The Economic Reality of Spain

Much can be said about the performance of Spain in the last year.

GDP is up, if only very little, the IBEX has recently changed course, falling by almost 1% today, after an upwards rally beginning in December, and finally, the Spanish bond is at its lowest since 2006, at around  3.7%. Some people might look at these numbers and feel optimistic, perhaps there is light at the end of the tunnel.

The recent decline in the stock market might not be worrying, if it weren’t for the fact that Spanish stocks were some of the worst traded today in the Euro stoxx 50. These companies include Orange, as the worst trades of all, also Repsol SA, Banco Bilbao Vizcaya and Telefonica SA.

This corresponds more accurately with data showing that 2013 was even worse than 2012 in terms of company shut downs and job creation. Some economists estimate unemployment will stay above 20% past 2018. In fact, much of this “recovery” con be attributed to bail-outs from the European Central Bank. In the same way that the recovery in the U.S. is being fueled by the Fed. This is not the way to create sustained prosperity.

The truth of the matter is, we still have a long way to go. The global economy is far from restructured, and Spain was one of the hardest hit by the recession. The high unemployment level, of course, is a systematic malaise, caused by a combination of restrictive wage laws, bureaucracy and taxation that practically make real job creation impossible. Small and medium businesses, which are said to be the fabric of the Spanish economy, can hardly afford to hire people, or fire them, or simply even open up a business because of the excessive measures imposed by the state. This is an issue in many economies, more so in Europe than in the U.S. But Spain, having favoured socialist tendencies more often, has VERY restrictive labour laws. There have been recent reforms made in this area, together with spending cuts (very small) and raising taxes. Only to the latter of these would I oppose to.

In fact, the Spanish President, Mariano Rajoy, claimed that he was receiving pressures from the EU to further liberalize the labour market and reduce expenditure, though he refused to do so, on the basis of Spain’s recent good performance…

The real key to prosperity, as I have said before, is stable money and low taxes.

Since, at the moment, the money issue is out of our hands, we shall focus on the fiscal side.

In line with some of the reforms that the EU imposed, I would attempt to further decrease the budget deficit, and also rid our society of the needless regulations and obstructions in the market, allowing businesses to flourish.

What I would not do, and this is what they did, together with spending cuts,is increase taxes. This is indeed the part of the “austerity” used in Europe that didn’t work, combined with the fact that the budget “cuts” were more of a budget “not increasing” as much as before.

What Spain would benefit from the most is if taxes were lowered! The best thing to do might be to use a flat tax, which has proved so successful recently in Russia. By ridding citizens of the burden of taxes, this money, in the hands of the people who worked hard to earn it, would go towards more “efficient” activities, whether you decide to invest it in something or spend it consuming something that best fits your needs, rewarding the best supplier for it.

In conclusion,  making society richer and more prosperous.


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