Margareta Pagano: His holiday's cancelled. But Zapatero has more important things to do
Spanish PM hopes tax breaks and housing loans will prevent recession
Sunday 17 August 2008
The grand autopistas linking Barcelona with the rest of Spain and the French border were almost empty. Usually these motorways heave with lorries carrying goods from the city's industrial suburbs and the zona franca port into the rest of Europe. Not any more. I've just returned from the Catalan city and the difference from two years ago is stark. Not only are the roads emptier, but once booming Barcelona is eerily quiet and surprisingly rather faded.
Apart from Lionel Messi's chances in the Olympic football, the chat in the bars is about food and fuel prices, the number of en venta signs, crashing property prices and a fear of more job losses. Luckily, Spain's Prime Minister, Jose Luis Zapatero, has wasted no time in dealing with the crisis. For the first time since Franco's dictatorship, a prime minister interrupted his holiday to call an emergency cabinet meeting last week.
The details have yet to be disclosed, but the cabinet agreed a package including tax cuts and a mortgage rescue plan in an attempt to slow the downturn. So far, Zapatero's moves look clever. They include abolishing inheritance tax and giving VAT rebates, measures that will inject €7.8bn (£6bn) into the economy. Added to that, the government will provide €20bn in loans for state housing and small and medium-sized businesses over the next two years. The plans will pump around €40bn into the economy to try to avoid its first recession in 15 years. The government is also trying to speed up other tax breaks and credit lines announced in the spring.
As the latest figures from Eurostat showed last week, Spain's problems are among the roughest in Europe. Inflation last month soared to a record 5.3 per cent year on year, about one percentage point above levels in other EU states and its highest rate for 15 years. Growth was tiny at 0.1 per cent in the second quarter, the lowest since 1993 when Spain emerged from its last recession.
Once again, it's Spain's property market that is hurting most. Although the banks did not lend nearly as much in total as their UK peers, the credit crunch has hit hard because of huge loans to the property sector. As the bubble popped, hundreds of developers have gone bankrupt, taking construction firms and estate agencies with them. Spain's problems are worsened by an over-reliance on service industries, which drive two-thirds of the economy. Higher labour costs and inflation are making goods uncompetitive, which is why Zapatero is pushing through reforms to cut red-tape. Spanish unemployment – the EU's highest – rose by 475,000 in June while industrial output fell by 9 per cent: boom is turning aggressively to bust.
Like Gordon Brown, Zapatero is fighting to regain popularity, now at its lowest level since he became Prime Minister. Also like Brown, he has denied there is a crisis at all. But cutting inheritance tax and providing loans for state housing looks smart and may win him back some friends. It certainly makes Alistair Darling's attempt to boost the UK's mortgage market by hinting at a cut in stamp duty look ridiculous.
What else can Zapatero do? As a paid-up member of the eurozone, Spain's options are limited. Economists reckon it needs a 30 per cent revaluation to restore some sort of balance. But how? It can't devalue or exit the euro bloc easily, nor can it pump more money into the system without breaking EU rules.
Spain is not the only country tipping into recession: Germany, France and Italy all shrank in the first quarter – the first quarterly contraction in the 15-country economy since the euro was launched. Jean-Claude Trichet and his colleagues at the European Central Bank have clearly misjudged the severity of the downturn. Putting up rates a few months ago now looks unnecessarily harsh. Trichet should take a lead from Zapatero and get his people together before things get worse. As Citigroup's Michael Saunders puts it, Europe is now competing in misery.
Not all success stories start with a university degree
How refreshing to hear such intelligent advice, and so early in the morning. Kim Winser, chief executive of Aquascutum, was on Radio 4's 'Today' programme on Friday talking about the advantages of going straight into business rather than university. As she said, if you know what you want to do and are passionate about it, go for it. She obviously struck a chord; calls have been flooding in since the broadcast.
Winser tells me that when he heard she was going to M&S, her headmaster said: "I can't bear the thought of you working at a till." She didn't stay long at the till – she was the retailer's youngest-ever director and the first woman on the board. Then she turned Pringle around before being headhunted for Aquascutum. She's done rather a good job; sales are up 50 per cent at the flagship store and 100 per cent at the Harrods concession. It's also now one of the UK's coolest brands, dressing stars from Duffy to David Bowie.
Sir Richard should change the record and start accepting the new reality
Sir Michael Bishop is the man to listen to in the latest spat between Virgin's Sir Richard Branson and British Airways' Willie Walsh over BA's planned tie-up with American Airlines. As usual, Sir Richard is arguing the "oneworld" deal between BA, AA and Iberia is a "monster monopoly".
Unfortunately for Sir Richard, he's repeated his arguments so many times that he's beginning to sound like a cross between a parrot and Pavlov's dog. As Sir Michael wisely says, this time things really are different. The chairman of rival carrier bmi went even further, admitting that it would be hard for the US regulators to argue a case against a proposed anti-trust deal.
What BA and AA want is immunity from any anti-trust deal that would allow them to share on capacity, ticketing, scheduling and profits. This is the next best thing to a full merger, which is not allowed under US law.
The airline industry has changed enormously in the 12 years since BA and AA first tried to get together. There is now an "open skies" agreement between the EU and the US which broke the hold that BA, AA, Virgin and United had on transatlantic flights out of Heathrow. At the same time, there have been a number of links between airlines such as the Star Alliance of Lufthansa, Singapore and United, as well as the SkyTeam of Air France, KLM and Delta. Both have anti-trust immunity and both have relatively big monopoly positions in their home hubs. Star, for example, has about 80 per cent of the flights between Frankfurt and the US, while SkyTeam has almost as much from Charles de Gaulle.
Then, of course, there are soaring oil prices and troubled economies, which means there will be further consolidations if airlines are to stay profitable. Walsh is positioning himself for the next inevitable wave of takeovers.
Sir Michael is playing his cards carefully as he will play a big part in the next reshuffle, with Luft-hansa having an option to buy some of bmi if he decides to go. If Sir Richard wants to be taken seriously, he needs to find a new line.
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