HispanicBusiness

"Fortunately, there are no urgent economic problems that require emergency measures," says Argandoña. "Nevertheless, while the economic situation is not delicate, it is not overly buoyant either. The mood among executives is not euphoric. Investment growth in capital goods has started to soften. Above all, the crimes of March 11 will have an impact on tourism and on foreign investment."

Mulas-Granados believes that "the main challenges facing Spain's economy will not be different [after March 11]. However, the areas where PSOE (the Socialist party) policy will be spelled out will be housing, productivity, research and development, tax regulations and changes in the labor market.

No Experimenting
The day after the elections Miguel Sebastián, who coordinates economic policy for the PSOE, announced the directions the new government will take, iIncluding an emphasis on a growth model based on productivity. Areas of continuity (with the previous government) include respect for the zero deficit, a balanced budget and rigorous tax regulations. According to Monica Melle, assistant dean at the Complutense University's faculty of business and economic sciences, "Zapatero is not an expert in economics but he knows the basics. Moreover, he is open to learning and figuring out the hidden aspects of the economy." Sebastián hastened to quiet economic markets by noting that "we are not going to do any experiments."

Although the new government takes over at a time of economic peace and quiet, it will not all be smooth sailing. "The economic model that has propelled the Spanish economy in recent years has been exhausted," argues Melle. "It was based on domestic demand and on bricks-and-mortar (housing). The socialist model for sustainable growth is based on a virtuous circle. It involves increased spending on human and technical development, on R&D and on education in order to generate greater productivity."

Argandoña has this advice for the new government: "You will have to define, slowly but surely, the parameters of your fiscal policy. Society does not want to go back to high levels of public sector debt. It must understand the results of any promises to lower taxes, develop R&D, create new infrastructure and so forth."

On the other hand, "a great deal of economic policy is now determined by the European Union," notes Melle. "Decisions about interest rates, exchange rates and so forth, come from Europe. What's most important in Spain's economic program is industrial policy and everything related to training, innovation, budget stability and employment." The economic platform that the PSOE presented at election time highlighted four pillars: Greater productivity, higher savings, quality jobs and greater social cohesion.

High Cost of Housing
Until now, Spanish consumers' rate of saving has been damaged by low interest rates and high inflation. However, investing in real estate has created an alternative source of wealth. Now the danger exists that a fall in real estate prices will have an impact on the "wealth effect" and on consumption by reducing consumers' purchasing power. The Goldman Sachs report notes that Spain's main disadvantage when it comes to growth is "the high level of household debt, largely because housing prices are getting higher and higher."

One of the Socialists' most ambitious programs involves housing. A specific electoral promise involves creating a ministry of housing and a public rental agency as well as deregulating property. There is also a firm commitment to "tackle overpricing and speculation in real estate," notes Mulas-Granados. According to Melle, "this sector is undergoing disinflation and it is no longer the motor of growth. To create a market that is once again stable, you need a very careful approach that does not explode the real estate bubble." Melle warns that if the government gets involved in the real estate market, it could be viewed as an insulting form of intervention.