The following have been identified as triggers of the Spanish recession in 2008:
- Spain economic structure:
The country’s economic structure was highly leveraged to the European region market as well as to specific sectors. Spain’s trading structures withing European countries was 61% of imports and 72% of exports. Considering the industrysectors, the service industry represented 67% of the country’s GDP. Within this service industry it was observed that construction and industy represented 20% of the GDP. Spain’s economy was highly dependent of how the European countries where doing as well as the industry specific service industry; specifically the tourism and construction sectors. By 2008, the European countries had entered arecession. The tourist industry became affected by the by the international financial crisis.
- Excess speculation in the construction sector:
Consumers began speculating in houses as they saw investment opportunities in the housing sector as housing prices increased (130% in the 2000-2007 period). The Spanish economy was quite reliant on construction, which contributed to 12% to GDP in 2006. Thiswas fuelled by high consumer demand for housing and speculative investments by developers and banks. Consumer demand was aided by the availability of cheap credit. The Average House Price/Average Annual income almost doubled over the period between 2000 and 2007. That means that houses were being bought on credit. In 2006 conditions started to change, Spaniards become more worried of becomingunemployed and their access to loan was restricted not because credit lines had been reduced because they no longer meet the criteria set by banks (even though banks hadn’t changed them), The demand declined dramatically and contributed to a deceleration of the economy during 2007 (Exhibit 7). Situation got worse when the credit line stopped, at the beginning of the crisis, consumers foundthemselves without enough income to finance their debts.
- Lack of monetary policies:
Without a domestic currency Spanish government had no access to the tools most frequently used when facing an overheating economy (for example higher interest rates). Spain’s inability to affect monetary policy as well as the access to capital markets made it very difficult to Spanish government to reduceconsumption, investing in housing or foreign borrowing .
- Other reasons that worsened the situation:
Lack of productivity efficiencies, due to the fact that company’s where not investing in productivity measures because they were more focused on internal demand that was growing. Productivity was not incentive because there were many regulations for new entrants or competitors. If company’s becomeless productive when times of bad time arrive they are in disadvantage with foreign countries industries (opposite of ZARA, Bankinter, ACS, Telefonica etc).
The inherent lack of flexibility of the labor market in Spain, i.e. the ability of the labour market to adapt to fluctuations and changes in society, the economy or production, was a trigger for recession. Wage rigidity and low productivitylevel within the Spanish labour Market had a negative impact on firms ability to adjust to the economic events set in motion by the economic recession of 2008. When faced with a strong negative demand, generally firms adjust by cutting their work force or going out of business rather than reducing wages or working time.
ii) ¿cuáles fueron los motores de expansión macroeconómica en España entre el2000 y el 2007? ¿cuáles fueron los mecanismos de transmisión y propagación de la economía española?
In order to understand the key factors that led to the economic expansion between 2000 and 2007 we have to look back to the origins of the euro. The 1992 Maastricht treaty established the roadmap for adopting a single currency, the euro. To adopt the euro the Maastricht treaty required...