Economic clouds parting for Spain - by Eric Reguly

As the Irish banking crisis turned critical and Portugal moved ever closer to an international bailout, Spanish Prime Minister Jose Luis Rodriguez Zapatero took desperate measures to prove his country is not the next debt disaster.

The Spanish government in 2009 and 2010 rolled out one of the toughest austerity programs on the continent, forcing civil servants to take major pay reductions, and introducing structural reforms to improve its competitiveness, such as slashing employee severance packages.

But any investor betting on Spain’s collapse might be disappointed. While the crisis headlines focus on Portugal, Ireland and Greece, Spain has been quietly scoring a few fiscal and economic victories. Spanish bond yields have stabilized in recent months, and even retreated in recent weeks, while Portugal’s went in the opposite direction.

Some economists are now taking the view that the worst is over for Spain and that it should no longer be viewed as an Ireland or Portugal in the making. In a note published March 31, a team of Deutsche Bank economists and strategists led by Gilles Moec noted Spain’s economic “resilience” since mid-2010 and predicted that “this country should be able to deliver a positive, albeit slow, growth rate consistent with a sustainable path for public debt.”

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