The Integration of Spain în The EU

I.Introduction

The signing of the Adhesion Treaty of Spain to the European Economic Community in 1985 was one of the main economic moments in recent Spanish economic history. It supposed the beginning of a homologation process in institutions, economic structures and economic management rules with the most developed countries, giving reality to an old desire for integrating into Europe. The signature of the Maastricht Treaty in 1992 was the second step in the same direction, following a more important and definitive third step: the adoption of the Euro as the Spanish currency on 1 January 1999.

During the fifteen years between 1985 and now, the Spanish economy has been living an intensive structural and institutional change. At the moment of the Spanish adhesion, the European Economic Community was living a deep transformation into a Common Market, promoted by the Single European Act in 1986. Through that, the EEC stopped being a Customs Union to be a Common Market in 1993. So Spain had to face up to a complete openness of its borders to the external competition in the short time period of seven years. The peseta incorporation to the Exchange Rate Mechanism (ERM) in 1989 demanded also to accommodate the Spanish monetary policy orientation to the main Member States. Finally, this obligation for harmonizing of monetary policies was intensified by the Maastricht Treaty which established some nominal convergence conditions between countries for the adoption of the Euro.

The net effects of this integration process have been clearly beneficial. To become convinced of it is only necessary consider that, in a speed-up openness to the external competition schedule, the Spanish economy has been, after the Irish one, the European Union economy with the highest growth in the last fifteen years. This faster growth is now compatible with inflation rates at the lowest historical level and with a public expenditure surplus.

In the following pages we analyze the effects of this integration process on the Spanish industry, that has been the sector most involved in it, as usually is, given its higher share in foreign trade. We start by analyzing the direct effects of the opening to foreign competition. Then, we examine the transformation of the whole industry. Lastly, we consider the final results in terms of industrial growth and trade balance to finish by exploring briefly the role of industrial policy.

1. DIRECT EFFECTS OF THE INTEGRATION

1.1. Trade Creation

The integration of Spain into the EU promoted a radical change in the market environment of Spanish industry, as a direct consequence of the external opening. The percentage of the imports in domestic absorption has multiplied more than twice since 1985, growing from 16 to 37 per cent in 1999.(Chart 1)

Thus, at this moment more than 40 per cent of the domestic demand is covered by imports. This percentage reaches up to 70 per cent in the branches of high demand and technological intensity (computers and electric goods), and exceeding 50 per cent in the intermediate manufacturing. The highest value corresponds to the activities in the computer field, where it reaches 90 per cent. In the most traditional industries, more typical of the domestic firms and less international trade oriented, the level is only 20 per cent, although is now twice the value it was in 1985.

The important shift in the level of Spanish trade openness in the last two decades is expressing a remarkable trade creation process (Gandoy and Diaz Mora, 2000; Viflals, 1992; Martin, 1997). The trade creation effects have been clearer and more relevant in the manufacturing industry than in the rest of Spanish economy, because the former absorb the main part of external flows. The imports were 12 per cent of industrial domestic demand or industrial absorption in the manufacturing sector in 1980, whereas its value has risen to 30% in 1999. This incredible growth in only twenty years shows the quick trade openness and the trade creation suffered by the Spanish manufacturing industry. Imports from Member States multiplied by three in their proportion to domestic demand, but without taking the place of imports from Third Countries which increased their percentage a bit as well. So, an external trade creation effect has also happened, probably due to the Spanish adoption of the External Common Tariff which involves cutbacks in tariff barriers facing Third Countries (Chart 2)