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Spain’s economic stagnation: and why Zapatero Socialism is to blame
Spain’s economic stagnation: The zapping of Zapatero | The Economist
Spain is in economic trouble and aides to the Socialist Prime Minister of Spain are claiming that Spain is the victim of a speculative attack and of a plot by the Anglo-Saxon press to destroy the euro. What rubbish!!
The Economist points out that Spain did not have to bail out its banks like the UK and the rest of Europe, as well as the USA. At the same time, fears of financial contagion have in fact made the market volatile. The reasons that the investors are feeling nervous about Spain make sense:
- it has the highest unemployment rate in Europe;
- it is an economy still in recession;
- it has a fiscal deficit that jumped to 11.4% of GDP last year, as recession cut tax revenues and forced up spending on the unemployed.
- the lack of growth will lead to a public debt that is unsustainable.
Zapatero is out of his depth (now that really sounds familiar), he was a popular leader in the good times, but he failed to see the bust coming. He misdiagnosed the problem within the economy as an imported recession that he could safely wait out. Just like a typical socialist he:
- carried on doling out public money
- raising public pensions
- raising public-sector wages
whilst shunning reform.
On the other hand the markets have recognized that if Zapatero continues on this course of action then Spain is on the road to ruin. They are one step ahead of a moribund government, which has reacted with fumbling confusion which has launched an austerity plan and a vague scheme for labour-market reform, only to withdraw bits of both at the first sign of a protest.
Spain has become a high-cost, low-productivity economy. Wage indexation has made businesses uncompetitive. Generous severance arrangements discourage firms from hiring workers and have created a two-tier labour market and mass unemployment.
It would seem that the only way forward for Spain is to recognize that it has fallen into stagflation and then look at the appropriate measures that need to be taken, even if they cause pain to the unions. Spain managed this in the 1970s when Felipe Gonzalez was Prime Minister, but it seems that Zapatero does not have the capability carry out the necessary reforms that are required to lift Spain out of its moribund condition.
Spain – the basket-case economy
Charlemagne: Old Spanish practices | The Economist
Spain has been identified by the European union as one of the STUPID countries, that are in economic crisis. The other countries are Turkey, United Kingdom, Ireland and Denmark. The Economist points out that Spain chose to accept the Lisbon treaty, not for pragmatic reasons but for other reasons associated with the Franco era – a sense of freedom as a nation emerging from a particular form of Socialism.
Spain took over the six-month rotating presidency on January first, and one of its responsibilities will be the chairing of meetings to discuss the launch of the 2020 strategy for Europe. The idea of the 10 year plan is for boosting competitiveness and growth “to help pay for Europe’s generous welfare systems”.
At the moment Spanish unemployment is heading close to 20% which is double the average among Eurozone countries, following the popping of a housing bubble. It is worsened by a two-tier labour market of hardcore permanent workers, and temporary contract workers (mostly consisting of young and immigrant workers).
When Spain became a member of the Eurozone, the trade-off was cash for modernization in exchange of Spain lifting the trade barriers and accepting competition. This actually worked well for Spain and Europe, however, there are other setbacks to consider.
One of the difficulties in Spain is the rigidity of the labour market. There does not seem to be a way to help Spain to become competitive by lowering labour costs, since they cannot devalue their own currencies. Without knowing the background of the Spanish labour market, i.e. the extent of unionisation in Spain it is difficult to put this in real context. If that labour is highly organized then any attempt to lower labour costs will meet with resistance. However, Spain does have an immigrant problem that is similar to some extent as the USA – illegal immigrants from Morocco.
Since Spain is a Socialist nation, just like the UK it has a Welfare State system, including “free” medical. One of the problems of having a large illegal immigrant population is that this places a real burden upon the Welfare State, especially the hospital and education systems. If the illegal immigrants are not working, then they are being a drain on the economy since they would be expecting welfare payments. Until I learn more about the present Spanish economy, I have just one question: what percentage of the 20% unemployed in Spain is made up of illegal immigrants?
