MS. BARTIROMO: Welcome back to the program from the Clinton Global Initiative. We've been focusing on Europe. We heard from the prime minister of Greece, and today we focus on Spain. I sat down with the prime minister of Spain who was on something of a roadshow this week in New York, trying to get investors to invest in his country. He told me flat-out the recovery is on, and that real-estate prices have bottomed in his country.
MS. BARTIROMO: You have managed to stop the bleeding in terms of the upset in the economy in Spain. Where are you now? Can you characterize the state of the economy today?
PRIME MIN. ZAPATERO: We have managed to stop the situation. As we go to this sovereign debt, we've managed to change the market views on the Spanish sovereign debt. They have a very exaggerated point of view of what the situation was in Spain. We've applied a series of measures, fiscal consolidation measures, a reform plan as well. And the economy recently has started to grow again just slightly.
MS. BARTIROMO: Can you tell us what happened? During that period, it seemed very stressful. How did the crisis begin? And how were you able to fix it?
PRIME MIN. ZAPATERO: Basically, there were three types of actions that we've carried out. First of all, we tried to facilitate and improve knowledge on our financial situation, especially in our financial system.
The stress tests that were carried out in different banking
institutions in Spain gave excellent results for the Spanish financial banking system. So this was something that was necessary for investors, for banks and for analysts to be showed that the situation was much better than what people thought.
Secondly, we took a series of measures to reduce the deficit and very hard, very strong measures. And, for example, we reduced public salaries by an average of 5 percent. We cut our investments in -- 30 percent public investments that is. And then there were a whole series of measures; for example, labor-market reform. We've -- we took a whole series of measures to improve the situation.
MS. BARTIROMO: Would you say that the banking system is well- capitalized today?
PRIME MIN. ZAPATERO: Spanish banks are sufficiently capitalized, but what we do have in Spain are a whole series of very small banks, savings banks, "cajas," as we call them in Spain. And these banks are under the control of -- the partial control of certain public institutions.
And here with the -- where it was subject to a series of laws that do not permit them to have full capitalization from private funds or private-sector capitalization, now we've adopted a new law, a change in the law, which will allow them to get more private capital into the banks. And this will -- together with mergers of these small savings banks, we'll have them improve their level of solvency, and will allow them to carry out their activities, which is basically giving credit.
MS. BARTIROMO: Are you expecting real-estate prices to continue coming down? Have they hit the bottom or not yet?
PRIME MIN. ZAPATERO: I think that the price of housing has hit the bottom. It won't go down any more. For the past two or three months, what we see is that not only has it not dropped. But in certain parts of Spain, the price of housing has gone up. This is especially the case in those areas of -- not where people are buying their second house, if you like, with the prices there have still gone down a bit, but rather where they're buying their first, there the prices have gone down in the housing sector. So in general the prices have been stable recently, and they've even been increasing. So demand seems to be ticking up again.
MS. BARTIROMO: Your government has come under some criticism for suggesting some austerity measures in place during the crisis could now be rolled back. Is this prudent? What are the chances that that will rattle confidence, and perhaps the economy goes back, and falls once again?
PRIME MIN. ZAPATERO: What's happening is that our plans are being fulfilled to the letter. What we have set for ourselves is being fulfilled. We still want the deficit to be reduced. And it's essential for our credibility.
And this year we want debt to go down by a few percent to a total of about 6 percent. This of course is due to the fact that the risk premium for Spanish debt has gotten a lot better. The situation has improved. So that has given us more margin to increase slightly public spending, but only slightly. And we've -- this will allow us to make a slightly better effort, a small effort in infrastructure investment, which is a productive investment in fact.
So that small margin is due to the fact that we've had less pressure on the debt. But we continue with our plans. We will continue carrying them out.
MS. BARTIROMO: So what are the chances that the economy start back into recession, in your view?
PRIME MIN. ZAPATERO: Well, our estimate is that we won't have any more quarters where growth will go down. We think that growth will continue to improve, and this will also improve confidence in the Spanish economy. And it's something that we need. We've made enormous efforts to improve the level of confidence that we're getting. But I think that from now on it will be growth all the time.
MS. BARTIROMO: You have said that you are looking to get the budget deficit to 3 percent of Spain's GDP. What other measures do you need to take to continue in this progress?
PRIME MIN. ZAPATERO: Yes, I have to say that, first of all, we have to be very vigilant as we go to public spending. If public spending were to increase, we would have to make new measures.
The government that I've had since we've been in office, we've always managed to -- it's been very important for us to maintain that fiscal balance. And in the first four years, in fact, that I was government, we had surplus. And that's helped us enormously. And now our debt is 20 points superior to the average debt in the European Union, in the European Union member states.
So really what we're doing is having strict controls on spending, keeping a close eye on the level of revenues that we're getting. And right now the plan is going well, and we're not expecting any surprises whatsoever.
MS. BARTIROMO: Last week, Germany proposed stiffer penalties for high-deficit European Union countries, including the possibility of stripping them of voting rights on EU matters. Should European Union member countries face a higher punishment if they don't get their fiscal house in order?
PRIME MIN. ZAPATERO: Oh, well, yes, in fact, before Germany proposed this, Spain proposed having sanctions for those countries that do not abide by the European rules. Now, under the new European governance that we're speaking of, that is even more the case. So I totally agree that we need to have -- in order to have a stable euro, to have growth, both in the eurozone and in Europe in general, it is necessary to have strict rules that companies -- that countries need to abide by as regards to debt et cetera.
MS. BARTIROMO: Tell me about your meetings today in terms of investors looking for opportunities in Spain. What were there concerns? What did you tell them?
PRIME MIN. ZAPATERO: Well, yes. Well, two basic ideas were hat -- were put to the investors. First of all, I wanted to eassure, strengthen our level of credibility and trust amongst nvestors. I wanted to make them aware of all the measures that e've taken to stabilize the situation and to improve rowth.
Effectively, I wanted to point out all the different sectors that are available in Spain for investments, good investments. There are very good sectors in Spain. The financial sector, with all the reforms that we've taken and all the possibilities of receiving private capital now; also renewable energies; the telecommunications sector; the biotech sector; the agri-food sector -- these are all sectors that are excellent opportunities for investments in Spain.
And I also wanted to put to investors the fact that we want to facilitate their investments in Spain, and to work together with them to help them invest in our country.
MS. BARTIROMO: And the country very comfortably sold a significant amount of long-term debt with strong foreign interest. You have several more bond auctions next quarter. What are your expectations?
PRIME MIN. ZAPATERO: Well, yes, what I've tried to put to investors and what I see is that the situation has become much more stable. As regards to the Spanish debt, it's a reasonable risk. And the Spanish debt is secure. It is profitable. It's a good investment. And I think that in future missions, that will also be the case. So I think that that's what we wanted to get across to most American investors that it's possible to invest in Spanish debt.
MS. BARTIROMO: My thanks to Prime Minister Zapatero from Spain.