Policy change

Exactly one year ago today, the government performed what is arguably the most drastic policy change of any administration over the last four decades. After initially refusing to accept that there even was a crisis, playing down its impact and minimizing a recession that was already sending unemployment skyrocketing, Prime Minister José Luis Rodríguez Zapatero, bowing to pressure from the EU, international markets and the media, introduced an austerity package and an overhaul of the country's labor laws.

He did so fully aware that he would pay a high political price both for the decision itself, as well as the delay in implementing it. He promised to take the measures "at whatever cost — including personal cost."

Overall, seen objectively, the result of the measures is positive when viewed in the context of the expectations at the time. The policy change of May 2010 has achieved its main objective: to distance Spain from the periphery economies of the euro zone that have had to call on Brussels and the IMF for a bailout.

That said, at this stage, it is still impossible to guarantee that Spain will remain free from contagion, mainly because the program was not rolled out forcefully and transparently enough, particularly in the first six months, until last autumn's Cabinet shuffle. At the same time, some of the promised reforms have not been fully implemented, and as such, have failed to jumpstart the Spanish economy.

Characterized by tough measures that were a stark contrast to the approach the government has preferred until now, which was focused on social policy, the austerity program made cuts to civil servant salaries, froze pensions (prompting a largely ritual one day general strike), trimmed public spending and introduced a selective tax hike. The measures were successful, reducing the budget deficit to the targeted 9.3 percent of GDP.

Doubts still remain, however, on how to best continue with the reform this year, especially given the refusal of the regional governments to sign last year's proposals. Also lacking is a clear strategy for reducing health and education spending that does not effectively eliminate these two pillars of the welfare state. Finally, improvements in tax collection have yet to produce a more level fiscal playing field.

Successful structural reforms have included an overhaul of the pension system similar to those carried out in northern Europe. More challenging were the labor-market changes that followed, many of which are still awaiting implementation. In addition, the government still has not managed to rein in unemployment, with one in four workers jobless, and the economy largely stagnant.

Financial reform has also been delayed, although the move to force savings banks to either merge or convert into commercial banks has been far reaching.

Still, there is little indication of how the government intends to engineer economic growth. And while the current administration's approach to reform raises questions, that of opposition leader Mariano Rajoy is little short of disgraceful. In a clear attempt to benefit from the government's muddled progress, he has avoided the issue at every turn, failing to offer any alternatives to current policies, and largely refusing to cooperate with the government, obviously hoping that he will be the electorate's default choice in next year's general elections.