Bouncing back

SPAIN is, as ever, in transition. Two old totems of pride, King Juan Carlos and the national soccer team, have crashed and burned. The now ex-king handed the throne to his son, Felipe VI, on June 19th, a day after Spain’s trophy-laden soccer stars were booted out of the World Cup. Fortunately the country has meatier reasons for cheer. With recession over and jobs being created, it is shaking off the long hangover caused by its bubble-fuelled party.

Even Mariano Rajoy, the centre-right prime minister, seems surprised by the pace of recovery. The government did not expect internal demand or credit to small companies and consumers to pick up so soon. Growth is already boosting employment, opening the way to a virtuous cycle of increased demand and more job creation. Growth predictions for next year are being revised upwards, some to over 2%. Investors have arrived in force, hoping it will soon be party time again. Life will get better for credit-starved small businesses, after the European Central Bank announced €400 billion ($544 billion) of cheap loans to euro-zone banks that lend more to businesses. The government is promising small tax cuts, but steering clear of ambitious fiscal reform as it tries to recover popularity before next year’s election. It has tightened this year’s budget deficit target from 5.8% of GDP to 5.5%.

Bond yields have plunged, meaning that convalescent Spain borrows at similar (or even lower) rates to the United States. That brings dangers, as it risks falling into the old vices of easy credit, trade deficits and a two-tier economy hobbled by poorly trained workers and undersized companies. Until now Mr Rajoy’s government has preached the virtues of export-led growth. Exports have indeed boomed remarkably, but imports are now picking up, so Spain could easily tip back into a current-account deficit. And all this is happening in a country where public debt will rise above 100% next year, companies still owe more than 120% of GDP and unemployment is a shocking 25%. Exceptional accounting rules are still in place, even though they allow some companies to stay alive by ignoring the impact on their assets of the country’s property crash.

Spain’s exports may have grown, but Jesús Terciado of Cepyme, a small- and medium-business organisation, points out that almost 90% still come from the largest 5,000 companies. Yet companies with more than 250 employees account for only 41% of Spanish jobs. The government sees making those smaller companies grow as the secret to a stronger recovery, but many are family-owned and conservative.

Education remains divided, with an elite class passing through some of the world’s best business schools even as others struggle through state and public universities that fail to make the top 150 in global rankings. The school system continues to expel underachievers and corruption bedevils training programmes. The OECD rich-country think-tank says that inequality grew more in Spain between 2007 and 2011 than in any other member country, with the young and poorest hit hardest. Many are turning away from traditional politics: far-left parties took more than 20% of the vote in the recent European elections. In Catalonia the escape valve for resentment is separatism. Even the arrival of a new king has not stemmed the flood of scandals engulfing Spain’s institutions, the latest being the charging of his sister, Princess Cristina, with money-laundering and tax fraud. For Mr Rajoy, recovery in all senses still has some way to go.