in Cadena Ser radio that the Spanish economy in 2008 is going to do better than certain prophet of doom has said. He continued by saying that the business council sees as excellent news Pedro Solbes' reelection as economic Minister for PSOE.

Needless to say Diaz Ferran was talking about Rajoy when he mentioned a 'prophet of doom'. I wrote a week ago that PSOE should be careful with the economy during the campaign. It seems the business council agrees, they have given PSOE an early Christmas present in the form of their indirect backing.

Still waiting for anyone to say, outside PP obviously, that Rajoy would be a better president than Zapatero. Seems even his traditional allies don't even believe it for a moment.

How to blow economic stability in 3 easy steps and bring down your political credibility along with it.

Step 1: announce a tax cut. A serious one as well, no paying taxes for people earning less than 16.000 euros a year. Good electoral stuff, people love it.

Step 2: in the same speech and with no shame, keep your poker face on, announce free nursery schools for all children across the country. Not just any country, a country of 44 million people so you can show how many of them you are going to build and how noone is going to pay. People love it but start wondering how you are going to pay for it if you cut taxes.

Step 3: polls show you aren't doing very well at all. Announce a raise of 150 euros a month in the lowest pensions. People, who were already a bit suspicious, take your party's ballot paper put it in a bin and go look for someone who actually stops mocking their intelligence.

So there you have it, nice and easy, the ultimate guide to PP's political campaigning.

A conservative party, anywhere else, will always look into two issues lowering taxes and lowering public services, you might not agree with the idea, I don't, but it's coherent, less money equals less spending.

But when it comes to PP and his leader Rajoy, they always can do better. Like Jesus multiplied loaves and fishes they can lower taxes and raise public spending. Not sure people are buying it anymore. Rajoy is starting to look like Joaquín Almunia, the Socialist candidate in 2000, who knowing that he was going to lose badly started his own electoral miracle shop offering similar promises. He lost by absolute majority. Rajoy is starting to look desperately Almunia-like.

PP's hipocrisy surfaces again.

Another appaling display of hipocrisy today by PP, this time in the Senate. The leadership of PP must presume voters are stupid people who can't read and therefore they can get away with anything. That can be the sole answer for their behaviour today.

For the last four years PP has relentlessly accused the Socialist Government of giving away the shop to the Catalan nationalists, demonised Catalan people in the rest of Spain and taken the new Catalan Statute to the Constitutional Court. But today they put aside all those stances on behalf of their so-called 'Spanish patriotism' and voted in favour of the vetoe proposed by CiU (nationalist Catalan party) and supported by ERC (independentist nationalist Catalan party) to the Budget for 2008.

The Catalan parties wanted to threaten PSOE with a vetoe to force them to negotiate further investment in Catalonia. And PP has supported that goal today with their unanimous vote. After permanently accusing PSOE of giving away too much to Catalonia today they changed it all and PP's hipocrisy has surfaced once again. They voted today together with their archienemies because they care more about beating PSOE than about standing on principle. This vote today dismantles PP's stance throughout this term, they only care about winning not about building anything of substance in the benefit of the country. They don't care how many lines they have to cross and how much divide they might create as far as people vote for them in March. But this last move is quite something. They have in one vote change their stance in one of their key issues this last four years just to deliver a small defeat for PSOE. How can people trust them anymore on any issue? Are they going to flip flop like this if they get to govern again? Are they willing to compromise the common good for the sake of a victory? PSOE will still pass its Budget in Congress overriding the vetoe and PP will have to explain to the electorate why the devils of yesterday are their friends of today.

It's the economy, stupid!

The Zapatero Government has been dealing with the economy pretty well this last four years. It focused in tackling two serious problems, public debt and productivity, and has dealt with them in a sound manner.
Public debt has been reduced substantially during this term and for the first time Spain enjoys a superavit in general terms in the public finances. In terms of productivity, the Government has increased public investment into R+D, education and has promoted structural changes in the economic sector in coordination with employers and unions. This Government has been the first in Spain to enjoy no union action against it since democracy was restored in 1975.

However, due to escalating oil prices, inflation across Europe has gone up lately and in Spain particularly, 1% higher than the Union's average. It is also true that Spain has grown at a faster rate than most of its European colleagues and created 45% of all the jobs created in the Union in the last four years, quite an achievement you'll have to admit. But escalating fuel prices have also spilled into the domestic economy, namely basic food products, like meat and milk. Furthermore unemployment has gone up in November for the second month in a row.

The Zapatero Government, as did Felipe Gonzalez's in the 80s, has proven the right wing press wrong in thinking that a Socialist government couldn't manage the economy as well as a PP one. Well, they didn't just not make it worse, they actually improve it to macroeconomic levels never seen before in this country. However, the latest economic figures are starting to show in opinion polls. Cadena Ser's weekly Pulsometro shows 60% of Spanish people are very worried about inflation and the general state of the economy and 34% are just worried. It also shows 45% of the people are worried about inflation in the food basket. The Government can argue, as some analysts have done already, that it is up to Brussels to manage inflation under the single currency, but the reality is that in an election year that isn't the most desirable answer. The Pulsometro poll shows that 72% of the people believe the Government isn't doing enough to change the economic situation. The Government should start thinking about the consequences of this situation in March. The economy isn't going to be a big issue this time around, but after four good years of sound economic policy surely PSOE doesn't want to have it against itself due to four bad months. Zapatero's announcement today that he's going to scrap the patrimonial tax is a good first step to reclaim the lead in the economic debate. More should be coming to make sure the economic growth of this term isn't forgotten by later developments.