Spain's labor crisis: Zapatero's fiscal policy is inappropriate for a recession economy

Authors:
Luis Alberto López Rafaschieri and José Alberto López Rafaschieri
www.morochos.net

According to the latest employment report submitted by the government of Spain, unemployment in the country rose 47% in the past twelve months, leaving Spain with an overall unemployment figure above 13%, the worst employment data in the Euro zone.

U.S. unemployment is at 6.8%, UK 6%, Germany 7.2%, France 8%, Canada 6.4%, Italy 6.8%, Mexico 4.7% and Japan 4%. Much better numbers than the Spanish economy.

It is clear that the variable that has most contributed to this situation is found in the world financial crisis, however, we could say the same thing for the rest of the nations that comprise the European Union, but these countries are not as bad as Spain in employment. What makes us suspect the existence of an additional factor that makes Spain the region with the worst unemployment statistics in Europe.

For us, the answer lies in the public spending as a percentage of GDP determined by the Spanish government. Because while other governments in developed countries have faced the crisis putting the foot on the accelerator of public spending to push their economies, Spain's government has done the opposite.

For example, the UK last year rose by 28% its public spending as a percentage of GDP, Canada increased its spending by 11%, France and Germany remained constant, and the U.S. government increased by over 30% its public spending as a percentage of GDP.

Unlike in Spain, the government cut its public spending as a percentage of GDP by -20% last year, which at the present time of world economic crisis was a fatal error. The worst thing is that by 2009 the Spanish government will make a similar cut in this variable. A decision that, coupled with the current context of divestiture and low consumption, cause a worsening of Spaniards' employment prospects.

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