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Spain hopes to export its way out of recession

Overseas sales are surging, but recovery could take years.

VIGO, Spain — Rising above a long, deep Atlantic inlet that pokes into the verdant hills of northwest Spain, this city is reputed to have the world’s largest fishing port.

These days, however, the bustling harbor where 500 tons of seafood is hauled ashore each day is being upstaged by cranes lined along the quayside half a mile upstream, where piles of containers, hunks of granite and hundreds of automobiles wait to be hoisted onto ships at Vigo’s booming commercial port.

“We are working at full capacity, next year we’re going to have to expand,” says Ignacio Lopez-Chaves, president of the port authority.

Exports through the port are up around 12 percent on last year, he says.

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Other Spanish ports are seeing similar increases. The latest figures from the Economy Ministry in Madrid show exports rose 8.3 percent in September compared to a year before, a spurt that’s prompting hopes that overseas sales could drag the Spanish economy out of its deepest recession in decades.

“What we are exporting — cars, machinery, canned fish, finished granite — it’s all stuff that’s important for the economy, creating work for people,” Lopez-Chaves said in an interview. “So if the port is doing well, that means industry around here is doing well.”

The port’s success is due in no small part to the steady stream of vehicles rolling out of the city’s Peugeot Citroen auto plant and a Renault factory 270 miles to the east in Valladolid. Car sales through the port this year are up 12 percent over the first 10 months of this year.

In Spain as whole, auto exports rose almost 20 percent in the first half of this year. Major manufacturers such as Ford and Volkswagen have invested heavily, encouraged by their Spanish units’ reputation for high productivity.

Although it has no domestically owned carmakers, Spain is now the European Union’s second-largest motor vehicle maker after Germany.

Struggling in its French home market, Peugeot Citroen made a $4 billion loss last year. But it’s investing $1.6 billion in Vigo, making it a hub for production of the successful C4 Picasso multipurpose vehicle and low-cost Peugeot 301, which is selling well in emerging markets.

The Vigo plant exports 88 percent of its production.

The conservative government in Madrid is confident the export surge — encouraged by reforms that have cut labor costs and eased red tape — is leading the way to economic recovery.

After nine quarters of contraction, the economy crept out of recession in the third quarter of this year.

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EU forecasts predict modest growth to continue next year with unemployment starting a slow decline from its current peak of 26.6 percent — the euro zone’s second-worst after Greece.

“We have asked a lot of the Spanish, but the time is coming to pay them back big time,” Prime Minister Mariano Rajoy told a recent conference in Madrid. “There are signs of improvement, not enough, but they are there. There’s a long way to go, but now we can see the path ahead.”

However, as Spain struggles to get its banking system and public finances in order after the bursting of a property bubble left the country with millions of unsold homes and banks staggering under the burden of bad debt, many doubt that exports alone can get the economy back on track.

“This crisis is having a very big impact on companies, on families, on people, and on public services,” says Santiago Lago Penas, economics professor at the University of Vigo. “There are some good signs, but to get back to the level we had before the crisis is going to take many years. When people talk about a lost decade, that’s a reality. It’s going to take at least a decade.”

Austerity measures pushed through by the government to bring down the budget deficit and control debt have stifled public spending, while the embattled banks impose a credit crunch on businesses and consumers cut back on spending in the face of pay cuts, job insecurity and the rise in unemployment.

That combination has crippled domestic investment and consumption, ensuring any recovery will be slow and fragile, Lago Penas says.

“Domestic demand is a big problem,” he says over coffee in the plush surroundings of Vigo’s Financial Club. “We are cutting public spending to meet the budget objectives, so that’s not going to be a motor of growth, of demand. It won’t pull the economy along. In terms of private consumption, we’ve got the problem of wage devaluation, of a lack of credit.”

Rajoy has sliced over $100 billion off public spending over the past two years as he strives to bring down a budget deficit that at 6.5 percent is over double the euro zone’s target. Over the same time, domestic consumption has fallen by around 8 percent and 600,000 Spaniards have lost their jobs.

In Vigo, almost a quarter of the workforce is unemployed. There is little money to patch up crumbling buildings in the city’s historical center, many downtown stores are boarded up and local traders dismiss talk of recovery.

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“So many people are out of work that sales have really fallen off,” says Maria Jose Rodriquez, who runs a seafood stall at the market across the road from the fishing port. “Recovery? You know the government talks about lots of things, but here we see a reality that’s completely different.”

The surrounding Galicia region — which counts Prime Minister Rajoy among its native sons — has also been hard hit by the crisis as traditional occupations such as shipbuilding, fish processing and agriculture have all suffered.

Around 25,000 people protested in the port of Ferrol earlier this month over the prospect of layoffs in the local shipyard after the last vessel under construction — a helicopter carrier for the Royal Australian Navy — was towed out of the harbor.

Seafood giant Pescanova, which employs 10,000 people worldwide and has its operational base in Vigo, has been on the verge of bankruptcy for months after running up debts estimated at over $4 billion.

Earlier this year, Galicia’s regional government called a halt to the building of an extravagant “City of Culture” in the capital Santiago de Compostela. It’s estimated to have cost more than $400 million since the project started in 1999.

The unfinished building forms part of an archipelago of expensive unfinished or underused projects scattered across Spain by the sudden end of a decade-long construction boom when the bubble burst in 2008.

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The situation has left many angry in a region that’s proud of its distinct Celtic heritage and its own language that’s closer to Portuguese than Spanish.

“This crisis is hitting us very hard here, people are being forced to get charity to survive,” says Manuel Rodriquez de Sousa, a pensioner leading a noisy, but good humored protest last week outside one of the sturdy, granite-built banks along Vigo’s main street.

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“The banks have been robbing us and tricking us and we’ve had enough, they keep making money at the cost of ordinary people, and that cannot be,” he says over a cacophony of klaxons and saucepans.

Last month, the Organization for Economic Cooperation and Development (OECD) upwardly revised its forecasts for the Spanish economy, predicting a shrinkage of 1.3 percent this year compared with an early prediction of 1.7 percent. Next year, the OECD said, there will be growth, but at the anemic rate of 0.5 percent.

“We may be getting growth, but it’s so low that it doesn’t give people any hope,” says Lago Penas. “At this rate we’re never going to recuperate what we’ve lost.”

“What we need is a much more dynamic strategy at a European level that gives an impulse to the economy,” he says. “If not, I don’t think we are going to bring unemployment below 20 percent in Spain this decade.”