Static stick force stability

The crisis(SPAIN):Large debts, weak economy sustained on non-innovative sectors,…Debts were basically mortgages that were warranted by the house value. Since the housing values plunged the house, the people had assets that were Valued way less than their debts. Unable to cope with the debts, people had to Stop paying and the banks ended with houses that they couldn’t sell. Financial Crisis was coming and ultimately it meant an “undercover” bail-out for Spain to Cover Bankia financial problems.The whole construction sector Collapsed. What to do with all the people working in that sector that accounted For over 10% of the working population? Most of the low-skilled workers without Knowledge in other fields.

The government at that time tried to have a strong stimulus program. That did not work. It was not focused on long term investment but short pushes On the demand, not enough to fight back the falling demand and consumer Confidence.

 The consumption was falling as a Cause of the crisis that would lead investment to decrease, affecting unemployment and creating a downwards spiral. The rest of the world was Suffering as well and exports were not doing specially well, and we were not That competitive. We could not depreciate, so an internal devaluation happened. The labour costs were reduced in the following years.

 High unemployment shoots up the public debts since tax collection rapidly decreases while unemployment Insurances bleed dry the government arks. With passive unemployment policies, There are no policies destined to improve people’s chances to find new jobs.

Traditional rigidities in the labour market make things even more Complicated. The duality of contracts (permanent/temporal) while creating lots Of jobs in expansive cycles destroys large amount of jobs in recessions. It Substitutes internal reorganization of workload with “easy” job rotation, Creating a situation of precarious jobs and the loss of know-how. A labour Market reform was needed but only the high cost of dismissal was reduced and Protection for workers decreased. Is that fair?

 This situation lead to large cuts In public spending. Something that it is not ideal since it would a) reduce the GDP in the short term, and b) eliminate the distributive effects of public Spending. However right now there is no money, and Spanish public system seems To be rather inefficient what should be fixed promptly. Furthermore the Construction boom had affected as well lots of local administrations that had built Useless infrastructures that could not afford nor maintain (airports, public Buildings, …)

Spain today:Congratulated by different international organisms, Spain seems to be Aiming at the right direction from an economic perspective. On the positive Side:

- There has been a strict control Over the debt and deficit. Despite the international forecasts predict higher Than expected deficit, and a sustained debt of 100% (of GDP). It was 100% last year, it is 100% this year and IMF is predicting 100% next year.

- Labor market reforms have Facilitated the flexibility of companies in arranging working force and Moderating wage growth (linked to inflation or growth?). But this measure has Dubious effects on job creation. Reality is that long-term unemployment has Increased (OECD). Is this hindering equality?

- Domestic demand is growing, and we have seen that Traditionally has been the engine of the economy. Consumer trust is increasing, And that’s ensuring growth.

- Financial sector has been stabilized through the European Stability Mechanism. Banks with toxic assets have undergone a long Process of cleansing and fusions that seems to have create some stability (despite Bankia still has to pay back the debts of the bail out).

 - Unemployment is finally Decreasing.

-  Overall optimistic predictions on growth, at The least in the short-run. Around 3% this year and 2.5% next year.