Spain – an economic basket case pt2
Stubbornness is a very bad trait and it would seem that the Spanish Prime Minister Jose Luis Rodriquez Zapatero has a really bad case of stubbornness when it comes to being able to recognize and fix the problems within the Spanish economy. It seems for Zapatero it is much easier to blame others. (Now where have I heard that song before? USA? Obama?)
Spain’s economic crisis is due to the following:
- a debt-driven construction boom. Spain borrowed heavily from the European Union in order to update her roads etc.
- has posted 7 consecutive quarters of negative growth. Spanish GDP fell 3.6% in 2009.
- the IMF has predicted that there will be NO POSITIVE growth in Spain until 2011.
- has the highest unemployment rate in the European union at 20% p.a. c.f. to rest of European Union at 10%.
- an exploding budget deficit due to a collapse of the labour market with a corresponding drop in tax collections;
- the Zapatero government haphazard and spendthrift policy response of increasing unproductive public sector spending which has caused the budget deficit to blow out to 12% of GDP in 2009 (which is 5 times higher than in 2008).
As a result of the combination of negative GDP growth, rising unemployment, and a high deficit Standard and Poor’s has recently lowered its outlook on Spain’s sovereign debt from “stable” to “negative” due to the “prolonged period of negative growth” and the persisitently high fiscal deficits.
As a result, Spain faces the prospect of a downgrade of its government debt which would make it more expensive for Spain to finance its debt. This in turn is leading investors to demand higher interest rates to hold Spanish debt.
Unfortunately, just like Obama, Zapatero seems incapable of accepting any form of responsibility for the Spanish debt woes. Instead he is blaming outside forces. The industry minister, for example has stated that Spain is facing an “imported problem”, the deputy prime minister is blaming “radical liberalism”, which means the free market. And poor old G.W. Bush apparently is also to blame for the labour minister blamed “the neo-conservative thinking preached by U.S. President George W. Bush, “which resulted in capitalism without ethical limits”…. However, this is just not realistic.
At the same time, just like the progressive socialists in the USA, Zapatero says that “critizing the economy is unpatriotic”, accusing those who are worried about the economy of demagoguery and exaggeration”.