Hispanoamérica

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NOT so long ago Spain was something of a basket case, at least compared with the rest of Europe. Long a recipient of European Union funds, the Spanish economy plodded after its neighbours. The country’s firms struggled to compete internationally, at least beyond Spain’s traditional sphere of influence in Latin America. Yet now, two decades after joining the EU, the Spanish bull appears to be striding confidently across the home continent.

The latest example of assertive Spain is a £11.6 billion ($22.5 billion) agreed bid by Iberdrola, a Spanish power company, for Scottish Power, a British one. Spanish firms are feeling strong in part because the domestic economy is doing well. Growth of 3.8% in the third quarter of this year comfortably outstripped the euro-area average. Corporate profits continue to grow handsomely too; Spain’s stockmarket index is at an all-time high. Spain’s adoption of the single European currency has kept interest rates low, pushing down the cost of financing deals.

Spanish companies have been taking advantage, especially in relatively open Britain. In 2004 Santander swallowed Abbey, a rival British bank. Telefónica’s purchase of Britain’s O2 in 2005 has made it one of the world’s biggest telecoms companies. In June Ferrovial, a construction giant, bought BAA, which runs Britain’s biggest airports. And smaller Spanish companies have snapped up tasty targets in Europe and elsewhere. This year the value of completed and proposed deals hovers around the €100 billion ($131 billion) mark.

Some of these firms have been encouraged by experience gained in traditional hunting grounds of Latin America. It has helped, too, that the home market has opened up somewhat, infusing businesses with a fresh competitive zeal. And more mundane forces are at work. Spanish law, for example, has long granted tax breaks to local firms engaged in taking over foreign companies.

But the bull run may, possibly, be coming to an end. The European Commission has insisted that the tax break is phased out from the end of this year, making future deals less attractive. More worrying are forecasts that Spain’s booming economy may falter. Growth is heavily dependent on the country’s burgeoning construction industry, which accounts for some 10% of GDP. An associated housing bubble is fuelling an unsustainable rise in consumer spending. As the ECB raises interest rates both construction and consumption look increasingly vulnerable. And if the housing bubble were to burst, as some say it might, Spain faces a recession that would temper the ambitions of Spanish companies in general and of construction firms in particular.