"We have to clean up the economy; But this crisis won't last for ever"

This is the second interview the prime minister has given to EL PAÍS this year. The first was in January, when it looked as though things couldn't get any worse: his rating among voters was at an all-time low, unemployment was continuing to rise, and there seemed to be no solutions to the crisis. At the time, I described Zapatero's situation as the most difficult of his six years in office.

But things did get worse. Between January and this second interview, which took place on November 17, Spain has been hit hard; so hard that many voters, Socialist Party supporters among them, questioned the government's ability to handle the financial situation.

The collapse of the Greek economy set off a crisis in the debt markets. This lack of confidence spread to Spain. Pressured by the markets and his European partners, the prime minister was looking disaster in the face when on May 12 he announced the biggest spending cuts since the country returned to democracy. Then came the September general strike. Does the premier have any margin for maneuver left? Will voters continue to back him after all that has happened?

"We are in the middle band in the EU with respect to defecit reduction, in there with Germany and France"

"In the crisis, the government had to be able to show that it was capable of taking difficult decisions"

"It is not easy to tell workers their wages will be cut, and employers that their profits will come down"

Could Rubalcaba lead Spain? "Alfredo Rubalcaba could occupy any government position"

The indicators suggest he doesn't. But during our conversation, the prime minister expresses his confidence that he can win voters back. He believes that when things start to pick up, it will be easier to explain (and to understand) what has happened, why it happened, and the reasons behind his decisions. Zapatero admits that his tendency to make optimistic statements, which are often cruelly contradicted by reality, has undermined his credibility. There is no avoiding the sensation that at times, Zapatero has failed to fully appreciate risk.

Zapatero also discusses some of the measures he will be implementing in the coming months, among them his intention to involve the country's top-25 companies in speeding up economic recovery.

BEFORE THE CUTS

Question. What is your memory of the night of May 9?

Answer. It was a difficult time. I didn't sleep, because Elena Salgado, the economy minister, was at the Ecofin meeting, the euro was under attack, the debt of some countries was looking problematic, among them Spain's, and we agreed that we would have to take measures to speed up reducing the deficit. This meant that Spain would have to reduce its debt by 1.5 percent by January.

Q. Were you in touch with Salgado?

A. I was in permanent contact with her. She would send a text message, or would call. The last time we spoke was around 3am. I then stayed up to see the media's response, and that of the Nikkei and the futures market. It was a difficult night. But the truth is that you have to take decisions, and we took them.

Q. At what point did you realize that meeting Europe's demands would mean going back on your promise not to cut social spending?

A. Let's keep this in perspective. The cuts in social spending have been limited. I should say that under my government, in my previous term of office we increased social spending by 40 percent. This was unprecedented. We have cut spending by less than one percent, which has meant not paying a bonus to families with a new baby, as well as not raising pensions next year.

Q. Were you aware that night of the impact of your decision on millions of people?

A. Our GDP is ¤1 trillion, which means that 1.5 percent of it is ¤15 billion. We know the figures. Let's put it in perspective: if we look at the efforts to reduce the deficit that the other euro-zone countries have made, we see that we are in fact in the middle band, in there with Germany and France, and better than the United Kingdom.

Q. Was it a hard decision to make?

A. No. I knew what had to be done. I have always believed that the May crisis that came after the Greek crisis was in part more about the sensation of crisis than a real crisis. There were doubts that Spain would be able to pay its debts this year. We knew that we had to stand by our decisions, but perception and mood are also important. There was only one way to deal with such a situation: firstly, to show a firm willingness to reduce the deficit, and secondly, to show that our financial system was transparent. We did both. It would have been irresponsible to do otherwise. The next day the markets would have been even more unstable, and their lack of trust in our ability to repay our debts would simply have made things worse.

Q. Did Spain put the euro in danger?

A. No. There has always been confidence in the Spanish economy. The question was whether the government was in a position to take difficult decisions. Some sections of the media were saying things like: "This is a Socialist government that has increased social rights, social spending and public investment. Will it be able to cut costs?" We had to send out the right message.

Q. Do you remember how you felt when you stepped down from the tribune in Congress after announcing the spending cuts on May 12?

A. Experience shows that when you make a decision, you must then defend it at all costs. That day I knew that this was a key moment, and that the cuts would have a big impact on people's lives, and that we were entering a new phase of the crisis: that from now on, the crisis would be felt by everybody, not just the unemployed.

Q. And didn't announcing the cuts effectively bring to an end the project that you had initiated when you took over as secretary general of the Socialist Party?

A. It didn't feel that way to me. I knew that I had to address the situation we found ourselves in. I had to take a difficult decision, not abandon a project. The government's decisions have to reflect what is going on around it.

Q. Did you feel that you were betraying those voters who believed up until then that there was another way out of the crisis, without cutting social spending?

A. No. I must insist that we have protected the vulnerable. We have the best unemployment benefits this country has seen, which cover around 80 percent of the population. Half a billion euros for people with no welfare benefit. We have not cut grants, nor education, nor any of the major pillars of the welfare state.

Q. I remember you saying that your objective was not to leave salaries or to freeze pensions. You said: "I did it for the deficit. It was necessary to correct it because the markets could put our future solvency in question." Do you think that the markets have taken over?

A. We are experiencing a global deficit that should have been addressed by the G20 a decade ago, when globalization really kicked in. Globalization created a financial system with few rules. The International Monetary Fund (IMF) should have been overhauled a long time ago. We are reforming it now through the G20. If we don't impose rules on the financial markets, they will do as they please.

THE CONSEQUENCES

Q. From what you have said at certain times, it seems as though you don't like pushing through these measures. Perhaps the electorate would prefer to see somebody who believes in what he is doing?

A. I want the country's accounts to be in the black. Between 2004 and 2008, we had a budget surplus. No leader or businessman wants to cut people's wages. We did it because there was no choice. Times like these are difficult. I know what I have to do, and I'm going to do it. We have to think of the country and the future. That is why we have such an intense reform program, covering every sector of the economy. And that is also why we cannot delay improving our citizens' rights, by providing guarantees against discrimination, the right to a dignified death, and protecting consumers.

Q. Social spending increased by 40 percent between 2004 and 2008. Did you not think that you were pushing ahead with policies that you might not have the money to pay for?

A. Our accounts were in order. We had a lot of money coming in.

Q. Money coming from a construction boom that you said yourself in 2004 wasn't sustainable...

A. That is a key point, but there was very little public debt, and the increase in social spending was limited.

Q. So you were never blinded by the seeming abundance of money coming in?

A. No. The proof is that we had a surplus. I was also criticized for having a surplus, because a Socialist government is supposed to invest and increase social spending. We were prudent. And what is more, [former Economy Minister Pedro] Solbes insisted we reduce the public debt. So much so, that our risk premium, the interest we pay on borrowing, was at one point lower than Germany's in 2007. So even the markets saw us in a good light. I should also point out that we our debt is still 20 points lower than the EU average. Our debt ratio is lower than in the boom years of 2000, 2001, 2002 or 2003. The interest rate that the markets charge us is at an all-time low: 4.4 percent over 10 years. It is lower than in 2002. It seems paradoxical, but it is important to point this out to people.

Q. You are on record as saying: "I will not be the one to criticize the unions." Why? Do you really believe that the unions are beyond criticism from the prime minister?

A. They represent the workers, and like it or not, the workers, particularly those that have lost their jobs, are bearing the brunt of the crisis.

Q. One thing is the workers, another is the unions.

A. This is true, but I believe in the institutions that represent the workforce, and I respect the unions. I don't always agree with them, but I am not going to criticize them. It is not easy to tell people that they are about to see their wages cut. But it has to be done. If we do not keep salaries and income down... The business community is also going to have to keep their profits down. We have to clean up the economy. But this won't last for ever. We have already returned to wealth levels similar to those of 2006. This means that we have lost around 20 percent of our wealth, and for some it has meant much more. But it is a phase. We will recover that lost wealth. As soon as we have cleaned out the economy and introduced reforms, we will be back on track.

Q. The crisis, as well as the labor market itself, is responsible for almost two million job losses in the last three years. Shouldn't you have done something about the labor market sooner?

A. We tried to change things through consensus. I did everything I could to facilitate agreement between unions and employers.

Q. At the end of April you said that a labor reform without consensus would be no use. Less than two weeks later you had changed your mind.

A. No, I didn't change my mind. I issued a tactical warning to the unions and the employers' confederation that they needed to reach agreement on labor-market reforms. I didn't want to force them through. But once I realized that they weren't going to reach agreement, I was prepared to make the decision on labor-market reforms.

Q. How do you intend to speed up recovery?

A. In the short term, my two priorities are investment and competitiveness. The government will soon launch a major initiative aimed at involving the country's leading economic sectors. We are going to make decisions and boost our international standing in the process. In January I will be heading to Asia, the third visit in the last two years. We need to boost foreign investment in Spain, and improve exports. These two aspects are the launch pads for our growth, and they will speed up recovery. I am referring to improving our relations with China, Japan, South Korea, India and Singapore.

Q. How are you going to do that?

A. In a few days we are going to get the top 25 companies in this country round the table.

Q. And what are you going to do?

A. We are going to set up a National Competitiveness Commission, which will work in the long term to improve our economy. The Economy Ministry will direct it, and involve key figures in the economy to define, evaluate, and push competitiveness within the economy, along with proposing specific solutions.

POLITICS

Q. Most observers think that you should say now if you are going to run for a third term in the 2012 elections, because it would make things a lot clearer. Many in your own party agree.

A. That decision is still to be made, and forms part of the party's strategy, and also depends on how things evolve. I understand that the electorate wants to know, but people also have to understand that I have the right to decide when it is best to make that decision.

Q. Did the recent Cabinet reshuffle have anything to do with your possible decision not to stand for office again?

A. No. I think the Cabinet reshuffle has boosted the public's faith in us. We have to tread carefully. I want that caution to give us greater credibility, to allow us to better explain our plans for Spain, on how we are going to get out of the crisis, and about our plans.

Q. Can you see Alfredo Pérez Rubalcaba [the newly appointed deputy prime minister] in the role of prime minister?

A. He could occupy any position in government.

Q. You are not pressing ahead with new legislation on religious freedom.

A. It is a subject that will generate a lot of debate. It involves major reforms, and will reflect the growing presence of other religions in Spain. But it is not such an urgent issue as recognizing same-sex marriages, or bringing Spain's abortion law into line with the rest of Western Europe.

Q. Isn't it important to address the issue of separation between Church and state?

A. The Constitution specifies the separation of Church and state very clearly.

Q. In relation to the interview given by Arnaldo Otegi

[de facto leader of Batasuna, the banned political wing of ETA] with EL PAÍS recently, you said that you saw progress. Do you think that we are moving closer to seeing the Basque nationalist left finally break with ETA?

A. Batasuna has been moving toward a non-violent approach, but has yet to take the definitive step. They need to take a much more radical approach to this. There is no room for half measures. ETA has been hit hard, and it is weaker than it has ever been. We know that we are now in the final phase, but we don't know how long it will take before ETA is finally disbanded.

Q. In relation to the continuing protests in Western Sahara, and Morocco's response, you have said that Spain's interests take priority over questions of principle.

A. Ever since we came to office we have tried to get both sides to talk to each other. I have always said that a solution to Western Sahara cannot be imposed on either side, but must come out of talks. The United Nations has taken an active role in trying to find a solution, and few countries have worked as hard as Spain toward that process.

Q. Isn't there a danger that Morocco will interpret Spain's actions as a green light to do what it wants?

A. Morocco is our neighbor, and we have good relations with Rabat, so we can exercise some influence. I should also point out that this government has quadrupled aid to the Saharan people. [...] The government's position is one of prudence. I should point out that Morocco is an active and serious partner in tackling the issues that affect our security, regardless of the situation in Western Sahara.