Spanish Economic History: Crisis and Growth 1975-1994

The Spanish Economic Crisis: 1975-1985

During this period, the Spanish economy faced its first major crisis, characterized by a superposition of partial crises that ended a long period of expansion. Key factors included:

• The breakdown of the international monetary system: Agreed at Bretton Woods in 1944 and based on exchange rate stability, its collapse led to fluctuating exchange rates for all currencies, the loss of the dollar's leadership, and consequent international instability and uncertainty.
• Rising commodity prices: An increase in world prices for food, agricultural, and industrial raw materials.
• The oil shock: The most significant factor was the substantial growth of oil prices between 1973 and 1974.

Factors of the Differential Crisis

• a) Energy Dependence: Spain had a strong dependence on foreign energy, particularly oil. This was coupled with a delay in energy adjustment; the initial response (1974-1975) was a compensatory policy (Política compensadora), which subsidized energy consumption without passing higher costs to the consumer.
• b) Wage Growth: Despite the downfall of terms of trade due to rising oil prices and the relative impoverishment of the country, there was no adjustment in incomes. Neither workers nor employers accepted the loss of real income; on the contrary, higher wage increases were claimed and allowed, which businesses then passed on to prices.
• c) Slow Investment Recovery: Spanish investment recovered more slowly than in other countries due to the fall in profits and saving capacity of firms, as well as the contraction of household savings.

Economic Recovery and Growth: 1985-1991

Several factors drove economic growth during this stage:

• a) Adjustment Policies: Positive results from policies initiated in 1977 (Moncloa Pacts) and intensified after 1982.
• b) Global Recovery: The global economic upturn was vital for a country as dependent on foreign markets as Spain.
• c) Favorable Price Evolution: A decline in the prices of raw materials and energy, alongside a falling dollar.
• d) EU Integration: Expectations regarding Spanish integration into the EU encouraged strong capital inflows and urged businessmen to invest. Saving and investment figures began to recover from their previous downturn.
• e) Domestic Demand: Strong growth in domestic demand allowed for an increase in production and employment, though this also led to macroeconomic imbalances.

Monetary Policy and Limitations: 1991-1994

The tight monetary policy applied in isolation revealed both its limitations and its costs. While it partially succeeded in its objectives, high interest rates had several negative consequences:

• a) Private Investment: High rates limited and stifled private investment.