Author: Chandler Rosenberger

by Craig Elman, writing from Madrid

Spain has been experiencing very rough after-shocks since the economic crisis, even worse than that which occurred in the United States.  The unemployment rate has spiked up to 20%, double its natural rate of unemployment (which happens to be equivalent to the U.S.’s current unemployed rate under the crisis).  I live in Madrid, and everywhere I go I see the effects of the crisis: people begging on the street, and even approaching people and pleading for a helping hand.  It’s a terrible site to see. 

The government has also decided to increase the age to receive pensions (from 65 to 67.5 I believe) in order to increase working hours and reduce the public debt.  Although balancing the budget is one of the most essential macroeconomic policies that a government should tackle during a recession, there are several potential adverse effects that could follow.  Social unrest and protests in Madrid have been occurring because the government is essentially cutting benefits for the next generation of elderly people. 

Spain has also become extremely energy conscious and green as a result of the crisis (which happens to be the one positive effect coming out of the crisis).  Spanish households have recently transitioned to more energy-efficient lighting, for example, and the government is trying to reduce motor vehicle emissions by cutting the costs of public transportation and making it more accommodating to the public.  Germany has offered a helping hand during Spain’s crisis, and German chancellor Angela Merkel has agreed to help Spain’s economic advisors to the government.  She has also offered to employ Spanish engineer students in Germany who will be looking for work soon. 

While this helps to alleviate the problem of unemployment in Spain in the short run, this is, in my opinion, a poor choice for Spain in the long run.  Economic growth requires technological innovation, and without a new generation of engineers, Spain’s economy would suffer dire consequences. 

There have also been debates about whether or not Spain should forego the Euro and return to the peso, since the crisis has hit other European countries on the Euro as well.  However, abolishing the Euro would create fewer incentives for foreign investment within Spain (I’m not too clear on the Economics behind this, but I have been told that this is a possible adverse outcome).