By TRCF intern Natalia Mitsui
Imagine walking down a city street and passing four fellow pedestrians. Now, consider that one of them is unemployed and realize this is true for the rest of the country’s population. This is the reality of Spain’s current economic status with the highest rate of unemployment in Europe at 23 percent.
From an economist’s standpoint, Spain was doing everything that it was expected to. In 2007 the country had a public account surplus exceeding 2 percent of the GDP, a 3.5 percent economic growth thanks to a construction boom, and Prime Minister Jose Luis Rodriguez Zapatero was in his second term in office. But like the United States, everything changed in fateful 2008.
By end of 2008, Spain’s economy slipped into a recession as its property and credit bubble burst, the surplus changed into a deficit, and growth slowed to 0.9 percent. In light of Spain’s troubled economy Standard & Poor downgraded the country in January 2009 from AAA to AA+.
In response, Spain took measures similar to other developed countries: switching out the economic minister that clashed with the head of state, launching a stimulus plan, and bailing out the nation’s banks. By early 2010 the country was out of its 18-month recession; however, 4.6 million Spaniards were unemployed spilling the unemployment rate over 20 percent.
Spain’s economic problems flew under the radar as most of the world also went through a simultaneous recession. When international attention turned to the fumbling Greek economy, there was additional expressed worry over Spain. With a public deficit weighing in at 11.2 percent of the GDP, Zapatero announced austerity measures for the country in May 2010. A bill for labor market reform passed in September 2010, which proved to be unpopular and was accused of undermining workers’ rights. In response, unions called for a general strike in protest but made little impact.
In recent developments, Zapatero pulled forward the elections scheduled for March 2012 to November, where he lost. The previously dominant People’s Party resumed power as Mariano Rajoy won an absolute majority.
It is easy to get caught up in the grandeur of the nation’s problems and forget how it impacts civilians on a smaller scale. During the span of the recession civil servants’ wages were cut. Until 2008 there had been a continuous influx of immigrants into the country, something that began to reverse with the state of the economy.
There were also benefits that a lot of Spaniards planned for that were cut because of the government’s austerity measures. It would be the end of the “baby cheque,” a credit given to new parents in hopes of stimulating population growth. Workers were also met with freezes on pension increases, affecting their plans for the future. With the change in the retirement age from 65 to 67, plans made by workers soon to retire were also derailed.
Currently, Spain’s economic growth has stalled to zero percent and another recession is viewed as likely. There is some speculation that the euro made countercyclical measures impossible. Unlike the United States, where the Federal Reserve can take actions to prevent a rapid recession, Spain’s inclusion in the euro prevented this. When a currency is shared across multiple nations with different economic situations, the usual alterations cannot be made in fear that it would negatively affect another country.
Lives are changing in Spain. All this may seem like small adjustments that people will just have to make, but with 5 million unemployed it is difficult to know if there is an end in sight.
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