According to the latest data from its government, Spain’s economy contracted for the fifth straight quarter during the three months ending in September. Despite this, Spain seems intent on doubling down on austerity measures, as Reuters reported:
Gross domestic product shrank for the fifth straight quarter between July and September, dropping 0.3 percent, while consumer prices rose by 3.5 percent year-on-year in October, the two sets of National Statistics Institute data showed.
Elected just under a year ago on an austerity ticket, [Prime Minister Mariano] Rajoy has signed off on a belt-tightening programme worth over 60 billion euros through to the end 2014 to cut the public deficit.
Spain, like most of the rest of Europe, has seen its growth stall as austerity measures have kicked in. Several European countries are facing recessions, or even depressions, due to misguided fiscal contraction amidst sky-high unemployment. And the countries that have done the most belt-tightening have seen the least growth.
U.S. conservatives continually claim that all the U.S. needs to do in order to boost its slow economic recovery is cut spending and reduce the nation’s debt. But Spain exemplifies how that approach can backfire. Not only has it been cutting spending since the financial crisis, but it ran budget surpluses before the crisis, having a lower public debt than Germany. Those surpluses didn’t protect it from its current catastrophe:
Now, Spain is facing 25 percent unemployment.
The U.S. is doing better than Europe because, among other factors, it didn’t go straight for austerity (and it has an independent central bank that could use stimulative monetary policy). However, the so-called “fiscal cliff” that is due to take effect at the end of the year would cause a more severe fiscal contraction than most of Europe has experienced.