Countries in Southern Europe, like Spain, Italy, and Greece are not in the same situation that countries in Northwestern Europe are in. It seems we are constantly reminded of that. Spain spent the years following the global financial crash trying to look a lot less like Italy, the weakest link in Europe’s economy. Then came the coronavirus. The destruction wrought by the pandemic has plunged Spain into the deepest slump in the euro area and left its public finances in tatters. A piecemeal economic response by the minority government led by Socialist Prime Minister Pedro Sanchez is threatening to push the economy into an Italian trap of sluggish growth and stubbornly-high debt. “Spain faces a serious risk of Italianization,” said Fernando Fernandez, an economics professor at IE Business School in Madrid. “Last time the crisis hit us dramatically, but we reacted. Now, there’s no serious discussion about the economic reforms that this country needs. The risk of a lost opportunity is very high.” Across the country, angst about the future is haunting businesses. The share of small firms worried about being able to keep staff and cover loans is higher than in Germany, France and Italy. Kevin Marquez, who owns a restaurant in the southern Spanish city of Seville, joined hundreds of other owners and workers last week to bang pots and pans, protesting what they say is insufficient financial support from the government. “Little by little, we’re spending everything we’ve saved in the past four or five years,” Marquez said. He’s had to cut the price of his tapas by around 30%, and daily revenue at his business, El Rincon de Kevin, has fallen to 150 euros from 1,800 euros before Covid-19 hit. https://www.msn.com/en-us/money/mar...alian-economic-trap/ar-BB1b4UYd?ocid=msedgntp The article from Bloomburg goes on: Economists say Spain needs to overhaul its troubled labor market, which for years has been plagued by one of Europe’s highest rates of unemployment. They’re calling for changes that will make it easier for companies to grow and hire more employees. Spain has some of the region’s smallest companies, which has left them financially vulnerable and unable to withstand the pandemic shock. What they are really saying is that Spain should remove its high level of worker protections. They want to use this economic situation as an excuse to undo progressive policies that were passed to help workers. "Economic liberalization" Both Spain and Italy are set to receive a major fiscal boost starting next year, when the the European Union begins to funnel billions of euros in funds to member states as part of a historic aid package agreed this year. The two economies will be the biggest recipients: both were on precarious fiscal footing even before the pandemic hit. In other words, wealthier countries (mainly Germany) will be the ones to foot the bill to prevent the Southern countries from falling into recession. This has happened before. Maybe they should all just accept that Spain and Italy are never going to have the level of high living standards as other countries further North in Europe? But for many in Spain, there’s an unwelcome sense of deja vu being associated again with Italy. A decade ago, both were caught up in the debt crisis that threatened to tear apart the euro area. When a housing crash threatened to topple Spain’s banking system in 2012, the government requested a bailout and pushed through unpopular reforms in its financial sector and labor market. Italy, in contrast, muddled along and the economy languished. Spain’s GDP reached its pre-crisis level in 2017. The article by Bloomberg goes on to suggest that Spain needs to undo its progressive reforms, claiming that is what is holding it back, and claiming international investors will not lend to Spain to prop up its national debt if they are not confident the economic situation will improve. This could send interest rates spiraling up and trap the country in a bad debt situation, somewhat comparable to what happened in Italy and Greece. related threads: Ten years on, how countries that crashed are faring Judge orders 25-year-old man to leave home and find job Spain faces 'total emergency' as fear grips markets: Spain is facing gravest danger Why are we (Spanish) being pushed down with this new taxation? limited job opportunities for younger generation in Italy Italy collapse would be the 'end of the euro'
