Spain and the United States - Real Instituto Elcano

Exhibit 7.2 Competitiveness Factors*
LOOKING AHEAD 127
The current account deficit is partly due to higher oil prices and the euro’s
appreciation, but, in the words of Jaime Caruana, the governor of the Bank of
Spain, “these factors do not suffice to explain either the scale of the deficit or
the speed at which it has widened, and they should not therefore conceal the
existence of a genuine deterioration relating to the losses in competitiveness
built up in recent years.” 3 Although Spain belongs to a monetary union, which
means “there is no danger of a burgeoning external deficit generating financial
or foreign-exchange pressures that then trigger a sharp adjustment in the
economy, since fundamental variables, such as the interest rate and exchange
rate, are determined at the area-wide level”, this does not signify that “the
economy is immune to competitiveness problems. On the contrary, when a
large external deficit emerges in a monetary union as a result of an economy’s
difficulties in competing, a very costly dilemma may arise: nominal costs are
either adjusted head-on, or the loss of competitiveness will check the
generation of value added and job creation.”
Spain’s ailing competitiveness, particularly in labour costs (see Exhibit
7.3), an area where the country cannot compete on this basis alone as it is no
longer a low-cost manufacturer, has led more than 40 multinationals, as well as
some Spanish companies, to pull out of Spain since 2002 and shift their
production to other countries, principally the new EU members in eastern and
central Europe but also China. 4 Several US companies have partially or fully
relocated, including Lear, DuPont, Levi's and Hewlett Packard. In 2005, the
US-based TRW moved production of airbags and seat belts from Burgos to
Poland to save costs, three years after it closed another plant near Barcelona.
Although still an important vehicle manufacturing centre in Europe (Ford,
General Motors and DaimlerChrysler are all in Spain), the production of parts
3. See pp. 10-16 of his address to the Bank of Spain’s Governing Council on June 10, 2005
(www.bde.es/prensa/intervenpub/gobernador/100605e.pdf).
4. See “Factory Closures Hit Unskilled Workers”, by Mark Mulligan in the special report on Spain in the
Financial Times of June 14, 2005.