Spain.

[Velasco]

It's a pity, this thread is traiwrecking. The situation in my country is pretty bad and sincerely, most of the times I prefer to think in another things. Anyway...

23% unemployment?  And we think we have bad on this side of the pond...

Yeah. O/c, in Europe, long term unemployment isn't the personal/financial/social/psychological/career death sentence that it is over here, but still...

The unemployement isn't a death sentence if you have the safety net of your family but it´s devastating in the long term. It's being said that there is a "lost generation": 50% of young people have no work.

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This is essentially true, the deficit is only a consequence and not the origin. I don't think that budgetary stringency alone will help us to be more competitive. A country needs investment in education, research and development.

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Many times I've heard that a complete bailout of Spain's economy is impossible because its size it's too big and there's simply no money. To restore competitiveness it's obvious that certain reforms must be done. The problem is the nature of them: when Brussels or the current Govermnent in Madrid talk about reforms usually are talking about savage cuts and hardening working conditions. Nothing has been said about reform our banking system until it was too late. In my opinion the business culture in Spain must be reformed too, despite some succesful examples many of our entrepeneurs have a wrong mentality and are far away of being competitive.

See
http://www.businessweek.com/articles/2012-02-23/for-spain-an-economic-lifeline-from-china

I can also testify, being from the Chinese Province of Taiwan, that relatives and their friends that are in business have indicated that in their view, unit labor costs are much higher in Spain than in Germany.  Many of them have invested in busineses across Europe and have indicated that work ethic in Spain is a good deal worse than in places like Germany.  It does not come down to the number of hours worked but the overall attitude toward work.  They were not able to comment on Greece given they have not done business there but based on what they have heard it is even worse over there.  Of course the work ethic in USA is significantly better than all of Europe including Germany.

In my opinion the difference of competitiveness between Germany and Spain can't be explained with the "work ethics". It's more a question of professional training (in Germany is excellent), investment in research and development (even in the worst years, Germany never did cuts in this area), business culture and so on. To my little experience I see that most of the people around me work hard, I suppose that is the same in other countries. Without going into more details about unit labor costs (in Germany are high but this is balanced with the high competitiveness) I'd say that Germany is a country that works much better than the USA in social and economic terms. Needless to say that far better than us.



 

[Velasco]

To restore competitiveness it's obvious that certain reforms must be done. The problem is the nature of them: when Brussels or the current Govermnent in Madrid talk about reforms usually are talking about savage cuts and hardening working conditions. Nothing has been said about reform our banking system until it was too late. In my opinion the business culture in Spain must be reformed too, despite some succesful examples many of our entrepeneurs have a wrong mentality and are far away of being competitive.

Yes, the banking system's problem is that it caught itself up in a big real estate bubble. But hardening working conditions is pretty much necessary. In a market economy this should happen naturally as unemployment goes up, as those who are desperate to find work will accept harder conditions in exchange for pay. But that Spain's unemployment is 24% and rising suggests the labor market mechanism is broken. Those who are already working are too comfortable, while those who have no work are shut out. Labor market flexibility seems to be the key reform.

I'm not an expert in economics, but I'd say that the main problem of the Spanish economy is not the lacking of flexibility in the labour market but the economy's structure. Of course I'm not against flexibility per se, it's only that I understand that "flexibility" and "hard conditions" are not exactly the same thing. The problem that I see is that structural reforms must attack the root of the problem. Why we have historically a high structural unemployement? Even on the top of the real state bubble we had an 8%, more of less the unemployement rate in USA nowadays. The only answer that I can find are the structural deficiencies of the economy: excessive dependance on building and tourism, lack of an adequate industrial sector and of investment in strategic areas (education, development and research, tecnologies). Also, the budget cuts are ruining the recently made progresses in renewable energies, and Spain has a lot of potential in this area. So, well, our dual labour market (permanent employees vs. temporary) and the comparative privileges can be a part of the problem but not the only one. I think that the whole economic model needs to be changed if this country wants to have a future. I can tell you that public employees, for example, have seen their retributions diminished and they weren't highly retributed before. Their privileges were only stable and secure jobs and this is going to dissapear if the trend continues.  

[Velasco]

Yes, absolutely... there is not enough scrutiny on these matters. "Reform" can mean many things, it is more about micro economics than macro economics, and that is more difficult for me to speak to, because I haven't been able to find data as easily. Further, there is implementation risk- you pass a law that looks like good reform, but what is actually happening on the ground? So I agree in principle that it's unfair for Germany et al to pay without reform, but I'd like to see more information on precisely what reforms are needed. It is better to talk about specific changes rather than generalities.

I guess, here is a "specific" article on Spanish labor market reform.

http://blogs.lse.ac.uk/europpblog/2012/04/23/the-reform-of-the-spanish-labour-market-is-politically-costly-and-will-only-bring-minor-economic-changes/

It concludes that passed reforms under PP "heads in the right direction on some aspects but ignores, or only partially deals with, many needed changes." How does it head in the right direction? Well, it "reduce(s) the employment protection of permanent contracts" and "gives individual firms the right to refuse industry-wide wage agreements and allows for new provisions that increase flexibility of the roles and working conditions of workers within the firm."

The article is interesting but perhaps it's too condensed and doesn't explain very well the concrete details of the reforms. I don't understand very well which is the "right direction" leaving aside the generic definition of the "inelasticity" and "excesive protection"  of the permanent contracts and the huge contrast with the precarious labour conditions of the temporary contracts. It's difficult to disagree with the idea that a middle term would be desirable. About the industry-wide wage agreements, they are a custom adopted in the late 70's as a part of a wider agreement known as "Pactos de la Moncloa". They instituted a consensual relation between trade unions and the corporate representantives that the reforms destroy according to the main critics. They also talk about a complete deregulation of the labour market that the reforms institutionalise. As the paragraph below points to, there is a wide perception about the one-sided nature of the new labour laws in Spain. Many people say that the measures adopted are exactly the old demands of the more radical sectors of the business community in Spain.

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[Velasco]

Spanish regions are in troubles too. Yesterday in El País (English version): "Catalonia joins Valencia and Murcia in seeking help from central governmment".

http://elpais.com/elpais/2012/07/24/inenglish/1343141101_884127.html

Every day the news are worse than the precedent day. Yesterday there was a parliamentary debate. Too boring to comment.