A world in economic crisis

Spain – the basket-case economy

Posted in European Union by Aussie on February 21, 2010

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?

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