Article published on 05/05/13 by José Alberto León Alonso in Diario de Avisos.
The Spanish Government has presented its new economic scenario for the period 2013-2016. It highlights the two-year extension obtained from Brussels to reduce Spain's deficit to 3% of GDP.
Instead of reaching that goal next year in 2014, it will be done in 2016, which allows for a much smoother adjustment path. Thus, a cut of 18,000 million euros additional to those planned is avoided to go to one of “only” 3,000 million euros, and allows the accounts to balance with a lower growth than expected (-1.3%) for 2013. Likewise, by reducing the GDP growth rates expected for the period 2013-2016, the Government corrects upwards the unemployment rate expected for each year, which will reach 25.8% at the end of the legislature, some 5.7 million unemployed.
Regarding the new forecasts, many analysts criticize that they assume high unemployment rates throughout the legislature, but that is unfortunately not surprising. If after the previous crisis of 1992-1994 it took no less than thirteen years of intense economic growth (bubble included) to reduce the unemployment rate below 10%, after a deeper and more widespread crisis like the current one, the time required will not be short. The rest of the indicators improve, but the improvement in data such as the deficit, the risk premium and exports are still “macro” figures and do not say anything to citizens with economic problems. You don't eat with that. However, in my opinion, the Government has wanted to take care of itself in terms of health and has presented figures that are too cautious in terms of job creation. While those figures could be logical before the labor reform, the new legislation should allow for greater job creation with lower economic growth. If this were not the case, the reform (then yes) would have been a failure.
The most notable thing about the distribution of the deficit between administrations is that it does not require major additional adjustments over those already made in the compliant Autonomous Communities, but it does in the non-compliant ones and in Social Security (S.S.). For the latter, a deficit of 1.4% of GDP is expected in 2013, that is, 15 billion euros, but in 2014 the deficit will be reduced by 5 billion euros, which cannot be explained without the introduction of the so-called sustainability factor in pensions. Without this reform, the foreseeable deficit would amount to around 20 billion euros in 2014 (1.8% of GDP) and more in subsequent years. This sustainability factor would link the retirement age to life expectancy at the time of retirement, would keep the ratio between years of contributions and years of pension collection constant to be entitled to a full pension, and would link the amount of pension revaluation not to the variation of the CPI, but to that of the GDP or the ratio of contributors/pensioners. It will be the great reform of the year and will generate no small amount of controversy, but demographic evolution is following an explosive path. Under current conditions, more than 750,000 jobs a year would have to be created just to contain the annual increase in the deficit, and that only happened during a few years of the “bubble.”
The Government has also updated the National Reform Program approved in June 2012. The new Program in practice cuts and pastes most of the reforms provided for in the previous one. But given that the current Government follows the shoemaker strategy of announcing the same reforms multiple times and that in the end many are never put into practice, I fear that the new program and its calendar (like the previous one) will be a dead letter in a few months. An example is the vaunted public administration reform, which was initially going to be approved in June 2012, then in September, December, March 2013 and now... at the end of 2013. And it seems that cutting back on themselves is the most complicated thing for our politicians. The planned reform reduces, for example, the trusted personnel in the municipalities from the around 20,000 people that currently exist to a maximum of 6,500, with about 1,000 million euros of annual savings, but this raises blisters among local leaders of all political stripes, who see their clientelist "chiringuito" in danger. And the Government now also intends to eliminate duplication of powers between the State, the Autonomous Communities and local administrations. Even more difficult. Only a constitutional modification in the distribution of powers between administrations would introduce a certain rationality and allow the oft-announced Law of Market Unity to come into force, which keeps coming up against legal obstacles that prevent any Spanish company from being able to offer the same good or service throughout Spain, without additional regional regulations. It is now easier to provide a service or open an establishment in France or Germany than in the neighboring region. It's ridiculous.
To reduce unemployment, stimuli would have to be introduced into our economy. If we lack the economic resources to do it on the demand side (with more public spending), it should at least be done on the supply side (liberalization and simplification) and the sooner the better, since supply policies take longer to take effect, although their impact is usually longer lasting. A multitude of activities (commerce, taxis, pharmacies, solicitors, engineering, and in the Canary Islands even tourism) suffer from restrictions on the entry of new competitors. Liberalizing reforms are problematic because someone is always upset, who protests angrily. But there are many jobs to be created if markets are liberalized. More than two million stable jobs between business and trade support services, if the productivity levels of other European countries are reached. The complication of opening a new establishment, the necessary licenses or permits and the existence of specific regulations for large establishments weigh down the economy, as does the limit on the weekly opening hours allowed per establishment. Retail trade in Sweden had the highest growth rate in all of Europe between 1995 and 2005, and began with a relaxation of the regulations for opening new stores in the 90s, reducing the power of municipalities and regions to regulate it, which allowed the area of the average store to double between 1990 and 2000 and many new establishments to be opened. In Spain there doesn't seem to be the courage to do it.
