Finantial Reform

FINANCIAL REFORM
Macroeconomics for Entrepreneurs
Lecturer: Alfonso Torres Marín








Fernando Dodero Castro
Pablo Mazariegos Riveriego
Gonzalo L. Mendoza Satrustegui
Álvaro Ramírez Schmidt

Universidad Francisco de Vitoria
06/03/2012 Madrid




Spanish Financial Reform



The worldwide financial crisis starts with the fall of the mortage market, banks had beengiving money to people that would not be able to pay them back and then selling this morgages to other banks to get liquidity to be able to lend more money and therefore increase their profits, but when this clients started not paying their debts, the mortages sold stoped giving money increasing the mistrust between banks and therefore elevating the interest rate in which they lended money betweenthemselves. Although Spanish banks had not bought too many of theese toxic products, due to the earlier low interest they had been getting money at, they had finnanced the construction market in Spain to a great extent. The construction market had been building so many houses that we would be able to house people with the actual population growth untill 2020, all this was financed by banks obviouslyand when the money became much more expensive, they started accumulating houses of people that did not pay them and as no one was interested in buying any more houses out of fear of the international crisis, the banks had to keep them. With so many houses in their assets, they could not lend money into the real economy because all the money they had had already been converted into the houses theylended mortages for and to lend more money they have to either sell the houses or borrow more money at a high interest rate. And even though they started getting money, the devaluation of the houses obligated them to keep that money to clean their accounts and because of that, lending less money to the enterpreneurs and families. This joined to extraordinary amount of money spent by the goverment,their denial of the problem are their incapability to react is what has drawn us to the crisis.



From 2007 the unemployment increased from a historical minimum (7.95%) to a historical maximum (22.85%). In 2007 the prices started to rise considerably due to an the inflation of 4.2%. The public debt, which represented 36.1% of the spanish GDP during 2007, duplicated its value in three yearssituating itself in 60.1% in 2010. Although that figures were much smaller than the european ones, the risk respect to the german bund heavily increased during the year 2011 to 416 points. The GDP registered a continued decrease from 2008, causing, for the first time in 15 years that Spain went into a recession, reaching -3.7% in 2009.

The effects of the economic crisis became apparent early inthe second term of ZP, after deny it at the begining, and after investing a lot of public money in order to fight against the crisis. Also he was force to take economic measures away of his electoral program, like paralizing the pensions, decreasing the public employes salaries and creating a labour reform, which caused a general strike.





THE FINANCIAL REFORM


The 31st ofDecember 2011 was published the Royal Decree-Law 20/2011 OF 30 DECEMBER URGENT ACTION ON BUDGET, TAX AND FINANCIAL FOR THE CORRECTION OF GOVERNMENT DEFICIT, which has undergone important changes, effective from 1st January of 2012, and the most important changes are these:

INCOME TAX OF NATURAL PERSONS

*GENERAL TAXABLE INCOME: LABOR INCOME, CAPITAL PROPERTY AND ECONOMIC ACTIVITY: There is atransient increase (2012 and 2013), using the new scale applicable to the general net bas, ranging from 0.75% for the lowest incomes to 7% for the highest incomes, however, adding a new stretch. Here is the rate with the increase.

|Principio del formulario |Fee |Principio del formulario |Principio del formulario |
|Taxable Income | |Other Taxable...