Is Spain the Comeback Economy?
August 09, 2017 7:10 PM
Not many people noticed, but Spain, once among the most tumultuous economies in Europe, is showing signs of a positive upturn. While the bloom has not returned fully, the economy is growing at a respectable three percent, roughly what it was before the crash.
And what a crash it was. The country went on an unsustainable building boom with few controls and lots of borrowed money. When the Great Recession struck, banks buckled and property developers lost millions. Ghost neighborhoods stood empty, while unemployment rates ballooned to an astonishing 26 percent. For younger workers, the rate was more than 40 percent.
The EU made things worse by insisting on austerity when more spending, but not of the sort that got Spain into trouble in the first place. Spain was compelled to cut spending, while tax revenues. Wrong-headed policies added years to the recession and collective suffering.
On the bright side, wages for the remaining jobs fell, and work rules, which before the crisis very much favored the workers, made it easier and cheaper to hire people again. Investment poured in from richer parts of Europe and elsewhere in the world. Soon, Spain was shipping automobiles, auto parts and machinery to all parts of the world. Exports now account for one-third of the economy, compared with one-quarter before the crisis.
Another effect of the economy was a tumbling cost of living in cities like Barcelona, which became a relative bargain compared to London and France. As a result, clever young people from throughout Europe decamped to Spain to enjoy cheap rents, good food and mild weather. It wasn’t long before itinerant entrepreneurs joined youthful locals in stirring up the laconic startup scene. The Barcelona government has funded an incubator to further accelerate business and job creation.
All aboard for better times
With the economy reviving, more tax revenue and smaller unemployment payments, governments began again to invest in infrastructure, including an expansion of the Barcelona subway system. All the better for entrepreneurs to get to work on time. Some of them are reinventing sclerotic family businesses. For example, the sons of a winemaker convinced their dad to produce an inexpensive white for local consumption. They persuaded him to make it available at bars in large wooden barrels with a spigot in them. It proved wildly popular, and the business was saved from bankruptcy. Innovation often springs from necessity.
Spain is peppier but not out of the woods. The government’s enormous debt is 100 percent of the economy’s annual output, a holdover from a decade of unemployment payments and rescuing banks. Workers, while happy to have jobs, will eventually want better wages—and unions have a history of militancy.
Unemployment is still high at 18 percent and the rate for young people, while lower than it was, is still an embarrassment for an industrial country. But people who had written off Spain as a hopeless mess need to take another look. While it has a long way to go to put things right, the future looks brighter than at anytime since before 2007.
Indeed, elsewhere in Europe things are stirring, too. France has new leadership, Germany looks like it will continue the status quo, and right wing, anti EU momentum seems to have stalled. The EU has signed a trade agreement with Canada and one with Japan appears likely to follow.
2018 may turn out to be a pretty good year for trade, the EU and for Spanish wine and olive oil.
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