What Can Spain Do?

The most recent prognosis on the Spanish economy is that the unemployment will rise to 28,9% in 2013 and will stay at 28,8% in 2014. The government will not be able to reduce the national debt.

This is happening after 1,5 years of austerity measures. As of now, nobody has been able to identify any kind of a positive effect for Spain from the austerity measures.

Now, my question is: what do you think could be done to improve Spain’s situation? I’m sure there were similar economic crises in other countries in other times. How were they solved?

I specialize in the literature and culture of contemporary Spain, and I kind of need for the country to keep existing.

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54 comments on “What Can Spain Do?

  1. Well, Spain needs to stop all the measures they’ve taken because their main focus is… to fuck all the people that’s already fucked even harder. The government should try and save money where they are spending more money than needed, not where they are spending necesary money like health, education, etc, because getting rid of those services only makes a country go backwards and people unprotected.

  2. This will never happen in reality, but what they need to do is default on their debt, get off the Euro, reintroduce their currency (I am not sure what it was before the Euro), let their exchange rate drop, and gradually this will stimulate demand.

    This is what Greece should have done and multiple other Euro countries. Having a fiscal union without a political union and without a central bank was so important in causing this crisis and also in preventing any relatively easy measures for solving the crisis.

    Lastly, the reason the above actions will not happen is because these type of actions would cause the immediate insolvency of the vast majority of Spanish (and probably soon almost all major European banks) banks because they all hold governmental debt and housing loans which would plummet in value if these actions happened. Now, of course the banks deserve to go under, but if this were to happen a large portion of accumulated wealth would disappear. The global elite and 1% would never allow this because they would lose their fortunes which are invested in these government and banking assets/loans, and instead they will ocntinue infinite bailouts just as has happened and may continue to happen in the US.

    Sadly, short of my somewhat radical stance of default and leaving the EURO I don’t know that anything else can majorly change things around.

    (note: some of my rhetoric may seem strangely populist/liberal here, but I have huge respect/esteem for true capitalists that create companies & products but DESPISE the parasitic banking/finance cartel in the US & globally)

    • Matt
      —-This will never happen in reality, but what they need to do is default on their debt, get off the Euro, reintroduce their currency (I am not sure what it was before the Euro), let their exchange rate drop, and gradually this will stimulate demand.

      All this is just a polite way to say that the people of Spain do not produce enough goods and services which are of interest to anybody to justify their current standard of living (or their aspirations concerning this standard). By the way, this is not an anti-Spanish statement, it applies to most of the “developed countries”, including the US. And THIS is what bothers me. Each individual country may indeed let the exchange rate drop (because it is nearly politically impossible to reduce the salaries). But all countries which need to do that (meaning 95% of them) cannot do that. The exchange rate is supposed to be with respect to something… Some other currency…

      This rhetoric may seem strangely right-wing… Do not worry, I do not like fat cat bankers either. :) I am just discussing options not involving socialist revolution. But in fact all that has a purely Marxist explanation – the crisis of overproduction. All the existing people are not necessary to produce everything that is consumed. This cannot be solved by better monetary policies. And the problem will get worse as a result of technological progress. Artificially creating demand for goods and services people do not really need will not last forever. In the end, the mankind is likely to end up with Soviet style socialism via slow drift, or there will be a war. OK, maybe not Soviet-style, but Scandinavian-style. And even when I say Soviet-style, I do not mean political oppression, but just economics.
      This reminds me of the “Can Communism work” discussion… Maybe it can, if people consciously choose it as a lesser evil, without it being imposed on them by force.

      • “because it is nearly politically impossible to reduce the salaries”

        - This has already been done in Spain. The salaries for the people who work for the government have been cut. So have the pensions. This hasn’t changed anything.in terms of handling the crisis. Not for the better, I mean.

        “In the end, the mankind is likely to end up with Soviet style socialism via slow drift, or there will be a war. OK, maybe not Soviet-style, but Scandinavian-style. And even when I say Soviet-style, I do not mean political oppression, but just economics.”

        - Are you trying to depress me on purpose? :-)

        “This reminds me of the “Can Communism work” discussion… Maybe it can, if people consciously choose it as a lesser evil, without it being imposed on them by force.”

        - Of course, if humanity transformed in the way Marx envisioned, that would work. But I have seen no signs of that.

    • “This will never happen in reality, but what they need to do is default on their debt, get off the Euro, reintroduce their currency (I am not sure what it was before the Euro), let their exchange rate drop, and gradually this will stimulate demand.”

      - I hope this would not be the answer. Although I’m afraid that this might be the only option and Spain is just prolonging the agony. But this would spell the end of the EU, and that is very very sad.

      • the EU is not necessarily going to die without Spain
        considering that Spain’s GDP is about 8.5% of the total GDP of the EU

      • For a while, I’ve suspected that the EU (or at least the Eurozone) will ultimately end-up contracting back down to it’s original constituents: France, Germany, and the Benolux countries. They expanded too far too fast, without a sufficient vetting process for accepting new members.

      • Cliff is exactly right in the fact that joining the Euro at all was the problem!

        And to valter7′s comment about every country not being able to devalue at the same time, the important point would be if each country had had a free floating currency over the last decade many of the structural imbalances would not have happened.

        Germany’s prices / costs would ahve gone up, and the other EU countries would have take some (again, only some) additional manufacturing capacity from Germany and certainly the housing bubbles in Spain, France etc. would not have occured at the same rate due to currency exchange rates and artificially low interest rates.

        The only way the EU will stick together if Germany decides they are willing to put their credit 100% on the line and all the countries come closer to political union. Not impossible, but not probable in my opinion

        But for Clarissa’s sake I hope Spain survives without TOO Much more pain!

  3. Well they can start by not screwing their own citizens and thus delegitimizing the authorities’ rule. Some heavy shit is about to go down. The Spanish banks have previously conned their customers into converting their government insured savings accounts into non insured bank equity by offering higher interest rates. You could argue that these customers who are going to lose most of their principal (i.e. savings) because these tranches are junior to the debts owed to the EU and will not be covered in the coming collapse are being greedy but these are financially unsophisticated people. Caveat emptor really doesn’t apply. More misery and wide spread disturbances to follow. ¡Viva la revolución!

    http://www.nakedcapitalism.com/2012/11/spain-about-to-whack-hapless-smaller-savers-conned-into-buying-bank-preference-shares-as-a-condition-of-its-bank-rescue.html

    • And in the meanwhile, the stupid stupid idiots from the so called Socialist Worker Party of Spain keep getting caught in corruption and bribery scandals. Of course, then people go and vote for the PP. They also rob but not like the socialists. The socialists are out of control in terms of corruption and have been since the 1990s. Stupid losers.

  4. Spaniards have been enjoying a living standard not justified by their productivity. With exceptions they are not a hard-working people. I was shocked during my two visits to the country to find that the mid-day siesta lasted for some four hours. In my judgment, Spain should remain in the EU but withdraw from the euro. it is much easier to lower living standards through currency devaluation – the peso would float at some 70 per cent of the euro – and limited inflation. Resistance is less to that form of real income reduction than forcing nominal income reductions. That is why Argentina defaulted and devalued its currency several years ago.

    Sadly, Southern Euopeans do not have the work ethic of Northern Europeans. That makes the euro-zone a non-optimal currency union.

  5. I can’t find the links right now, but economist Paul Krugman had a series of articles on the European countries. The gist is that the austerity measures are actually hurting these countries’ economy by creating a vicious cycle. Because demand is down, the businesses are not hiring. And because of high unemployment, demand is down. Something like Obama’s stimulus measure would help to drive up demand and put the economy back on track. Unfortunately political realities are such that this is very unlikely to happen.

    I trust Paul Krugman’s judgement because he is a solid economist. I have been reading his columns for a long time, and he was talking about a possible housing bubble and mortgage crisis way back in 2005!

    • ” The gist is that the austerity measures are actually hurting these countries’ economy by creating a vicious cycle. Because demand is down, the businesses are not hiring. And because of high unemployment, demand is down. ”

      - I think at this point nobody can deny that this is true. Austerity hasn’t worked.

      • “Austerity hasn’t worked”

        AFAIK it can’t. The traditional model has been austerity combined with devaluation which causes short term pain but which can lead to recovery. But Spain (like Greece) can’t devalue the Euro because they’re not in charge of it. So you get the vicious circle described above with no real end in sight (short of Germany just taking over the economy completely and running the country directly).

        I’m not sure if this is exactly the disaster that many were warning was going to happen with the Euro but it’s a disaster that the Euro cann’t solve and the PTB are trying desperately to not realize.

  6. The EU existed and thrived well before the euro-zone was created. Several EU countries wisely refused to enter the euro-zone (Britain especially). Spain’s economy was weak when it entered the EU and remained weak when it unwisely entered the euro-zone. Countries whose citizens do not want to work at German levels but desire German living standards slimply fool themselves. You get what you earn in this world in the long run, as the PIIGS are now learning the hard way.

    • Citizens lack of work ethics, is the easy answer
      If you look at what makes an economy thrive, it is consume, mass consume!
      If you cut peoples income, (austerity) you cut consumers from the economy
      Add to that the fact that income of the rich and famous (Spain’s soccer stars are making gazzillions!) are still enjoying income increases of double digit
      is it any wonder that people feel working is getting them nowhere?
      Does it not seem crazy that a worker can barely make a living, but an heir to a fortune spends his days in leisure while his investments are earning him millions a day? Or how about a factory manager gets a big bonus because he increased the bottom line by firing a few thousand employees?
      I think this is the bigger problem; a few are still taking advantage of the masses. Measures like devaluation of currencies are just some fancy technical footsteps, that may bring temporarily relief, but ultimately they change/save nothing.

      • You have only seen ONE alternative, which was not really an alternative and didn’t work
        and thanks for asking, yes I have,
        I grew up in East Germany

      • The common mistake respondents make with a critique on one fact is to automatically assume that the critic is favoring the opposite of subject fact,
        not so; and no I don’t want to – as much as you don’t – go back.
        As far as invention, well that’s were you or blogs like yours come in.
        Discussions about what not works and why will hopefully one day lead to a better system. One thing is for sure: Our current system is not sustainable!

      • “One thing is for sure: Our current system is not sustainable!”

        - There was this one guy, he shared your name and his last name started with “M” and ended with “arx”. He said the exact same thing in the XIXth century. :-) But the weight of contradictions still hasn’t buried the current system. :-)

  7. For the last hundred years, technology has led to greater and greater productivity. This means that less work needs to be done. The only long term solution is to reduce the work week to maybe 28 hours for most people, along with wage increases to make 28 hours enough to live on. This will create more leisure time, which will be wonderful for people in the arts, professional sports, book publishers, and anyone else who works at filling leisure time. The work week has declined substantially in the last 200 years; it must continue to do so.

    The only other option is for there to be a base level dole which is enough to live on, so that work is a choice and people will do it if they want to live above a subsistence level.

    • Since the industrial revolution, machines have increased productivity. The reason increased productivity hasn’t impoverished everyone is because when increased productivity made some jobs redundant, a whole new set of jobs were created.

      • I hate to agree with David mostly on principle but we are at a tipping point. World production of industrial robots is growing 150% per year. Even service industry jobs are not safe, with hospitals introducing robotic porters to deliver document, drugs and equipment around the place.

        The fact is there is less work to do, either we share the work around or we pick some proportion of the population and decide they can’t have employment.

        Instead though we see more and more employers trying to squeeze more and more work from employees, with unpaid overtime common in many workplaces.

      • I think it’s great news that boring, unfulfilling work will be done by machines. However, I don’t see reasons for this panic I;m seeing in the thread because new professions spring up every day. And these professions are a lot more exciting than shuffling paperwork across a hospital.

  8. . Both options seem appropriate to me. I would prefer the first one. It is not new to me since I started hearing about it in the 80s.

  9. If Spain leaves the Euro and returns to its own currency, it can allow it to devalue. This will force a reduction in spending, as a currency devaluation (eventually) causes inflation. Imports will be more expensive, and exports cheaper.

    This does not come without cost, however. When a loan is made, a country pays back a nominal amount. Recall that inflation is an increase in prices, or in other words a reduction in the purchasing power of a nominal amount of currency. If inflation is high enough, then when a country pays back a loan with a nominal amount of currency, the purchasing power of what the country pays back is less than what you borrowed. In real terms, this is in effect a default by stealth because the country is paying back less than what it borrowed.

  10. If you look at surveys of economists, you’ll see that a strong majority (80%+) of them agree that (1) If the federal budget is to be balanced, it should be done over the course of the business cycle rather than yearly; and (2) Increased spending and/or tax cuts is significantly stimulative in a less than fully employed economy.

    IMO, Spain should enact those two propositions. End austerity, and instead increase spending/cut taxes so as to stimulate the economy. When the recession ends, cut back on spending and repay the deficits accumulated in the recession.

    • end austerity yes,
      increase spending yes
      but how is cutting taxes help?
      how about taxing fair?
      The percentage formula is grossly unjust; if you make 1000 a month and your taxes are going from 20% to 30% your lifestyle changes dramatically
      But if you make 100 Mill and say your rate is 50% does your lifestyle really change that much?
      When people like Warren Buffet state that the rich and super rich are not paying their fair share, that there is something really wrong.
      By the way he was an investment adviser back in the days when max capital gains tax was 70%, he saw no reluctance of investors because of that.

      • It is completely wrong, unfair and even offensive to take into consideration how much anybody’s lifestyle changes when imposing a system of taxation. Wrong, wrongc irredeemably wrong. If you want to go into the Marxist direction of “to everybody according to his need”, do it but don’t suggest managing capitalist countries in Marxist terms.

      • That’s why I said “increase spending/cut taxes”; namely, that either could work (if you’re taxed less, you have more money for something else). I’m not an expert on Spain’s economy, so I can’t know a priori which one is best.

      • sorry Rob F I missed the “either”

        to Clarissa, sorry to do it fair is going to be the only way to keep people (in case Spain) working. If you impose the same tax rate on people with low income to the point where their lifestyle change makes them homeless, whereas the possible lifestyle change of high incomer involves just a decision of a $500 vs $1000 bottle of wine with dinner than this is the ultimate irredeemably and morally mother wrong!

  11. Honest question: If Catalonia breaks away and forms its own republic, is the rest of Spain better off or worse off, economically, in the short-to-medium-term?

  12. Im curious, is there one nation in the world that is not in Astronomical debt that has pretty much no chance of ever paying it back?

  13. The last time I was in Spain (not much more than a year ago) one store I shopped at several times had a place on the receipt where the price was also calculated in pesetas (the old currency).

    Since then I’d read of several local projects experimenting with alternate currencies.

    It was never clear to me precisely why the Euro was needed and ultimately the EU could be stronger for recognizng a titanic mistake and doing something to fix it (rather than stumbling around blindly which is pretty much what they’re doing now).

    I can only think of two reasons that anyone thought that Germany and Spain should share a currency longterm:

    a) stupidity (this includes ‘idealism’ which is often simply stupidity in nice clothes)

    b) malicious evil (knowing what would happen and wanting to speed it along)

    European communism failed, nationalistic fascism failed, let’s add the Euro to the list and stop ignoring the obvious.

  14. They should do what Argentina did and default.

    The money owed is only paper currently printed with nothing to back it.

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