Three new funds to fight the recession

Jose Luis Rodriguez Zapatero announced last January 6 that his Administration would create a new fund of demographic growth. The fund seeks to compensate regions that are experiencing a low demographic growth, such as Castilla-Leon. The innovative instrument complements two previously announced funds: the competition fund and the cooperation fund. It is all about spending.

It is all about spending. I have not seen any relevant ideas that would help the Spanish economy leave the current hole it has digged with the abuses of the real estate sector, a hole that will only get deeper as our public administrators continue to propose policy making that only teaches how to spend. I have not heard from any new ideas to boost the increasing unemployment, to improve productivity, to lessen the burden of absenteeism, and to increase the industrial fabric of a country that has for too long relied on its real estate and tourism sectors.

The Financial Times reported in two different articles some of the sinking news on the Spanish economy that we are already accostumed to. According to the Financial Times the recession is also impacting the prices of goods and services, on top of the real estate. Beware the pain in Spain, must have thought FT reporters Chris Giles and Victor Mallet when they wrote “A tale of two housing market bubbles” last January 6 on the Financial Times of London. They point out that as a percentage of British average per capita income, Spaniards have not gained purchasing power between 1995 and 2007. They forgot to add the recent depretiation rally of the British pound vis a vis the euro.

Where do Zapatero’s three funds take us? As a short-term pain reliever I embrace the measures that will for sure relieve the pain of Spain in the first months of 2009. But on the mid run and long run I remain deeply concerned about the inability of our political elite and our society as a whole to execute reform in education, in the labour market, in the sometimes slow and incentive-lacking national and regional administrations. There must be efficiency gains in the public and private sectors if Spain is deliberately willing to exit this crisis in 2010.

There is no doubt Spain will suffer in 2009, along many other Western economies. The markets have already discounted the recession in the ongoing year. I look beyond 2009 and think where we will be as a nation in 2010 and 2011. At the end of the month I will be in Madrid meeting with the political and economic elite of the country. I carry a message of concern and of hope. How do we take advantage of the current scenario and environment? Where does the collapse of the real estate sector lead us? What kind of reaction should we expect from the average citizen that faces the highest unemployment rate in the developed world?

Differentiation. Diversification. Specialization. Those are the three words that our policy makers need to bear in mind. Spain has to differentiate from its surrounding countries, has to differentiate from the product it has been offering so far. Spain has to diversity into other sectors that it has not explored yet. Last Spain has to specialize, improving its educational system and boosting its expenditure in research and development.

The current environment is not hopeful. We already knew it. But there is an explicit lack of reaction. I do not read of any innovative ideas on Expansion or Cinco Dias, on the Economy section of El Mundo or El Pais. We start to be in desperate need of new ideas. Where is the Rodrigo Rato of our time? Why did Pedro Solbes earn the lowest marks of any Finance Minister in the Eurozone according to the Financial Times?

A couple of hints for our Premier Jose Luis. Change the Labour Minister. Force Pedro Solbes to reform the labour markets before he retires. It will carry a political cost only a retired Minister can afford living with for a couple of years. Bring on board valuable economic thinking outside the political landscape.

One Response to "Three new funds to fight the recession"

  1. stephen cole   January 18, 2009 at 3:57 pm

    The Spanish housing sector is rather like the British Car industry in the’70. Arrogantly managed without a care for the consumer. The only difference being, that you can never be sure that you legally own a house in Spain. The buyers would have gone without the credit crunch. If attitudes do not change towards the product and its environs those buyers will be gone for good.