Basque Country: In the eye of the financial storm

By Eric Bienefeld

Although many Europeans associate it with political turmoil, the Basque Country is the only Spanish region where the economic outlooks is mild.

Tuesday 13 March 2012

In the summer months, the beachside cafés in the Sagües quarter of San Sebastián (Basque Country, Spain) are bustling. The surfers take their morning session, while tourists, local youth and middle-aged clientele take their mid-afternoon cañas, or small beers. Walking through the parte vieja – old quarter of the city – a sign reads: “Tourists beware you are not in Spain, nor France, you are in the Basque Country”. Something seems very different here.

You get the impression that the financial crisis has not taken hold here. Nevertheless, the winter months are hard for the service sector. Juan Ramon, a local taxi driver, confirms the difficulties of keeping one's head above water in the ‘off-season'. Elena, one of the owners of La Consentida, a pintxos bar along the normally thriving coastal avenue, La Zurriola, notes the effects of the now four-year crisis. “Every day we are worried about business, but winter is always especially difficult,” she says.

Although things may be bad in the Basque Country, the situation is worse in the rest of Spain, especially in the south where mass tourism plays a huge role. But the Basque Country has a different background. Its research centres and traditional industries are still fairing well in the financial storm.

Amid soaring unemployment and fears of a double-dip recession in Spain, the Basque Country offers a contrasting picture. The Spanish situation is grim, with 5.3 million unemployed at the end of 2011, the Bank of Spain predicts that the country's economy will fall into another recession, contracting by 1.5% in 2012, which would exacerbate the 22.9% unemployment rate reported at the end of 2011, according to the Spanish National Institute of Statistics (INE).

Meanwhile, the Basque Country has the lowest unemployment rate of all the Spanish regions, known as Autonomous Communities, and has maintained comparatively lower levels for decades. With a population of 2.16 million, the Basque Country's unemployed is 159,667. That's just 7.4% unemployment, way below the Spanish average.

But why is the Basque country weathering the financial storm better than the rest of Spain? It goes back to basic economic drivers… industry and production. Iron mining and steel manufacturing helped build this region and, unlike the UK and other struggling European economies, the Basque Country is not letting go of them without a fight.

Heavy mining at the turn of the 19th and well into the 20th century gave the Basque region a solid economic base and provided steady employment for skilled and unskilled workers, including economic migrants. Today, the Basque Country's level of industrialisation is greater than the EU average.

The Basques have also been able to reinvent themselves, with EU backing and opportunities. Through the European Regional Development Fund (ERDF), the EU has €241 million in co-funding destined for the Basque Country under the Regional Competitiveness and Employment programme (2007-2013). The funds are devoted to areas that are already highly developed in the Basque Country, including science and technology, research and development, environment, energy resources, and transport.

The tiny Basque Country punches above its weight politically as well, offering its expertise to the EU in such fields as taxation policy, health, the environment, transportation, e-democracy, agriculture, language and culture, and even fishing policy. According to one MEP from the Basque Nationalist Party (PNV), “The Basque Government is in continual contact with the European Commission in formal and informal settings.”

But does all this direct contact between the EU and the Basque region create greater tension with Madrid? Yes and no.

In considering the absence of a Spanish central state-sponsored representation mechanism, an official from the Spanish Permanent representation to the EU notes, “It is a weakness of the system that the Autonomous Communities do not have the capacity to be able to negotiate and be represented here in Brussels,” at least through the central state.

As an autonomous region you would expect some, well, ‘autonomy' in its dealings with the EU, but Spain can't help but be envious of the Basque Country's clout and strong ties to the EU. For the Basques, though, it is pure logic: why wait for Madrid – or negotiate a shared position with the other Autonomous Communities – when you can act directly at the EU level?

This thinking applies on many levels, including how the Basques fund their research. Tortuero Martin, a government expert, explains that funding is arranged through an agreement between the management agency or authority and those in charge of employment policy in the Autonomous Communities. “There is regional source of funding, and it doesn't come from the budget of the state in Spain,” he stresses.

Moreover, the Basques have the means and institutions in place to lobby the EU directly, which is arguably a more robust form of negotiating than the sclerotic traditional power structures. This nimble, somewhat informal, approach could well be the Basques regions secret weapon, helping it weather the financial storm and defy the dire predictions for the Spanish economy.