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Skip Navigation LinksHome :: Back Issues :: Bizkaia - Bizkaia and the Guggenheim effect

December 1999

Bizkaia - Bizkaia and the Guggenheim effect


A year on from the Basque separatists' ceasefire and the region is booming, led by Bizkaia, largest of the three Basque provinces. Its capital city, Bilbao, is upgrading its infrastructure to cope with the huge numbers of visitors to the new Guggenheim Museum. It's attracting international banks and technology companies, partly thanks to favourable tax rates. But Madrid is contesting these. Meanwhile ETA extremists remain a threat. Jules Stewart reports.




Bizkaia is one of the three provinces that were united as Euskadi, the Basque Autonomous Region, under the 1978 constitution that decentralized Spain's political administration after the death of the dictator Francisco Franco. It accounts for more than half of the Basque region's GDP and although its economy is now mainly service-based, more than a third of output still comes from industry. However, Bizkaia's GDP is forecast to grow by 4% this year compared with 3.7% for the rest of the Basque Country and Spain.

Over the past couple of years, Bizkaia's star has been finally in the ascendant. Along with the collapse of its industrial lifeblood the Basque Country has had to bear the cross of political terrorism by ETA, the separatist group that since the late 1960s had been waging open warfare for Basque independence, fancifully defined as union with the province of Navarra as well as the three French Basque provinces.

The breakthrough came in September last year when the main Basque political parties and trade unions including ETA's political wing, Herri Batasuna, issued a statement agreeing jointly to seek a solution to the issue of self-determination for the region. A few days later ETA, which by this time had lost most of its popular backing as well as its infrastructure, seized the opportunity to throw in the towel.

"The Basque people will decide their own future but we as a party are committed to abide by the decision of the majority," says Eusebio Lasa, economic spokesman for Herri Batasuna, a party whose relationship with ETA is similar to that of Sinn Féin's with the IRA. The party has not renounced its ambitious plans for an independent state, but Lasa concedes that this will be a "slow and gradual process and it will not happen overnight as we had previously demanded". What it means is that even the most radical wing of Basque nationalism, which obtained 17% of the vote in this year's regional election, agreed to take its seats in the Basque parliament and abide by the democratic process.

A setback came in late November when ETA, frustrated that the Spanish government was not meeting its demands, announced that it was reactivating military operations. For its part, the Spanish government says it will not talk to Eta unless it reinstates the ceasefire. It remains unclear whether the peace process can recover after these difficulties.

"Investment never came to a standstill because of ETA but there is no doubt that last year's ceasefire brought a breath of fresh air," says Javier Urizarbarrena, finance and treasury deputy of Bizkaia, one of the three provincial governments, along with Gipúzkoa and Álava, set up under the autonomy statute. Each has its own elected local government, and the regional authority for the Basque Country sits in Vitoria in Álava province.

Urizarbarrena says Bizkaia's rejuvenation is most evident in Bilbao, the province's capital city of 400,000, and this thanks largely to the "Guggenheim effect". He says that "from a business standpoint it isn't the least bit frivolous to talk about the impact of the Guggenheim Museum, which opened here in 1997. In the past two years the Guggenheim has attracted 2 million visitors, something we could never have achieved even if we had spent six times the museum's £80 million construction cost on regional promotion. We did a presentation to investors in New York in 1997 and we had to pinpoint Bizkaia on a map for them. Last year we had another presentation in Chicago and by this time everyone had heard about Bilbao."

The "Guggenheim effect" has turned into a unique promotional tool: half a dozen luxury hotels are under construction in Bilbao, a new airport is nearing completion, international banks such as Deutsche Bank, Barclays and ABN Amro have piled in and Chase Manhattan has even made the city its Spanish headquarters. James Bond has used the museum as a prop for his latest blockbuster, The World is Not Enough, and since Agent 007 wears an Omega watch in the film the manufacturer has opened its first Spanish outlet in Bilbao.

"We now have the resources to provide a first-rate infrastructure," says a Bizkaia government official. "We could afford to hire architects like Sir Norman Foster, for instance, to design the city's new metro system and Cesar Pelli to develop a multi-functional commercial centre along the riverbank."

The Zamudio technology park outside Bilbao was Spain's first and remains the largest. It has become the Spanish headquarters for such companies as Ericsson, as well as the European Software Institute. Zamudio and two other technology parks in the region account for half the research projects submitted each year to the European Union.

Partly to help neutralize business fears of political unrest, the Basque government introduced an aggressive tax regime that set the rate of corporate tax at 32.5%, compared with 35% for the rest of Spain. As one of the two "foral" regimes - the other is Navarra - the Basque Country enjoys a greater degree of fiscal autonomy than other regions. "The system dates back to the 14th century when special privileges called fueros were granted to the territory," says Richard Morawetz, credit analyst at ABN Amro. "As a foral region, the Basque Country retains nearly all taxes collected within the region, and as such receives a very small share of revenues from the central government." Morawetz says the Basque Country's current Aa2/AA rating, the strongest of any region and on a par with Spain, reflects its per capita income being 20% above the national average, and also strong growth in the 1990s that has had a positive impact on fiscal indicators.

The special tax regime has set the Basque Country on a collision course with Madrid. The central government has for years been trying to force the Basques to harmonize their tax regime with the rest of Spain but its case has been consistently dismissed by the law courts. However, the latest in a round of judicial rulings came as something of a mixed victory for the Basque region. Not surprisingly, the Basque high court upheld a decision by the Spanish courts to allow the 32.5% corporate tax. But it also decreed the abolition of a system of tax holidays for companies setting up in the Basque Country, an incentive of crucial importance to Bizkaia where the bulk of the region's industry is centred.
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