Spains Long Economic Nightmare Is Finally Over

After nearly a decade of economic crisis, Spain is finally growing again,

underscoring hopes that the eurozone has reached a healthier place
MARTORELL, Spain Inside a factory as cavernous as an airport terminal, half-built cars glide down
the assembly line in a parade that never ends. Workers in coveralls sidle up on queue, attending to
the meticulously timed tasks of turning steel into road-ready sedans.
The bustling activity at the SEAT auto factory in this industrial town just west of Barcelona attests to
the new reality coloring life in Spain. The economy is growing again, expanding at around 3 percent
pace over the last year, producing goods for export, generating jobs and restoring a sense of
normalcy to a nation that has been saturated in despair.
This is good news not merely for Spain, but for Europe and the rest of the global economy.
For most of the last decade, Spain has suffered as an extreme example of the economic carnage
that has assailed the 19 nations sharing the common European currency. Its astonishing levels of
unemployment, which peaked at 26 percent, stood as a prominent marker of the desperation
inflicted by the implosion of its real estate investment bubble, combined with the global financial
crisis.
Now, Spains economy has returned to its pre-crisis size, according to data released by the
government on Friday. This seemingly puts the finish to one of the worst economic catastrophes to
play out in Europe in the years since World War II. It suggests that the continent, still grappling with
formidable, even existential challenges, has finally achieved recovery.
The sense of revival is palpable along the Barcelona waterfront, where stevedores work the arms of
giant cranes hoisting containers full of factory wares onto giant vessels bound for points across
Europe and Asia. It infuses a crop of start-up companies filling up the forlorn office spaces in major
Spanish cities, where the cost of living looks more reasonable than London or Paris. It permeates
even the vineyards, where a crop of young entrepreneurs is capturing spoils by reimagining family
businesses, exporting classic wines in new bottles.
Spains experience offers lessons for Europe, though in precisely what way depends on ones views
on how things went so wrong.
Under one school of thought, Spain was a victim of the budget austerity imposed by European
leaders in a wrongheaded effort to choke the crisis. Faced with the bursting of the real estate
bubble combined with a global downturn, the government should have unleashed money on
infrastructure projects to generate jobs.
Instead, rules governing the euro forced Spain to limit spending, extending the agony. Spains
newfound global competitiveness is in large part a function of how wages have remained depressed
even as jobs have returned. In this telling, Spains resurgence is less cause for celebration than a
grim reminder of how long it took.
The pain is etched in the numbers. The unemployment rate remains above 18 percent and is near
39 percent for younger workers. Some 4.25 million people in a nation of 47 million are officially
looking for work. Even in areas of growth, fraught labor negotiations and frequent strikes attest to
the insecurity of work and the pain of diminished wages.
Others cite Spain as a validation of the revivifying powers of tough economic reforms. Spain made it
easier for employers to fire workers, thus making them more willing to hire. In this telling, Spain is a
useful template for France, as its new president, Emmanuel Macron, girds for resistance from
unions to his own labor alterations.
Spains economic reconfiguration is widely hailed as a key driver of growth. A decade ago, the
country was hopelessly addicted to a credit-fueled construction boom that produced a shattering
bust, leaving banks collapsing in the face of bad loans.
Today, construction is at half its previous weight in the Spanish economy. Exports have swelled to
close to one-third from about one-fourth of the national economy.
The massive SEAT (pronounced say-AHT) factory, part of the Volkswagen Group, is a prime example
of how Spain has seen its fortunes lifted by exports. Back in 2010, the plant was losing money while
producing 300,000 cars a year. Last year, it rang up profits of 153 million euros (about $172 million)
making 450,000 cars and exporting more than 80 percent of those vehicles. It has shifted to
manufacturing higher-profit products like Audi sedans.
Within the whole of the Spanish economy, cars, trucks and auto parts now collectively compose
more than 17 percent of total exports, according to data assembled by the M.I.T. Media Labs
Observatory of Economic Complexity.
They have become a model industry in Spain in terms of how to become successful, and reform,
and compete abroad, said Angel Talavera, a senior eurozone economist with Oxford Economics in
London.
The SEAT plant is midway through a five-year upgrade, injecting some 3.3 billion (about $3.8
billion) worth of new machinery into its operations. When company executives touted their VW
overseers on the merits of investing such an enormous sum in Spain, they pointed to the labor
reforms.
It was a relevant sign, said Joachim Hinz, director of financial planning at the SEAT complex. This
country is moving in the right direction.
On a recent afternoon at the factory, driverless carts roll quietly, carrying parts to workers just as
they are needed. Computer sensors send alerts when anything goes awry; a screw left loose, an
electrical connection not made.
If youre a loss maker, youre fighting like hell every day, 365 days of the year, to get better, Mr.
Hinz said. A crisis holds an opportunity.
Many of SEATs finished autos are loaded onto rail cars and conveyed to the port of Barcelona,
where stevedores drive them onto ships destined for Italy, Germany and beyond. Over the first six
months of this year, record volumes of traffic moved through the Barcelona port, an increase of 18
percent compared to the same period a year earlier.
On a recent morning, hundreds of men and women gathered at the union hall, drinking coffee out
of cardboard cups and hollering greetings as they watched numbers flashing on a board overhead.
The numbers determined who gets which jobs on this day foreman, mobile crane operator,
reach stacker.
During the crisis, more than half of the 700 stevedores seeking assignments went home with no
job, subsisting on their guaranteed minimum pay. These days, 600 working people are pulling daily
assignments.
We are now at a similar point as before the crisis, said Xavier Tarraga, coordinator for the
regional branch of the sea workers union. Everybody has a job.
Spains swelling exports have aided once-struggling companies, helping restore the governments
tax revenues, which plummeted during the crisis. Barcelonas local tax revenues have grown
modestly, from 2.5 billion in 2013 to an anticipated yield of more than 2.7 billion this year.
The money is slowly flowing back into the economy.
Less than a mile away from the Barcelona port, workers donning safety jackets and dusty boots
prepare to descend bare concrete steps to their jobs building a new subway station. Work on the
long-planned expansion of the Barcelona system, a 6.8 billion ($7.6 billion) undertaking halted
some three years ago, has resumed.
For Toms Lpez Medina, who oversees safety programs at the site, this has meant rescue from the
dire math of joblessness.
He had been living on unemployment benefits worth about 1,100 a month, less than half what he
and his wife had earned back in 2007. His wife had lost her own job as an administrative assistant at
a construction company, when that business folded.
They had relinquished their apartment, in a vibrant neighborhood of Barcelona where his wife had
grown up and where she still had family and friends. They moved into an industrial void on the
outskirts of the city.
My wife doesnt like it, Mr. Medina said, swallowing back tears. Theres no life in this
neighborhood. Theres no shops. Where we live now, people just sleep and go back to work.
He and his wife had not bought clothes for years. They had forsaken seafood for chicken. His
unemployment benefits were about to expire.
We talked about the need to stay in the apartment and not pay the rent, he said. It didnt feel
good. Thats not the kind of people we are.
Then the Barcelona subway extension started back up. One of the companies building stations
offered him a job at 1,500 a month.
I gave a hug to my wife, he said.
A complete revival is still a ways off.
The Spanish government carries enormous debt, reaching 100 percent of the economys annual
output, the leftover cost of paying out unemployment benefits during the crisis while also bailing
out crippled banks. Government investment in infrastructure remains weak.
The spoils of even a tenuous recovery remain the subject of bitter acrimony. The port workers
recently went on strike, seeking to secure a three-year job guarantee after absorbing a major
setback in the new contract, assenting to wage cuts and allowing employers to hire outside their
ranks. For those who operate existing subway lines, the strain of lower wages remains, prompting a
series of labor actions that have disrupted service this summer.
And yet other opportunities have emerged. The crisis knocked down the cost of living in Spain,
making Barcelona one of the most affordable, highly-desirable metropolitan areas in Europe a
realm of glorious architecture, inventive food, and pleasing weather.
By one measure, life in Barcelona is today 36 percent cheaper than London, 28 percent less
expensive than Paris, and even 4 percent cheaper than Berlin, long a magnet for young people
looking for European civilization at a discount.
Young professionals have arrived from around the world. Some have landed amid a growing crop of
start-up companies, not unlike those in other cities full of sunshine and gourmet coffee.
The city of Barcelona has opened an incubator, offering steeply discounted rents to new companies
while stocking the usual trappings of the start-up realms; irregularly shaped, low-to-the ground,
uncomfortable furniture in neon hues, glass walls, open floor plans.
Among the current occupants is Meller, a company that designs and sells sunglasses aimed at
young people with a whimsical sense of style on a limited budget. Begun in 2014, its sales have
swelled to more than 5 million last year from 40,000 in the first said Marco Grandi, a founder.
Mellers two dozen employees include people from Venezuela and Germany. The company uses
Instagram to ferret out new looks, like their retro embrace of tortoise shell frames accented with
modern, rose-colored lenses. We are cool hunters, Mr. Grandi, 27, said.
Recruiting would have been more difficult were it not for Spains epidemic of youth unemployment.
Sunglasses carrying designer looks for less than 100 would not have had the same appeal.
A crisis is probably the best moment to start a new business, said David Prez, who ditched a
career at IBM to start GoPopUp, a platform that matches owners of commercial spaces with
retailers seeking to establish pop-up stores.
The crisis has also increased Spanish innovation, by forcing companies steeped in tradition to
reconceive their businesses.
Ficosa, an auto parts business based outside of Barcelona, has expanded beyond its core pursuit
(making rearview and side view mirrors) to focus on driverless car technology.
A similar process of reconception is playing out in the tourism industry, where a start-up company,
TripUniq, is tapping local experts to customize travel itineraries for visitors.
Food and wine are experiencing a refashioning, too.
For years, the Virgili brothers the identical twins Alex and Albert, 27, and their older brother,
Jordi, 32 hectored their father to modernize the family winery, Casa Berger. It had long churned
out mass-produced, undistinguished wines, to be shipped over the border and folded into table
wines bearing a label that fetched money, Product of France.
The brothers had visions of bottling their own wines. But their father rejected their entreaties as
foolhardy. He and his own father had done it the same way for a half-century. The business had
sustained them.
Yet even before the crisis, Casa Bergers sales were slipping. The crisis threatened it with
bankruptcy. For the brothers, here was an opportunity.
They conceived of an idea that seemed at once ridiculous and sublime. They would bottle white
wine made from the xarel-lo grape, a local varietal of no particular distinction. They would label
their bottles with a crude Catalan pun, calling it El Xitxarel-lo, which roughly translates to young,
stupid guy. They covered their bottle with six dozen other Catalan insults.
When we told our father and our uncle that we wanted to launch a bottle with 77 different
Catalan insults, they said O.K., but please dont put our brand on the bottle, Albert recalled.
Today, El Xitxarel-lo, marketed through a homespun and irreverent social media campaign,
amounts to the blockbuster that has saved the family business. Starting with 3,000 bottles in the
fall of 2013, it now sells 85,000 bottles a year.
The brothers recently opened La Festival, a retailer of organic wines set up in a Barcelona
neighborhood full of hardware stores turned into gastro pubs. One wall is devoted to taps that
draw from tanks full of wine. One tap offers wine from Finca Parera, the work of Rubn Parera, a
37-year-old vintner who persuaded his own reluctant father to chop down cherry, plum and peach
trees at his struggling orchard to make room for grapes.
Customers at La Festival bring in refillable growlers and leave with wine to carry home. Which
means the Virgili Brothers have engineered success by reinventing the very commodity their family
began with: bulk wine.
On a recent evening, they were readying for a trip to New York to seek new customers, potentially
adding their wine, bearing Catalan insults, to the wave of cars, auto parts, olive oil and other
Spanish wares headed to points far away, lifting the country out of the doldrums.