Are we there yet? The growing optimism among authorities and some analysts in Spain and the eurozone over the supposedly approaching economic recovery should make us all feel anxious.
I do not enjoy the pain suffered during the last years, I wish the economic recovery were an actual fact and that most of our troubles could be left behind like we do with bad memories. But I’d rather avoid the repeat of the 2010 scenario, when a temporary rebound of the activity was mistaken for the much-needed, much-awaited recovery and governments all over the world forgot about their homework. The markets had to remind them that budget correction and reforms were still in the agenda.
Complacency has prolonged the crisis at least one more year and has affected our access to market credit, which was somehow eased only when the European Central Bank promised short-term debt support.
But monetary measures, we’ve seen this happening in the past, achieve little apart from giving us more time. They do not bring solutions to our problems. Voices within the ECB have said that much, and have asked governments to really implement wide-reach measures so markets will be calmer and real economic recovery can be started. But what measures are we talking about?
Something has already changed in the eurocrisis: Greece is being helped as to impede its exit from the common currency area, the Banking Union is being defined as a common goal, and the ECB has shown its commitment to preserve the integrity of the eurozone. We the Europeans have taken very important steps towards a crisis resolution.
However, when the time of concretion comes, difficulties arise everywhere. For instance, the Banking Union is being delayed–perhaps until 2014–and a direct recapitalisation of financial entities has been held back, too, which adds to public deficits instead of freeing them from the debt burden. This doubts are worrying, indeed, and I sometimes wonder: have we understood what the real problem is? Many European politicians have not, and do not admit it.
Markets do not yet trust the euro and country members like Spain, with clear structural weaknesses, hurt. In Spain, several reforms have brought about better competitiveness, a more flexible labour market, but at a cost of a very high unemployment levels–particularly those among young people. These adjustments, in spite of negative effects in the immediate aftermath, had to be done.
That is why productive investment is key to sort the Spanish crisis out. Madrid should take fiscal and structural measures so Spanish and foreign companies recover their confidence in our economic future.
Spain needs to regain market trust. Although external financing has improved during the past months, market credit is still one of the main conditions for a sustainable fix. And that is why home prices need correction, that is why the banking sector needs to be recapitalised, that is why budget adjustments need go further. The next step, for Spain and the eurozone, is to form a major social and political consensus to speed up the changes.