The End Of The Spanish Empire.(World Affairs; EUROPE)(Cover story)

Byline: Stryker Mcguire and Mike Elkin

In an election year, Spain's economy is suddenly faltering. Its candidates have run out of steam, too.

The listing on Ebay Espana tells you all you need to know about the current Spanish election campaign: "I'm putting my vote up for bid -- I will vote exactly as the top bidder asks." Humorous? Possibly. Cynical? Definitely. Voters don't go to the polls until Sunday, but many Spaniards have already made up their minds: they're not happy with the parties or the candidates. And they'll undoubtedly be ho-hum about the results, whatever they are.

The candidates have done their part, too, in turning this into the eBay Election: it seems anything and everything is for sale. When Socialist Prime Minister Jose Luis Rodriguez Zapatero pledged to create 2 million new jobs over the next four-year term, the Popular Party's Mariano Rajoy promised 2.2 million. When Zapatero said he would cut income taxes, Rajoy offered to cancel them (on annual incomes below [euro]16,000). When the Socialist Party promised to plant 45 million trees--one for every Spaniard--the PP thought hard and promised 500 million. These electoral bribes are "bread to the masses," says Rafael Pampillon of Madrid's Business Institute. "But giving a drug addict methadone isn't a long-term solution."

The descent into Politics For Sale is a particularly shocking fall for Zapatero, who came from nowhere to become a popular and effective leader four years ago. As he battles to secure a second term, he now seems adrift except for his contempt for the political opposition. True, his success in 2004 was almost accidental: the then-incumbent Popular Party reacted so cynically to the Madrid train bombings three days before the election that the Socialists, led by Zapatero, were gifted their victory at the polls. Still, in the early years of his government, Zapatero was feted worldwide for his apparent competence and vision. But it gradually became clear that he lacked charisma and he slowly sank into a welter of petty domestic disputes, fell off the global radar and, more importantly, turned off the electorate with a series of botched policy decisions.

Zapatero's early success began to look as accidental as his election--not so much the product of political leadership as a dividend bequeathed to him by a strong economy. The latest polls have the Socialists and the PP neck and neck or give Zapatero & Co. a slim lead going into Sunday's election. But if he does win, the government he will form will be weaker than it is today. The combination of more partisan squabbling and less decisiveness does not bode well for any prime minister facing the sort of issues that loom on Spain's horizon. Political gridlock in Madrid will make it tougher to deal with perennial issues like managing immigration and keeping a lid on regional disputes.

But a bigger storm is brewing: Spain's economy is slowing, from an enviable 3.8 percent last year to a projected 2.4 percent this year. Unemployment took a slight upturn, to 8.6 percent, at the end of last year. More significantly, inflation is rising--to above 4 percent--and the spectacular housing bubble has burst. Half of the country's real-estate offices folded during 2007, according to an industry association--a stunning figure even if many of those offices consisted of just one person and a cell phone. None of this is out of line with the rest of the euro zone, but that's precisely the problem. Spain as of last year was way ahead of the pack. Spain has become an "average" country, says Andre Sapir, a Belgian economist and an adviser to Zapatero.