TEXT OF INTERVIEW
Doug Krizner: Voters in Spain re-elected their prime minister yesterday. Jose Luis Rodriguez Zapatero narrowly won another four-year term. The number one issue in this election was the economy.
Let's bring in John Peet, European editor for the Economist magazine. John, what's your take on this?
John Peet: I think what's really happened here is that a year ago, people would have said Zapatero was going to win the election easily. And it narrowed considerably, to a point where he has not won an absolute majority, partly because the economy has slowed down and the Spanish people are worried about it.
Krizner: Now, what tools does he have at his disposal to improve things?
Peet: Well, Spain has a budget surplus, unlike most countries. It's got a budget surplus of 2 percent of GDP, which gives him considerable scope for tax cuts. But the problem is that the property crash in Spain, which we're seeing in some other countries, is going to be very difficult to deal with. And we're going to see a substantial slowdown in the Spanish economy, whatever the government does.
Krizner: So it is a situation that is similar to the one that we're experiencing?
Peet: It certainly is. I mean Spain and I think Ireland, and possibly Britain could be next. We are seeing a sharp slowdown in housing markets, which have been very strong for some years. And the impact of that, plus the credit crunch, is starting to be felt in Europe as well as in America.
Krizner: Immigration seems to be a very important issue for the Spanish electorate right now.
Peet: Well Spain has turned relatively quickly from a country that had almost no immigration to a country where about 12 percent of the population is foreign-born. They've taken in something like 5 million immigrants in the last decade or so, which is second only to the United States. It's been beneficial in some ways -- it's produced new workers, lower wages, it's helped to fuel the construction boom. But obviously, it can be a disruptive influence in a country, and I think to some extent, the opposition capitalized on that in this election.
Krizner: How important is the overall Spanish economy to the rest of continental Europe?
Peet: Well it's not the biggest, but Spain has played an important role in Europe. Because over the past five, six years, Spain has been the fastest-growing big economy in Europe. And they produce something like half of all new jobs in the whole of continental Europe. So when Spain slows down, the rest of Europe will feel it.
Krizner: Is the relative strength of the euro, especially when we compare it against the U.S. dollar, becoming a problem for economies across Europe?
Peet: Yes indeed. I think that was, it was not an election issue in Spain, funny enough. Because I think they think joining the euro was a great success for Spain -- it showed that Spain had sort of matured to endure a wealthy economy. But the decline of the dollar and the strength of the euro is posing a lot of questions about manufacturing in Europe, and it's going to make the adjustment to the American slowdown, the global slowdown, just that much harder.
Krizner: John Peet is European editor for The Economist magazine. He's speaking to us this morning from London. Mr. Peet, thanks very much.
Peet: Thank you.