Spain recalls cabinet for crisis meeting

Spanish cabinet ministers have interrupted their summer breaks to discuss the country’s rapidly deteriorating economy.

In an unprecedented break with tradition, most of the cabinet’s 17 members have postponed their holidays or returned to Madrid.

José Luis Rodriguéz Zapatero, the prime minister, interrupted his holiday in the remote Doñana national park to chair the talks, while Pedro Solbes, finance minister, will hold off until after the conference before starting his break. Cristina Garmendia, science and innovation minister, has returned to Madrid from Marbella, on the Costa del Sol.

Thursday’s cabinet meeting will be the first called in mid-August in living memory. Key ministers and secretaries of state – members of a special economic commission – met late on Wednesday to compare notes.

Some forecasters say that growth this year could drop to about 1 per cent year-on-year, compared with 3.8 per cent between 2006 and 2007.

Mr Solbes recently admitted that Spain might enter technical recession in the final quarter of the year. A growing band of analysts expect year-on-year growth in 2009 to be flat or negative.

“The situation is quite grave,” said Antoni Espasa, director of the Instituto Flores de Lemus economic forecasting unit in Madrid. “We see growth this year at 1.5 per cent and falling to 0.3 per cent next year.”

After being one of the economic stars of Europe in recent years, Spain has been hit hard by the credit crunch, which exacerbated a housing market collapse last year.

Along with rising joblessness and one of the eurozone’s highest inflation rates, this has battered consumer confidence. Industrial output fell 9 per cent in June – the biggest year-on-year drop in 16 years.

Inflation hit a 16-year high of 5.3 per cent in July, according to data released on Wednesday. However, the figure is expected to ease in coming months, reflecting the recent fall in oil prices. David ­Vergara, secretary of state for the economy, on Wednesday forecast that inflation would drop to 4 per cent by the end of this year.

After Thursday’s extraordinary cabinet meeting, the government is expected to give details of a series of measures aimed at helping hard-pressed small and medium-sized business, offsetting the downturn in residential construction and encouraging investment in other sectors.

The meeting is intended to show solidarity with voters over the country’s deteriorating economy.

Critics say Mr Zapatero has been too slow to act, after ignoring warning signs of an impending downturn last summer.

Esteban González Pons, spokesman for the opposition Popular party, suggested that the meetings were a “publicity stunt”.

“Spain doesn’t need photo opportunities and a prime minister who looks good,” he said. “It needs a hard-working prime minister who pays attention to the state of the Spanish economy.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.