Spanish recovery glass only half-full

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It is logical that a change of cycle -when getting out of the recession- involves contradictory data. It is a truth those figures on Spanish employment decrease are the minor descent in a first quarter since 2008, which means that job destruction can be hitting near rock bottom. Nevertheless, the loss of working age population (not the employed but the ones who want to work) over 1.8% and increasing is even more severe. Some 482,000 people stopped looking for a job between 1Q13 and 1Q14 because they feel discouraged, or Spanish or immigrants, they do not longer live in Spain. These are very negative figures for the future.

The confusing point in this information is that the Labour Force Survey (EPA in its Spanish acronym) says that job destruction expanded by 0.5%, while the number of social security registrations augmented by 0.4% (0.6% including April’sdata). This is not the first time that the EPA and Social Security rates mismatch(in 2013 job destruction moved at 2.8% according to EPA and 3.3% as reported by SS), but what is really new is that the divergence walks on opposite directions: as the market is destroying employment according to the EPA survey, social security affiliations increase.

The truth is that social security records ara a reality while the EPA is just a poll. Furthermore, the Labour Force Survey counts as employed people those who have worked a minimum of one hour the week previous to it and consequently many workers having such super-precarious jobs may answer that they are unemployed.

The major

As Spanish PM Mariano Rajoy recently said in a radio interview, let’s go to the major argument. There is no doubt that Spain’s economy is leaving recession.

Here it is the GDP’s figures, the slowdown of job destruction, the near zero level of retail trading sector (-0.1% against -3.8% of year 2013), car registrations (+16.4% between January and April)as well as trucks and buses’(33.8%).

The economic sentiment surveys also have a lot to say. Markit’s PMI indices point that the European compound index (an average of industry and services sectors) stands at 54 points with Ireland, Spain and Germany as best performers having 60.8 points, 56.3 and 56.1, respectively. Italy reaches to 52.6 and France to 50.6. Furthermore, Markit managing director underlined the most noticeable were the “strong” rebounds of peripheral countries, very obvious in Spain and Ireland with the highest growth in last 7 or 8 years.

Spain currently faces two risks. Firstly, the government, the Popular Party as well as related groups’ excessive triumphalism can lead even to ignore the reality: Spain is just at the beginning of the end of recession, which will be particularly difficult because it must be accompanied by a change of production model, and what is more complex, by a change of social attitudes against economy.

The other risk comes from leftist (or aligned) critics who will say that the recovery is false or misleading, Merkel’s conservative model failed and a quick return to policies of demand expansion is needed. But this is not truth.

Brussels as well as ECB’s policies having Angela Merkel behind have been harder and more expensive than it could have been if Europe was, like the United States, a country with a common national sentiment and a strong political authority. Europe is, however, just a union of states with some reminiscences of supranationality which resembles more to an UFO as Jacques Delors explained a long time ago.

German citizens or Spanish do not have to pay taxes to Brussels, but Massachussets’ have to Washington. At the end, the European policy has worked. That a significant part of the country’s brains do not know it or do not want it to know, only turns Spain into a more ignorant nation, and ergo less solvent.

If the Socialist Party- once the election date on May 25 passed- insisted on defending this position, they would be shooting themselves in the foot since Zapatero was who first began the budgetary adjustment in May 2010. This was not his mistake but his success.

Deep allergy

The main risk lies on the government because the Socialist Party cannot decide. The global volume of credit will continue falling due to the consequent deleveraging, while new credit is still short.

The deficit control is limited and unstable. Spain is the only EU country with primary deficit, that is before paying interest.

The Independent Fiscal Responsibility Authority that Europe considers essential for Spain to gain credibility gives baby steps. In fact, Spanish Finance Minister Cristóbal Montoro has deep allergy to that device. In addition, the fiscal reform remains hanging and the government frantically hides away from getting in the trouble of – anyway necessary to recover employment-cutting social contributions in exchange of increasing the VAT. The announced €100 flat-rate for social contributions is really a watered down version. Besides, the generated employment is poor quality. With 23% of temporary jobs and another 16% of part-time, which totals a 39% of uncertain posts, is very difficult a strong enough promotion of internal demand.

As 2015 is election year, the Popular Party may incline to avoid any conflict, halt reforms and just focus on the elections. The great goal of the government party is not to face the complex economic reality but to win now the European elections, try not to lose the regional ones in 2015, and especially to win the general polls again. They need to do it with certain conviction so that an eventual temptation of nationalists and leftists to join forces could ruin his career.

Why not to put economic orthodoxy on hold if they think they can afford it?

About the Author

Joan Tapia
Former editor of La Vanguardia, El Noticiero Universal and Spanish public TV channel in Catalonia, Joan Tapia also advised the Minister of Economy and Finance of Spain’s first Socialist Government. One of the country’s most veteran journalists, Mr Tapia also holds a Law degree and founded La Caixa’s Information and External Relations Department. He is a regular columnist for some media outlets both in Catalan and Spanish, and a member of the Royal Academy of Economic and Financial Sciences.

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