Siesta’s over for Spain’s economy

Jorge Luis Garcia Garcia got in on the ground floor of Spain’s economic bonanza.

Fifteen years ago he was a Peruvian immigrant working two jobs, washing dishes by day and stoking bakery ovens by night. Today he owns a prosperous construction firm, supplies loading trucks to other builders and is about to expand into recycling.

He owns a home and cars and employs other immigrants, as well as a few Spaniards.

“The doors are wide-open here,” Garcia said. “If you hop to it, you can get ahead. My friends and relatives in Italy and other parts of Europe, they all want to come here.”

From small businesses like Garcia’s to behemoth banks like Grupo Santander, Spain’s economy has been racking up phenomenal growth, transforming what was once a backwater into the incandescent bright spot of a generally sluggish Europe.

Fueled by consumer spending, easy debt, immigrant labor and a runaway building industry, Spain has been growing well above the European Union average for a decade.

This has given Spaniards and Spanish residents a can-do sense of optimism that has proved contagious to investors and helped apply a new luster even to some of Madrid’s more run-down neighborhoods. Here in the capital, construction cranes dot the horizon in just about every direction.

In major cities, Spaniards have given up the once-common siesta and are working longer and harder, or at least more efficiently, than ever before. Unemployment -- once the highest in Europe -- is at a historical low; more jobs are created in Spain than anywhere else on the continent (although, as critics point out, many of those jobs are low-paying and short-term).

Is this boom sustainable? Even as economists are beginning to warn that the party may soon end, newfound Spanish wealth is evident in all sorts of places.

Credit cards, rare until recently, have become very popular. Cafes and restaurants are full every night of the week. The upper-middle class is expanding, and even mid-middle-class families are now likely to have maids and nannies. Sales of luxury vacations and SUVs have soared; among the high-end cars plying Spanish highways it is possible to see the occasional Hummer, still a rarity in most of Europe. Demand is so strong for plastic surgery that the government now includes it in the “shopping basket” of basic goods whose prices are used to calculate inflation and buying power.

Spain’s largest companies are stalking foreign shores, buying rivals and making acquisitions befitting the top tier of the Fortune 500. Long established in Latin America, they have branched out in Europe and elsewhere.

Late last year, for example, Spanish electricity supplier Iberdrola purchased Scottish Power for $22.5 billion to create Europe’s third-largest utility. Banco Santander, Spain’s largest bank, purchased Britain’s Abbey National Bank for $24 billion, catapulting itself into the club of the world’s most powerful corporations.

When Forbes magazine published its list of the richest people in the world in March, Spain had doubled its number of billionaires since the previous year, to 20 (second on the continent only to Germany). Most of the newcomers amassed their fortunes in construction.

There are downsides in Spain’s expansion, serious flaws that could spell doom. For one thing, the pillars of its growth -- construction, housing, banking and tourism -- either cannot be sustained forever or do little to enhance productivity. A wild housing market, in which construction marched unabated along with new-home prices, has already started to slow.

And with salaries unable to keep up with inflation as consumers spend freely, Spaniards are heavily in debt.

Some economists caution that if Spain does not invest more in research and development, increase productivity and add high-value components to its exports, a painful fall may be in store.

“Spain is living its longest and most intense period of expansion since it became a market democracy in the late ‘70s,” said Paul Isbell, principal economic researcher for Madrid’s Elcano Royal Institute, a think tank.

“But Spain has to ask itself, when will this change? We are past due for a recession. The question is whether it will be a soft landing, with growth tapering off without a recession, or a harder landing?”

Acknowledging that the high levels of household and corporate debt were problematic, Finance Minister Pedro Solbes said in February that he remained confident Spain’s economy would continue to grow, if at a slightly slower pace -- perhaps closer to 3% of gross domestic product than the 4% of recent years.

Spain’s drive for growth was propelled in part by its need to catch up with the rest of Europe after emerging from nearly four decades of stifling dictatorship in 1975. Catch up it did, and then some.

Not so long ago, Spain was grouped in the basket-case club of European economies, a length or two behind Italy. Yet in another sign of its success, Spain this year is surpassing Italy in per-capita GDP and other key indicators.

The comparison with Italy is instructive. The two economies have essentially been going in opposite directions. Spain’s energy and dynamism is matched in Italy by pessimism and stagnation.

One reason: Spain has maintained fairly consistent economic policies for many years, whether the left or the right was in government, while Italy’s procession of short-lived coalition governments has failed to instill confidence or push through economic reforms. Labor unions remain very strong and pensions very expensive in Italy, but Spanish governments have been able to negotiate more easily with unions and limit costly benefits to workers.

A flexible labor market is good for business but has imposed insecurity on young workers, some analysts say. About a third of the workforce is employed under short-term contracts, and the vast majority of new jobs come with these conditions, Isbell said.

That means little chance for advancing in established careers, a situation that is especially problematic for university graduates in their mid- to late 20s, who are increasingly unable to fulfill their rising expectations.

“True, they can find a job but they don’t know where they’ll be working three months from now,” said Marta Garcia Aller, author of “The Precarious Generation,” which looked at the plight of hundreds of Spaniards born between 1970 and 1985 as they entered the workforce. “They cannot pay mortgages and cannot find better jobs. [They] expected to do better than the parents, not worse.”

Among the big winners in this flush nation is banking giant Santander, now the world’s 10th-largest financial group.

It has also become a leader in another byproduct of Spain’s new economy: suburbanization. The bank has concentrated most of its operations in a vast compound several miles west of Madrid, a veritable mini-city of mirrored skyscrapers, reflecting pools and perfectly symmetrical Mediterranean evergreens. Sleek minibuses run like clockwork to take employees from gated entrances to their nearly 7,000 workstations.

The guarded compound has restaurants, a clinic, tennis courts and a dry cleaner. It has such a futuristic, automated feel to it that a visitor almost expects George Jetson to fly by.

Jose Antonio Alvarez, Grupo Santander’s chief financial officer, is one of the top executives who still commute from his home in central Madrid. Many employees, however, have moved nearby, essentially taking up the city-to-suburb trend seen in the U.S. decades ago.

Santander’s success -- highlighted by multibillion-dollar acquisitions and astronomical profit -- should not come as a surprise, Alvarez said. Spanish companies have been steadily building and consolidating to become ever more powerful.

“I understand it’s surprising when you hear of these things being done by Spanish companies. You expect it from Americans or Germans,” he said. “But it’s been a long process, 10 to 15 years of growth.”

Grupo Santander has jumped on an expanding market: immigrant workers who send money to their home countries. It was the first company to eliminate fees for remittances.

Spain has the fastest-growing immigrant population in Europe and, consequently, the largest tally of remittances, about $4.3 billion last year. By official count, 4 million foreigners have moved to Spain in the last five years. The foreign-born now account for nearly 10% of the population.

Spain has managed to avoid many of the social tensions that plague France and Britain and given legal status to a legion of foreign workers who pick fruit, build buildings and wait tables. It helps that the majority come from Spanish-speaking countries, but Spain has decided it is better to bring immigrants into the system.

They do jobs Spaniards no longer want, but they pay taxes, contribute to social security and are a recognized engine of the economy.

“The global migration phenomenon is unstoppable,” said Marta Rodriguez-Tarduchy, the labor ministry’s immigration director. “We measure what the labor market needs and can sustain.... We figured the best way so they are not resented.”

At least for now. Recent surveys showed Spain was the destination country of choice for EU job seekers and Spanish acceptance of immigrants exceeded that of other European countries.

*

tracy.wilkinson@latimes.com