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Spain's Businesses Face Credit Shortage


It's MORNING EDITION from NPR News. I'm Steve Inskeep.


And I'm Renee Montagne.

The chart of Asian stock market movement today looks like a rollercoaster, with a hair-raising dive at the start, followed by a steady rise. By the end of the trading day, Asian stocks were down, though not as much as the day before.

INSKEEP: European stocks also started very low, then rebounded and have seesawed since. Here in the United States, the Dow Jones Industrials and the NASDAQ rose this morning after huge losses yesterday. Investors are hoping the Federal Reserve today will announce more help for the economy, but concerns continue over the European debt crisis and the downgrade to the U.S. credit rating.

MONTAGNE: And the question that remains on investors' minds is whether the world is slipping once again into recession. Our coverage begins with NPR's Tom Gjelten in Madrid, Spain.

TOM GJELTEN: For Americans, the economic news this summer has been dominated by big debt stories - the credit downgrade, the drama in Washington over the debt ceiling, as well as the Europeans' problems managing their own debt issues. But behind all those headlines is a simpler tale: the whole world economy is sputtering. Madrid is as good a place as any to see it.

Unidentified Man: (Spanish spoken)

Ms. ESTHER SAN MIGUEL (Business Owner): (Spanish spoken)

GJELTEN: The sign on Esther San Miguel's dress shop says Going Out of Business. This was her last day. She says she's scared that things here will never get better.

Ms. SAN MIGUEL: (Spanish spoken)

GJELTEN: I've felt like this for two years now, she says, that things are bad. And this year especially.

Esther thinks the only retail operations in Spain doing halfway well are those that serve luxury customers and those that sell at rock bottom prices to people desperate to cut corners.

Ms. SAN MIGUEL: (Spanish spoken)

GJELTEN: Those of us in the middle are the most affected, she says.

Esther wants to open a new shop in this same space, a high-end delicatessen specializing in wines, olive oil, Iberian ham, and other Spanish products. But it will take some remodeling, and for that she'll require a bank loan. And she's worried she won't get one.

Esther's situation goes to the root of what's wrong in Spain, says Gayle Allard. She's an American-born economist who's been here for 30 years. Even when entrepreneurs are prepared to launch new businesses and hire new people, she says, they can't get banks to help them.

Ms. GAYLE ALLARD (Economist): It's very hard to get credit, and that is not, that's not improving. They don't want to lend, people don't want to hire. There's just lack of confidence at every level in Spain. It's tough.

GJELTEN: Banks hold on to their cash because they're worried about what they owe and what people owe them, that they won't get paid back. This is how economic activity comes to a halt. And when that happens, a government's tax revenues go down. Deficits go up.

Gayle Allard, who teaches at the IE Business School, says a nightmare scenario is beginning to play out in Spain. The country has lost its edge in the global economy.

Ms. ALLARD: The only way we're going to be able to get through this is get our costs down, cut our wages, and just tough it out until we're competitive again. And it could take five years, 10 years.

(Soundbite of chatter)

GJELTEN: Just a few blocks from Esther's dress shop is Madrid's famous Parque del Retiro. I found a family of four there sitting side by side on a park bench - Juan Jose Ojidos, his wife Rosillo and their two children.

Mr. JUAN JOSE OJIDOS: (Spanish spoken)

Ms. ROSILLO OJIDOS: (Spanish spoken)

GJELTEN: This is the first day of our summer vacation, Juan Jose says. I ask if they're staying home.

Mr. OJIDOS: (Spanish spoken)

GJELTEN: We don't have money to go anywhere, Juan Jose says. We're going to spend our vacation here in the park. Their salaries have been cut back, while rent and other prices have gone up, and Juan Jose and Rosillo still have to worry about losing their jobs. The unemployment rate has been around 20 percent now for two years in Spain, a country that is learning how painful it is when an economy stops growing.

Tom Gjelten, NPR News, Madrid. Transcript provided by NPR, Copyright NPR.

Tom Gjelten reports on religion, faith, and belief for NPR News, a beat that encompasses such areas as the changing religious landscape in America, the formation of personal identity, the role of religion in politics, and conflict arising from religious differences. His reporting draws on his many years covering national and international news from posts in Washington and around the world.