Greg Wright: The pain in Spain is a reminder of the need to be brave

With no end in sight to the euro turmoil, there’s a danger entrepreneurs will batten down the hatches, when the economy is screaming out for innovation and a dash of boldness.

We are at a critical point in the recovery cycle, and if we become too timid, Britain could be condemned to a wasted decade.

There’s nothing surprising about the problems confronting Spain’s economy. It’s a drama which has already been played out, with varying degrees of anguish, in Greece and Ireland.

Spain has been hit hard by the bursting of the property bubble, which has caused soaring youth unemployment. It’s estimated that around half of Spain’s under-25s are out of work, a truly chilling statistic which indicates the economy has deep-seated structural problems.

Spain’s debt yields broke above six per cent yesterday as investors questioned the country’s ability to cope with its phenomenal debts.

It seems less likely that the European Central Bank will be in a position to provide large cash injections to boost ailing economies.

This has thrust the spotlight on to Spain and Italy, countries which have debts that would challenge the region’s rescue funds.

“Spain is caught in a pernicious circle in which the weakness of its public finances, the fragility of its banks and the scale of the downturn are all feeding on each other,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London-based credit risk consultancy said last week.

“While Italy has won back some credibility, Spain is steadily losing it.”

Last month, the Spanish government served up a fresh dose of austerity, with a budget that featured tens of billions of euros in deficit-reduction measures.

The cuts are designed to help Spain lower its deficit to within EU limits and calm the international investors who determine the country’s borrowing costs in the debt market. These investors will have a big say in whether Spain will follow Greece, Ireland and Portugal in needing a bailout.

Apart from spending cuts, tax rises, and reform of the banking sector, the Spanish government has also passed laws which make it cheaper and easier for companies to lay people off, cut wages and change their working conditions.

Despite these measures, a bailout seems more likely with each passing day. It’s unsurprising that the eurozone’s debt crisis will top the agenda when the International Monetary Fund holds its spring meeting in Washington later this week.

Apart from feeling sympathy with the Spanish consumers and workers who will be under the cosh this year, we should be concerned about the impact on confidence closer to home.

We’re in no position to feel smug. The UK has narrowly escaped a double-dip recession but it will struggle for the rest of the year unless businesses stop hoarding cash and start investing.

You don’t have to take my word for it. Those are the sentiments of the Ernst & Young ITEM club, which has forecast that UK GDP growth will be a “dismal” 0.4 per cent this year, which is half the figure estimated by the Office for Budget Responsibility.

While business people in the US are starting to invest, the British have become too risk averse.

In the US, you’re not a true entrepreneur unless you’ve fallen flat on your face a couple of times.

Failure is seen as a badge of courage in the US, while in the UK we are too concerned about the shame of being linked to a failed business.

I’m not saying that every failed business man – or woman – deserves a second chance.

Anyone who wrecks a business through corruption or underhand behaviour deserves to have the book thrown at them.

But, without risk takers, we haven’t got a hope of recovery.

This point was underlined recently by Peter Birtles, the group director of Sheffield Forgemasters, who condemned those who took a knee-jerk approach to dealing with a slump. Cost cutting by itself won’t help a firm survive.

In fact, reducing expenditure on staff training, and research and development is the quickest way to kill a business.

To quote Mr Birtles: “There is no prudence in sacrificing long-term strategies for short-term survival... Weathering the storm in times of global financial hardship is entirely down to adopting a long-term strategy which focuses on a point way beyond any predicted economic recovery.”

Instead of being paralysed by doubt, our sights should be fixed on a distant horizon, when the euro crisis nestles between the pages of academic text books.