Spain's Lesson For Its Neighbors

Spain joined the European Union in 1986 as a poor country. In 12 short years, it has built a modern economy larger than Canada's. It is an economy that generates a level of prosperity close to those of Italy and Britain. And the Spanish did it while others took a siesta. Spain's political leaders unleashed an incredibly dynamic economy by slashing the role of the state. They cut taxes, privatized state industry, and deregulated markets. They moved faster and went further than France, Germany, Italy, and other Continental neighbors because they had less to lose.

Just imagine what powerful economic forces Germany or France might unleash if they accelerated their own structural reforms. The problem is that they see their progress in a vacuum. On July 22, the French government announced limited tax cuts for 1999, including some $7 billion over five years in lower local industry taxes. But real government spending will continue to grow by 1% in 1999. French officials gloat that this pace represents a dramatic achievement, since spending used to rise at a much faster clip. They gloss over the fact that the number of civil servants is rising, not shrinking. Civil-servant wages and the bill for pensions were up 4% in the first five months of 1998.

France and others will have to do more than tinker with their economies to reap real benefits from European Monetary Union. The French and Germans may disparage raw, American-style capitalism, but it's going to get harder and harder to shut out the realities of global markets when poorer Continental neighbors forge an economic model that produces jobs and wealth faster and better than their nations do.

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