Swedish Lessons
If we want to avoid a long hangover caused by high public debt we should look at the example of Sweden, says Prof. Núria Mas. Sweden went through a crisis similar to Spain’s with public debt reaching 78 percent of GDP but through a policy of transparency, balanced budgets and a productivity adjustment to get better results from less income, it has made a remarkable recovery.
Núria Mas
Taking the Medicine
As we enter phase two of a double-dip recession everyone is calling for measures to promote growth but governments have no money to do this, says Prof. Pedro Videla. The only way out for countries such as Greece and Spain is to bite the bullet, increase purchase tax, cut spending and create sustainable government expenditure, he says.
Pedro Videla
No Green Shoots of Recovery
Spain entered 2012 with negative growth of -1.6 percent of GDP in the first quarter, confirming a W-shaped recession, says Prof. Javier Díaz-Giménez. We can only hope that the second loop of the W won’t be as deep and long as the first, he says. The forecast for 2013 is deteriorating and there won’t be any significant growth until 2014.
Javier Díaz-Jiménez
The Consequences of Defaulting
Given current concern among investors about the sovereign debt of weaker countries, several questions should be asked, such as: What happens when a country decides to default? How long until it can reaccess international markets? How does the size of the default impact the country’s economic future? IESE Prof. Rolf Campos gives his analysis in this interview.
Rolf Campos
YPF Expropriation: Everybody Loses
Argentina’s controversial decision to expropriate its largest oil company, YPF, which belonged to Spain’s Repsol, may well backfire, according to IESE Prof. Xavier Vives. Besides Spain, many other European countries, not to mention the U.S. and China, have substantial investments in Argentina and, given this populist maneuver, may now think twice about injecting further capital in the country.
Xavier Vives
Double Trouble
Some countries in the European Union, Spain among them, face the double problem of a lack of competitiveness and debt, says Prof. Alfredo Pastor. The problem of competitiveness is that it requires internal differentiation and this is difficult to achieve within a monetary union. To be competitive Spain would need to devalue 20-30 percent. To pay off its debt, Spain would have to spend up to 3 percent of GDP for up to 20 years. These debts either need to be restructured or guaranteed by the resources of the Eurozone.
Alfredo Pastor
Spain’s General Strike
Spain is going through a period of great uncertainty and the social and production models are changing, says Prof. Antonio Argandoña. Inevitably there is unrest, but he believes this Thursday’s general strike is more about the unions protecting themselves and their powers than a strike against the government or the new employment legislation. “We need to change our attitude to work, to debt and to savings, then we can sit down and negotiate,” he says.
Antonio Argandoña
Part-time Jobs are Part of the Solution
Debt is not Europe’s only problem, say Morten Olsen. In Spain, it’s a lack of competitiveness. It can’t devalue so it has to take measures to become more competitive. Half of the new unemployed worked in the construction industry and now nearly half of those out of work are long-term unemployed and this is a serious problem.
Morten Olsen
The Value of Devaluation
When everything was going well, the euro was of huge benefit to the peripheral countries such as Greece, Spain and Ireland, says Prof. Pedro Videla. But what we’ve lost is the option to devalue. Without that option, Spain has to cut salaries and create a more flexible labor market in order to be competitive. The fact is, Greece will not be able to pay its debt and will default, he says. “The real test of the euro will come when Greece is forced to leave it.”
Pedro Videla
Spain’s Deficit: A Delicate Situation
Spain’s public deficit is running at around 8 percent and the European Union is demanding a 3 percent cut by the end of 2013. As Prof. Javier Diaz-Gieménez points out, even the huge public spending cuts announced last December only account for around 0.7 percent, so we are a long way short of the EU target. He says there is light at the end of the tunnel but it’s not a bright one, as Spain’s growth is unlikely to rise above 1 percent before 2014.
Javier Díaz-Jiménez
The collapse of household consumption in Spain
A rapid drop in household consumption is one of the main factors behind Spain’s inability to grow. According to IESE Prof. Rolf Campos, the decline has been particularly sharp in regions where unemployment has risen most and in the durable goods sector, which fell 14 percent during the first two years of the recession, 2008 and 2009. Regions farther away from the Mediterranean, where unemployment rates are higher, have experienced a more dramatic fall in consumption than those closer to the Mediterranean.
Rolf Campos
Does a United Europe Still Make Sense?
The euro is facing serious difficulties and a key problem is public perception of the European Union itself. IESE Prof. Alfredo Pastor provides a look back on the emergence of the euro zone, which began as a political project and later embraced an economic focus.
Alfredo Pastor
The Euro Area Needs to Grow
The ECB’s cash injections have brought some stability but there are three fundamental problems in the euro area that need to be addressed. Firstly, there is fiscal coordination, on which there has been some progress.
Xavier Vives
Davos and the Liquidity and Solvency Crisis
The central bank may be able to resolve the liquidity crisis but the solvency crisis will not be so easily overcome. The banks are covering up their real situation, private investors don’t have confidence to inject capital and governments can’t invest. In the short term we have to fight on these three fronts, says Prof. Antonio Argandoña, but beyond that we need the sort of international regulation that is being discussed at Davos.
Antonio Argandoña
Follow up on “Spanish and German unit labor costs”
I have received a few comments about a video I posted a few days ago, so let me just address some of the concerns here. First, as I hope was clear from the video I have indexed all numbers to 100 in 2000 so I am talking about changes in relative unit labor costs and not the absolute levels. Let me first argue why this is the relevant data for my purposes and then show that with the imperfect data we have available absolute labor compensation – corrected for productivity – was in fact higher in Spain than in Germany in 2008.
Morten Olsen
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