When markets are eaten up by worry it is never easy to change their
minds. If he is to do so, Mr Zapatero must take several steps fast.
First he must produce a credible medium-term fiscal plan. That means
coming clean about debts in the banking system and the regions and
speeding up a plan to raise the pension age from 65 to 67. Second, he
must do more to help Spanish firms compete—because once it is clear
that Spain can grow, its debts will look a lot less scary. His
labour-market reform was very timid. A rigidly centralised system of
wage bargaining mandates annual pay rises, come what may. He has
postponed reforms to pensions and collective bargaining until next
year. They may then fall hostage to local and regional elections,
before a general election in 2012 that the Socialists will surely
lose. So he should redouble efforts to forge a pact with the
opposition, and push on with reforms.
The future of the euro rests with Germany and the European Central
Bank—they, after all, are the places with the money. But right now, Mr
Zapatero is the key. If he acts swiftly, he could play a vital part in
saving the currency from collapse.