Spain presses for dialogue over the Ukraine, not military aid. Podemos consolidates itself as the leading party, Ciudadanos rises. Spain’s foreign population, second largest in European Union. Spain’s growth set to accelerate. Airport operator AENA in Europe’s largest initial public offering.
http://www.realinstitutoelcano.org/wps/wcm/connect/ad4c1400476d2ec6b1baf5a6f6757d0d/114_InsideSpain_ElcanoNewsletter.pdf?MOD=AJPERES&CACHEID=ad4c1400476d2ec6b1baf5a6f6757d0d

The Spanish economy is gaining momentum at a faster pace than expected, as evidenced by the constant upgrading of the GDP growth forecasts for the country by the International Monetary Fund and the European Commission.
Click on the title for the link.
http://www.realinstitutoelcano.org/wps/portal/web/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=%2Felcano%2Felcano_in%2Fzonas_in%2Fcommentary-chislett-why-is-spain-recovering-faster-than-expected#.VOdHXLDF-ib

Spain takes up seat on UN Security Council. Madrid and Washington to negotiate stationing permanent US Marines Africa force in Spain. The year 2015 will be replete with elections and corruption cases in the courts. Spain to grow faster in 2015 than the other big euro-zone economies. China’s Dalian Wanda takes 20% stake in Atlético de Madrid.
http://www.realinstitutoelcano.org/wps/wcm/connect/d7d15b004719ae8ab74cbf9f829e4464/113_InsideSpain_ElcanoNewsletter.pdf?MOD=AJPERES&CACHEID=d7d15b004719ae8ab74cbf9f829e4464

Both Spain and Greece have far-left anti-establishment parties, born out of indignation at many years of austerity and endemic corruption, that look like toppling established parties in both countries, in Greece’s case on 25 January when a snap general election is held.

Greece’s Syriza and Spain’s Podemos, part of the same bloc in the European Parliament, want an end to austerity and a major restructuring of their countries’ debt. Syriza is pressing for debt forgiveness whose consequences could include Greece’s exit from the euro zone. This is considered unlikely, although Germany appears to be more sanguine about a Grexit. Finland has already emerged as a major hurdle to a negotiating a new bailout deal with an incoming Greek government.

Prime Minister Mariano Rajoy’s visit to Greece on 14 January to show political support for Antonis Samaras, his embattled counterpart, has cast a spotlight on the similarities between the two countries. They certainly exist, but so do differences and to a greater extent.

Firstly, the Greek crisis has been much deeper than Spain’s: its GDP has fallen by around 25% compared to 7% for Spain. Greece, unlike Spain, was forced to accept a sovereign bailout by the ‘troika’ (the European Commission, the European Central Bank and the IMF). Some of Spain’s banks, however, had to be rescued. Madrid exited this programme exited a year ago, whereas Greece is still beholden to the ‘troika.’

The unemployment rates in both countries are similarly massive (see Figure 1). Spain destroyed 3.8 million jobs between 2007 and the third quarter of 2014, according to Eurostat, and Greece’s much smaller economy (2% of euro zone GDP compared to Spain’s more than 10%) 1.1 million. While Spain generated 553,400 jobs during this period (representing 14.5% of those shed), Greece created 107,000 (9.2%).

Figure 1. Unemployment rates in Greece and Spain, 2006-2014 (%)
2006-10 2009 2010 2011 2012 2013 2014*
Spain 13.2 18.0 20.1 21.7 25.0 26.4 23.9
Greece 9.4 9.5 12.6 17.7 24.3 27.3 25.7
(*) November
Source: Eurostat.

As well as a weaker labour market, Greece’s general government gross debt is much higher than Spain’s (175% of GDP as against almost 100% and considered unsustainable and not just by the radical left), which explains Syriza’s determined push for debt forgiveness that is frightening Europe’s leaders. Greece began its crisis with a debt load of more than 100%, while Spain’s level was under 40%. Both countries are running current account surpluses in GDP terms (an estimated 1.5% for Greece last year and 0.2% for Spain).

More than any other European leader, Rajoy stands to lose the most if Syriza wins the election as his government’s austerity measures, more than Greece’s, are producing a glimmer of light in what has been a long tunnel of recession. Rajoy’s dogged sticking to orthodox reforms and spending cuts has made him something of a poster boy for the fiscally conservative German Chancellor Angela Merkel.

‘The recovery in Spain is undeniable,’ trumpeted Luis de Guindos, the Spanish Economy Minister. ‘We have now had growth for six quarters, job growth is faster than expected and tax revenues are on the rise. Spain is outperforming its peers in Europe and, according to the European Commission, we will continue to outperform this year and next. Spain never lost the ability to fund itself, and never lost access to the capital markets. If you look at the spreads now, they are at an all-time low.’

Bond yields show there has been a decoupling between Greece and the rest of southern Europe including Spain. The risk premium (spread) on Spain’s 10-year government bonds over the benchmark Germany’s bunds has come down from 3.54 percentage points in October 2011, one month before the general election which swept the Popular Party back into power, to just over one point, while Greece’s has declined from 23 p.p. to 9.

Among the crisis-hit countries Spain has been the most reform minded. The labour market is less dysfunctional, as a result of reforms in 2012 that have reduced severance payments for unfair dismissals and given companies greater flexibility to set wages and working conditions themselves rather than through sector-wide bargaining.

Spain is now creating jobs at lower rates of GDP growth than before. In previous cycles, employment rose when growth hit 2%. Jobs were created last year with growth of around 1.4%, though many of them are temporary and precarious. GDP growth this year is put at more than 2%.

Both Spain and Greece, however, still rank at the bottom of the World Bank’s latest classification of countries by the number of weeks of indemnity pay for termination of a contract after 10 years employment in the same company – 26 in the case of Greece and almost 29 for Spain.

A Syriza victory could boost Podemos’ electoral prospects, though this could easily change if Syriza’s policies fail to make any headway or deepen Greece’s crisis,
and produce an unravelling of the conservative Popular Party’s reforms if the party does well in Spain’s election due to be held by December.

The latest voter intention poll by Metroscopia, published on 11 January, gives Podemos 28.2% of the vote, the Socialists 23.5% and the Popular Party 19.2%. Whereas Syriza looks like forming the next Greek government, none of the main Spanish parties would be in this position if, as the polls suggest, they all obtain between 20% and 30% of the vote. In this situation, the colour of the next Spanish government is far from certain and Podemos would not be able to govern on its own. It would need to form a coalition with the Socialists. By splitting the left-wing vote, it is not beyond the realms of possibility that the Popular Party continues in power, although without an absolute majority.

The real test of the extent to which Spain is not bracketed in the same basket case category as Greece will come if, as expected, Syriza wins and its victory contaminates Spain. No one is sticking their neck out and saying the contagion for Spain would be minimal, but the improvement in the country’s macroeconomic fundamentals would suggest that Rajoy need not be too nervous.
http://www.realinstitutoelcano.org/wps/portal/web/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/commentary-chislett-spain-and-greece-the-same-and-different

The arrest of Turkish journalists, media executives and even the scriptwriter of a popular television series, ostensibly for ‘forming, leading and being a member of an armed terrorist organisation’, brought a swift rebuke from the European Commission and raised the question of whether Turkey’s EU painfully slow accession negotiations should be suspended.

Federica Mogherini, EU Foreign Affairs chief, and Enlargement Commissioner Johannes Hahn said the raids and arrests ‘are incompatible with the freedom of media, which is a core principle of democracy’. They said Turkey’s move towards membership depended on ‘full respect for the rule of law and fundamental rights. ’

Erdogan responded to the criticism in his characteristic abrasive style, telling the EU to ‘mind its own business and keep its opinions to itself.’

Those arrested, including Ekrem Dumanli, editor-in-chief of Zaman, the country’s widest circulating newspaper, are associated with the influential Hizmet religious movement, led by the Muslim cleric Fethullah Gülen, who lives in self-imposed exile in the US and runs an extensive network of schools and businesses.

Recep Tayyip Erdogan, the former prime minister for 11 years and the country’s first directly elected president since August, is locked in a power struggle with Gülen, a former ally, whom he accuses of running a ‘parallel state’.

In December 2013, Erdogan accused the movement of being behind prosecutors and police who tried to arrest dozens of his supporters on charges of corruption. Erdogan transferred or fired thousands of police officers and prosecutors and managed to derail the charges.

An Istanbul court rejected this week appeals to pursue the charges and dropped the case, drawing further fire from the EU. In a statement on Tuesday EU foreign ministers said: ‘The response by the government to the alleged cases of corruption in December 2013 cast serious doubts over the independence and impartiality of the judiciary, and demonstrated an increasing intolerance of political opposition, public protest and critical media.’

Only one EU accession chapter (on regional policy) has been opened since 2010, bringing the total number of areas under negotiation since membership talks started in October 2005 to 14 (out of 35). And opening that chapter in November 2013 was delayed four months as a result of pressure from Germany, following the excessively harsh crackdown on anti-government protests over a development project in Gezi Park in the heart of Istanbul. Just one chapter (on R&D) has been opened and provisionally closed.

The Council of Ministers suspended eight chapters in 2006 because of Ankara’s refusal to extend the EU-Turkey Customs Union to Cyprus (an EU member since 2004). Cyprus, the northern third of which has been occupied by Turkey since its invasion in 1974, has unilaterally suspended another six chapters and France (during the presidency of Nicolas Sarkozy) has blocked four unilaterally. Talks to reunify Cyprus broke down yet again last October when Ankara said it would search for oil and gas in waters where Cyprus has already licensed drilling.

Erdogan’s latest outburst comes at a time when Eurosceptism is on the rise, and with it opposition to Turkey’s EU membership. Last May’s European elections produced stronger results for anti-EU parties in France, Denmark, Hungary and, in particular, the United Kingdom. Furthermore, David Cameron, the UK prime minister and the most active supporter of Turkey’s EU membership, has raised the prospect of Britain leaving the EU if it does not get its way on issues such as immigration. Furthermore, the EU is suffering from ‘enlargement fatigue’: Jean-Claude Juncker, the new European Commission president, sees no country joining the EU before 2019.

Andrew Duff, a former MEP and president of the Union of European Federalists, believes Turkey’s negotiations are ‘at best useless and at worst fraudulent: they should now be suspended.’ Duff, a self-confessed Turkophile, now says in public what many believe in private.

Erdogan began well when his centrist Islamic Justice and Development Party (AKP) was swept to power in 2002, producing the equivalent of a tsunami for the Kemalist political establishment (the secular Mustafa Kemal Atatürk founded the modern Turkish state in 1923 on the ruins of the Ottoman Empire). The AKP revived Turkey’s moribund EU accession process (which dates back to 1963 when it became an associate member), introduced much-needed reforms, including placing the military, the arbiter of political life, under civilian control, broke nationalist taboos by acknowledging, to some degree, the 1915 Armenian massacres, pursued a solution to the division of Cyprus, which was unsuccessful, and reached out to Kurds by recognising cultural rights and approving a legal framework for peace talks with the separatist Kurdistan Workers’ Party (PKK). Per capita income has doubled in the last 12 years, reflecting economic reforms that have unleashed a dynamic private sector.

But the longer he has been in power – winning just under 50% of the vote in the 2011 general election – the more authoritarian he has become. In Duff’s words, ‘Erdogan knows how to be elected democratically, but not to govern so.’ Opponents are treated with disdain, if not persecuted. His majoritarian understanding of democracy a la Vladimir Putin was epitomised when he told the Gezi protestors: ‘If you don’t agree with my decisions, win an election.’ When he was mayor of Istanbul (1994-98) he stated that democracy was like a bus: ‘You ride it until you arrive at your destination, then you step off’. Erdogan would appear to be getting off.

The disregard for the rule of law is hard to square with the government’s so-called ‘new’ EU strategy as set out in the policy document published by the Ministry of EU Affairs last September, shortly after Erdogan became president, which aims to eliminate the obstacles to Turkey’s full membership . The political reform process, according to the document, ‘will be based on advancing the reforms of the last 12 years in rule of law, democratisation, human rights, civilization, freedom and security.’

The repeated warnings to Ankara by Brussels about Turkey’s slippage in the EU accession process are falling on deaf ears. For how much longer can the EU allow this to happen without losing credibility? Its patience is wearing thin. Neither side, however, wants to throw in the towel. For geostrategic reasons, Brussels wants to keep Turkey on board – it has been a Nato member since 1952 – and the business class wants EU membership.

One way to get the EU negotiations back on track and for Brussels to regain the influence it has lost in Turkey’s accession process, as suggested in a recent report for Carnegie Europe by Marc Pierini, a former EU ambassador to Turkey, and Sinan Ülgen, would be to exempt chapters 23 and 24 from the current blockade of negotiations . This would allow for an in-depth discussion of judiciary and rule-of-law issues, issues of central importance for Turkey and the ones that raise the most concerns among EU member states. Erdogan would be then put on the spot.

http://www.realinstitutoelcano.org/wps/portal/web/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/commentary-chislett-should-the-eu-suspend-turkeys-accession-negotiations#.VJGmDGTF-iY