This month, Spanish Prime Minister Mariano Rajoy expressed his government’s intent to avoid a financial bailout through a plan based on limited assistance from the European Central Bank, higher taxes and further domestic restrictions on credit. Whether or not Rajoy is correct about Spain’s ability to forego a bailout, the new measures may be inadequate to recapitalize Spanish banks and speed the recovery of important market sectors. Even if Spain’s sovereign borrowing costs do not rise again, Rajoy’s plan means businesses will have reduced access to capital markets for some time to come. Coupled with investor reluctance to purchase Spanish equity, this has increased the risk that more businesses will not get the funds they need to operate this year, increasing unemployment and damaging international partnerships that rely on Spanish business.
These concerns are especially true of Spain’s flagship construction industry, which is already suffering losses from the end of the country’s building boom. By the peak of Spain’s pre-crisis boom in 2006-2007, construction and transportation-related industries comprised a fifth of Spanish GDP. Internationally, too, Spanish contractors enjoyed a rapid rise in foreign markets. The collapse of Spain’s construction bubble has left many of the commercial properties that litter the countryside empty. Occupancy is similarly low for the new housing subdivisions and condos built over the past decade, with Spanish construction firms having lost much of their investment in the sector. Combined, the housing and commercial real estate bust led to an overall drop in revenue for the industry of more than a third from 2007 to 2012.
Public building works have contributed disproportionately to the Spanish construction industry’s woes. Faced with declining revenues and still awaiting bailouts from Madrid to make up for budget deficits, Spain’s regional governments have left contractors unpaid for already completed massive infrastructure projects. Meanwhile, austerity budgets have resulted in cuts to future public works -- more politically palatable than cuts to entitlements -- crippling formerly vast construction firms like Fomento de Construcciones y Contratas, which lacked a sufficient international presence and has seen its income drop more than 80 percent from its 2007 peak.