Former Spanish prime minister José Luis Rodríguez Zapatero spoke with Yale School of Management students on Tuesday, October 29, providing the perspective of a former head of government on the euro crisis and prospects for Spain’s economic recovery and a stronger Europe. In a policy address about the crisis almost two years after leaving office, Zapatero highlighted design flaws in the common currency and argued that austerity policies have slowed the recovery process and made it more painful.
“We must continue the reform agenda, while we find a way to reduce unemployment and preserve social cohesion,” Zapatero said, speaking through a translator. Zapatero spoke as part of Yale SOM’s Colloquium on Business and Society. In a broad-ranging address, he placed the financial crisis in Europe in the broader context of economic globalization and outlined what is necessary to create a more stable model of global governance.
David Bach, senior associate dean for executive MBA and global programs, introduced Zapatero, describing some of the former prime minister’s accomplishments. During Zapatero’s first term, Bach said, Spain’s GDP grew by more than 4% annually and unemployment fell to a historic low. Zapatero’s administration also saw the legalization of same-sex marriage and the adoption of other socially progressive measures.
But Spain, like other nations including Ireland, Italy, and Portugal, has lagged in its economic recovery. The introduction of the euro, Zapatero said, gave Spain and other European countries Germany’s currency and monetary policy, funding growth but also leading to asset bubbles such as the one in Spain’s real estate market. He stressed the fragile design of the euro, a currency that was not structured “to withstand shocks or financial crises.” From the start, the euro was built more on political will than on a solid economic foundation, he said. Its chief flaw was the fact that while multiple nations shared a common currency, they held uneven positions in terms of economic development and competitiveness.
In the wake of the crisis of 2008, the austerity model championed by Germany has slowed recovery, Zapatero said. “We, in some European countries, would have overcome the crisis earlier and faster had the eurozone chosen growth more clearly,” he said. Whereas the Federal Reserve in the U.S. has sought to spur growth and employment via quantitative easing, Zapatero added, the European Central Bank, largely at Germany’s insistence, has singularly focused on containing inflation, even when there is no sign of it.
“I recognize [German] Chancellor Angela Merkel’s personal qualities, but we would have been better off if she had understood that Europe’s fiscal problems were created on a pan-European level and they will only be solved if they are addressed this way,” Zapatero said. “I hope the new coalition government in Germany will contribute to showing the way.”
Despite the challenges, Zapatero said the European Union will remain unified and called European reconciliation and integration one of the 20th century’s greatest accomplishments. He was similarly confident about Spain’s prospects. “Spain is going to overcome the crisis because the Spanish people are strong and are making great efforts,” he explained. “We are in the right conditions to recover international trust, and our economy offers great opportunities.”
Zapatero called for a new model of global governance to stabilize the emerging global marketplace. “We need to overcome this stage when politics and laws belong to nations, but economies and markets are global,” he said. Only a global commitment by both developed and emerging countries can solve overarching problems that include the financial system, climate change, immigration, human rights, and the fight against poverty.
“There are the global issues, the challenges, that directly and indirectly affect all countries on all continents like never before in history,” Zapatero said. “We need a generation that will create a global order of collective interests.”