By Matthew Yglesias
The Spanish economy is hurting in a bad way amidst the global recession. I won’t try to pretend to have a particular deep grasp of the situation, but while the whole world is doing poorly right now Spain is doing especially badly — it’s a bit akin to the Florida of Europe, they grow citrus fruit and they had a ridiculous property bubble and now the economy’s in the toilet:
In barely a year, Spain has gone from creating a third of Europe’s new jobs to losing 40,000 a week as its decade-long housing bonanza collapsed at the same time as the global credit crisis. Spain’s jobless rate rose from 8.7 per cent to 14.4 per cent in 2008, a far bigger jump than elsewhere in the European Union. On average EU unemployment levels rose from 6.8 per cent to 7.4 per cent. Already 3.2 million people are out of work, but economists believe that 18 per cent of the workforce will be out of work by the end of 2009. In Spain unemployment benefit is usually paid for a year, so thousands who lost their jobs last year will be without state support this summer. Most will try to find work in the growing black economy.
The Bank of Spain was forced to concede last week what everyone knew already: the economy is in recession. During the fourth quarter of 2008, Spain’s gross domestic product contracted by 1.1 per cent, after a decline of 0.2 per cent in the previous quarter.
The Euro probably makes things worse. In the past, unusually poor economic conditions in Spain would lead to sharp devaluation of the peseta and boost the competitiveness of Spanish exports, but that’s now not the case. Meanwhile, the European Central Bank is going to set monetary policy based on a combination of the general situation in Europe (bad, but not as bad as in Spain) mixed with its habitual over-caution. And E.U. authorities in Brussels have enough clout to make it difficult for peripheral countries to pursue fiscal expansion, but not enough muscle to seriously focus resources on especially hard-hit countries.