In the end of December, Spanish families are going to
celebrate the sixth News Year party in a row blurred by the deep immersion in
one of the worst economic crisis the country has ever being throw. For the
population, the turn of the year´s natural hope is going to be hurt – once more
- by doubts, mainly about how long the downside will last and how far Spanish
families can deal with the economic restrictions they are being pressured by.
For the government, the main question must go further: what are the necessary
adjustments that Spain still has to do in order to finally turn the page?
The answers for those questions are still
undetermined. But, since the crisis´ first attack in the Spanish economy, the
country has learned many lessons. “After
five years, we have finally realized that this crisis is serious and we are
making some changes. But, we still have many adjustments to be made”, says Fernando Fernández, chairman of Economics of IE
Business School.
Looking behind, the factors for why the crisis hit
harder Spain than other European countries were defined basically by the highly
connection between the building market and the banks activities, the long-term
loans and the unsustainably of the public sector.
Spanish joined European Union in a different moment of
the economic cycle in comparison with other European countries. In an ascending
curve of growth, the country had higher interest rates, which was forced to
decline with the integration to the EU and the European Central Bank (ECB)
monetary policy definitions.
The result of it was a movement involving the growth
of the liquidity in the market, the companies asking for credit to expand its
borders, families spending and government investing. Regional semipublic savings banks (cajas) lended heavily to real estate companies which went
bankrupt, then, these banks found themselves left with the collateral and
properties of those companies.
“We ignored how the exchange rate works. We should
have realized it was a temporary condition. And a credit bubble urged. Besides
of that, we ignored the deep relation between banks and real state after the
euro, and the unsustainably of the public sector, who received low taxes but
had high expenditures”, explains Fernández. “It was clear that we were building
an economic system that could not resist to any economic change”,
completes. And, the changes have came
like a bomb with the increasingly interdependence between the European
countries, also suffering with the crisis.
The consequences are well-known: scary unemployment
rates, high public debt, plunge in construction rates, decreasing GDP together
with increasing inflation, nationalization of banks, rescue loans from the
eurozone funds (the so-called Troika: European Commission, ECB and International Monetary Fund) and austerity measures, social dissatisfaction.
According to Fernández, besides applying the austerity
measures to redress the long term economic development of the country, in the
last years the government started to make adjustments, as the ones that
occurred in the labor force area, which
improved the productivity of the workers and corrected some dysfunctions
in the labor laws. These measures gave more flexibility and made it cheaper for
companies to hire or cut wages from workers.
Also, the recapitalization of the banks - €100bn of
rescue loans, agreed by eurozone finance ministers, in 9 June 2012 - gave a
breathtaking to the financial system. The companies, in turn, started to pay
attention in productivity and to the external economies, focusing its actions
in the emerging markets.
“We have done many things and I think we can recover,
but the problem is that everything we hear from the European Commission is
´you have to reduce expenditure, you have to reduce debt´. Reduce, reduce and
reduce. I am positive it is necessary for the long term, when we are going to
be healthier. But, who knows if we are going to be able to survive in the short
term?”, questions Patricia Gabaldón, PhD in Economics and professor
of Economic Environment at IE Business School.
However, it is still not possible to see the results
of the Spanish reforms (positive or not) in the economic data. According to the
World Bank, the Spanish Gross Domestic Product (GDP) growth came from -3,7% in
2009, 0,1% in 2010 and 0,7% in 2011. For 2012, IMF predicts the sharpest
decline, of 1,5%. For 2013, Spain will decline again, 0,6%.
The Goldman Sachs analysts’ projections do not show a
different reality. For this year they expect a 1,3% decline and for 2013, a
1,7% decline. “We see a deterioration in the outlook for economic activity in
the whole Euro area”, said the bank in a report released last week. For the
institution, to grow, Spain needs to shift resources from domestic activities,
such as construction and public services, to tradables and improve the
productivity.
“We still have to make fiscal adjustments, restore the
trust in the Spanish market, rebuild competitiveness, restore the saving rate
of the country and better control the banks credit”, completes Fernández.
With so many uncertainties surrounding the country´s near future and
a lots of changes to make, the year 2013 for the Spanish people can be a
long, a very long year.
This text is an assignment for the Globalization class
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