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Do Spain and Portugal finally share a destiny?

Both countries try to convince markets to bet on their economies.

Jose Socrates Jose Luis Zapatero
Spanish Prime Minister Jose Luis Zapatero (right) and his Portuguese counterpart, Jose Socrates, are pictured at the end of a Portuguese Socialist Party rally in Coimbra, central Portugal, on May 23, 2009. (Francisco Leong/AFP/Getty Images)

MADRID, Spain — In his novel "The Stone Raft," Portugal’s Nobel Prize-winning author Jose Saramago imagines the Iberian Peninsula breaking away from mainland Europe and drifting off into the Atlantic Ocean. The book is a playful fable about Spain and Portugal and the complex relationship between the two.

Lately, Saramago's Iberian idyll has seemed closer to reality. Spain and Portugal have finally agreed to build a high-speed rail link between Lisbon and Madrid. They are also planning the mutual elimination of roaming mobile phone charges in order to make business visits and vacations cheaper. In an even more ambitious move, the countries made a joint bid to host the 2018 soccer World Cup, although they lost to Russia last week.

But Spain and Portugal have recently been thrown together in a less appealing task: trying to convince global markets of the viability of their economies so as to avoid a bailout.

Spain’s weakness derives from its budget deficit, unemployment of about 20 percent and slow growth. Portugal also suffers from weak growth, along with high debt levels.

“Spain had its housing bubble, which increased the wealth of Spanish families,” said Rui Barbara, an economist at Banco Carregosa in Lisbon, of the real estate boom whose end coincided with Spain’s slump. “Portugal didn’t have that. But even without having a housing bubble we’ve spent a lot. We increased our household debt levels by buying shiny new TVs and cars.”

Both nations have changed a good deal since emerging from longstanding right-wing dictatorships in the 1970s to embrace democracy and join the European Union in 1986.

But despite their common recent history, Portugal’s development was modest compared with that of Spain, which moved ahead at breakneck speed.

“Portugal opened its markets up at the same time as Spain, but most of the investment went to Spain because it’s a bigger market,” said Ramon Pacheco-Pardo, a lecturer in European studies and Spanish contemporary politics at London’s King’s College.

So the economies of the two Iberian neighbors diverged: Portugal, with a population of just over 11 million, has a GDP of $224 billion (about $20,000 per capita). Spain, with a population of 46 million, has a GDP of $1.4 trillion ($30,000 per capita).

It’s hardly surprising then, that Portugal has long felt itself to be Spain’s poor neighbor.

“There’s a difference between the economic power of the two countries. People in Portugal say ‘why can’t we be more like Spain?’” Barbara said.

Nuno Ribeiro, a Portuguese journalist based in Madrid, says this imbalance in the relationship is reflected by the media. “The Spanish press does very little coverage of Portugal,” he said. “Portugal doesn’t generate much news normally, but also the Spanish way of looking at the world means they don’t pay much attention to us.”

A 2009 survey by Spain’s Salamanca University showed that nearly 40 percent of Portuguese and just over 30 percent of Spanish would like to see the two countries merge politically and economically.

However, the same study also showed that Spaniards had little knowledge of their neighbor’s culture, beyond the Portuguese soccer stars playing in the Spanish league. While 54 percent of Portuguese knew the name of the Spanish prime minister, Jose Luis Rodriguez Zapatero, only 1 percent of Spaniards could name Portugal’s leader, Jose Socrates.

But Zapatero, in power since 2004, and Socrates, since 2005, reflect the extent to which Spain and Portugal have a shared recent past. Now in their second terms, they are two of Europe’s only Socialist leaders. Both came into power after conservative administrations, promising social reforms as well as economic stability. For each of them, the first pledge has been easier to keep than the second.

Nouriel Roubini, the New York University professor who predicted the financial crisis, said on Nov. 29 that Portugal is “quite likely” to require EU financial assistance, a common view among market watchers. However, he also warned that Spain is too big for the EU to bail out, making its current vulnerability particularly alarming for Europe as a whole.

While the price Spain and Portugual need to pay to borrow money has soared, both governments have been frantically insisting that their countries’ problems are different to those of Greece, which took a bailout last spring, and Ireland, which required a bailout last month. They have also curbed their spending in a bid to fend off damaging market speculation. In May, Spain introduced a politically costly 15 billion euro ($19.5 billion) austerity package, while Portugal’s parliament narrowly approved a 2011 budget on Nov. 26 that includes 5 billion euros ($6.5 billion) in cuts. Both countries have seen general strikes in recent weeks against their governments’ economic policies.

The Spanish and Portuguese governments have bet on an entwined future; unfortunately for them, that might include help from the rest of Europe and the International Monetary Fund before their economies can get back on track.

http://www.globalpost.com/dispatch/spain/101204/spain-portugal-economy