March 3, 2008 / 12:22 AM / in 10 years

Economic reality bites Spain ahead of election

VALENCIA, Spain (Reuters) - For a decade Elias de la Duena has operated one of the forest of construction cranes around Spain’s booming third city Valencia. But he spent January and much of February driving around town looking for work.

Like tens of thousands of Spanish construction and real estate workers, de la Duena lost his job this year as employers ran out of customers and credit after a decade-long boom.

The votes of millions of Spaniards either looking for work or fearful of losing it in a rapidly slowing economy are crucial to the outcome of Spain’s election on March 9.

De la Duena has been laid off twice in the past 18 months as property and construction companies collapsed like dominoes along Spain’s saturated Mediterranean coastal market.

The woes became obvious early last year when the property developer Astroc, run by the flamboyant billionaire Enrique Banuelos, who once served up the Valencian rice dish paella for 20,000 people, ran into trouble. Another big Valencian firm, Llanera, filed for creditor protection a few months later.

De la Duena, a skilled worker, found a new job last week but was shocked by what he saw as he visited construction sites.

“They have built so much and created this workforce that is now literally out on the street,” said de la Duena, sitting in a bar near futuristic palaces built during Valencia’s shift from inward-looking city to European business and tourism hub.

The construction boom had seen average household debt in Spain rise to 130 percent of annual income as house prices tripled in 10 years.

Now the global credit crunch has helped put an end to the years of expansion. House prices are now falling and some private sector economists think economic growth, while buoyed by rising public spending, could fall as low as 2.0 percent this year from 3.8 percent in 2007.

Across Spain, unemployment is rising faster than anywhere else in Europe. Consumer confidence is at its lowest level since Spain’s last housing crisis, in the early 1990s, according to Eurostat and Bank of Spain data.

How Spain got into this state has become one of the hottest issues in the 2008 election campaign.

GOVERNMENT TO BOOST SPENDING

Socialist Prime Minister Jose Luis Rodriguez Zapatero, seeking re-election, says he has cut unhealthy dependence on the housing sector, and that Spaniards have to get used to a slower economy. He promises to dig into the budget surplus to boost public works spending and provide jobs.

Opposition Popular Party candidate Mariano Rajoy, trailing by around 6 percentage points in polls, says Spain is paying the price for a leader who only took a real interest in the economy last year when he saw it could lose him the election.

For now, Spain has a sense of crisis rather than an actual economic crisis, says Joan Sifre Martinez, head of the Valencia chapter of the CCOO, one of Spain’s main union groupings.

“Spaniards have gone from a feeling of apparent wealth to feeling everything is negative,” said Martinez. “This uncertainty could lead to a real crisis if it lasts.”

Few regions have been hit harder than Valencia, where unemployment rose at nearly twice the national average in January.

The regional economy used to be based on activities such as orange growing, shoemaking and textiles.

In the 1990s it invested heavily in bricks and mortar, and it is now dependent on building and real estate-driven service sectors for over 70 percent of growth.

Local savings banks, notably Bancaja, funded the construction spree. A recent Citigroup report judged them some of the riskiest in Spain by for their exposure to the region.

The Valencia region’s conservative Popular Party government blames Zapatero.

“The central government hasn’t known how to adapt to circumstances and launch measures to alleviate unemployment,” said Luis Lobon, its secretary of employment.

GET ME OUT OF HERE

The first to suffer from Valencia’s slowdown have been some of the half million immigrants who flocked there since 2000.

Hundreds of Latin Americans, Africans and Eastern Europeans wait before dawn at a city centre roundabout to be picked up by an ever decreasing number of firms who need day laborers.

Ruben Rodriguez said he had not worked in a month and could not afford a ticket back to his young family in La Paz, Bolivia.

“I just want to be deported -- do you know how I can get out of here?” he said.

City authorities say Valencia’s economy has at least diversified, noting that it has become Spain’s third-largest tourist destination and last year hosted the Americas Cup.

“Valencia is suffering from the crisis of confidence, but less than other areas,” said Alfonso Grau, economic chief for the Popular Party city council.

Business leaders say people are panicking, and the media are making it worse.

“Nobody wants to lose what they’ve made, so nobody’s doing anything -- it’s paralysis,” said one Valencian property developer who asked not to be named. He said Spain needed the sweeping tax cuts proposed by the PP.

De la Duena disagreed. He voted PP at Spain’s last two elections but is backing Zapatero this time, largely because of what the PP have done in Valencia.

“They have let people build and build and now it’s workers who are suffering,” he said.

Reporting by Andrew Hay; Editing by Editing by Kevin Liffey

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