The consequences of the euro: the case of Spain

7 Posted by - 14 luglio 2014 - Blog

Antoni Soy
University of Barcellona

1 – I am an enthusiastic follower of the debate regarding the euro in Italy and I must say that there is much less debate in Spain. At the political level, at the academic level or even in the social media.
The official position in Spain is that the Troika is doing which we need to do and the government – from center-left or center-right- simply does it. The theoretically “critical” position is that the problem is not the euro but austerity policies. For people that are in this position if the government were making expansionary policies, the euro would not be any problem. Then, people like me, the critics of the euro in Spain, are very isolated and alone.

2 – Nevertheless, it is interesting of giving some quantitative data and to know some qualitative realities to know better the real situation in Spain. Following the last data from the Eurobarometer (European Union, 2013) in the autumn of 2013 only 48% of Spanish people were optimistic on the future of the European Union (74% in 2007). Regarding the euro, in 2013 56% were in favor of the euro and 37% were against the euro and this last percentage is increasing quickly.

3 – From the implementation of the euro, Spain (as the other peripheral countries) is living an increasing instability –from the economic, social and political point of view-. Paul De Grauwe, from the London School of Economics, has calculated that Spain will need from 12 to 25 years to halve its debt levels (De Grauve, Ji, 2013). More recently, Patrick Artus from Natixis (an investment bank) has concluded that (Artus, 2014):

  • To return to the pre-crisis unemployment level, Spain would need 25 years (today the rate of unemployment in Spain is above 26% and the rate of unemployment of young people is above 55%).
  • To reduce public and private debt ratios (in % of GDP) to a sustainable level will take 5 years by the public deleveraging and 14 years by the private deleveraging.
  • A return to household solvency will require a return to sustainable debt levels and to normal unemployment levels, and the return to corporate solvency will require the recovery of a normal profitability.
  • The rebuilding of the production capacity destroyed during the crisis will take many years because of the great losses on the production capacity in industry.

In conclusion, and as Martin Wolf, the influential chief economist commentator at The Financial Times, said in a recent visit to Spain, the crisis will continue to be important in Spain at least until 2025.

4 – At the same time, and from a social point of view, inequalities in the distribution of income and wealth have increased dramatically in Spain causing:

  • Firstly, a very deep crisis in the middle class.
  • Secondly, a growing social divide between upper-middle and upper classes, on one hand, and lower-middle and lower classes on the other, which means that, the last ones, live, more and more, in poverty.

Until now, there has not been any major social explosion but there are growing protests and demonstrations against austerity policies, both sectorial and general, and growing social movements organized against evictions, against some fraudulent activities in the financial system during the years of the economic growth and against the cuts in expenditures in public services: education, health, etc.

5 – In fact, the austerity policies implemented in Spain have not allowed to reach what appeared to be its main goal: to improve the balance of the public sector. In contrast, the public deficit practically has not diminished while the ratio of public debt relative to GDP is still increasing (with the decrease of the GDP) and currently is already around 100% (when in 2007 was around 40%). (In contrast, austerity policies have improved substantially external deficit).

6 – In Spain, as in the other peripheral countries, austerity policies lead to a vicious circle of recession, public deficit and public debt. As has said many times the Professor Alberto Bagnai, the euro means internal devaluation, since the countries of the Eurozone cannot devalue the currency, and therefore implies austerity. And if you replace the austerity policies by expansionary policies, as some people propose, you do not solve the problems of the peripheral countries because with the existence of the euro, which means fixed exchange rates, they will entail growing problems in the external balance. Spain, the same as most of peripheral countries, needs reforms. But actual reforms, beyond labor market reform, need to be financed. To finance them implies that the private sector must make profits and that the public sector must increase its revenues. But, this is impossible in a recession. Therefore, in a recession actual reforms cannot be financed adequately. So it is necessary to grow to make actually reforms. And for the peripheral countries the need of growth means the exit of the euro because the euro means austerity. So, to be able to make actual reforms it will be necessary exiting from the euro plus devaluation in the short term in order to be able to grow and to finance the necessary reforms in the medium and long term.

7 – The process of globalization has meant a growing economic financialisation as the last (current) stage of mondialisation (The “Money Manager Capitalism” of Minsky). That means the preeminence of the deregulation of international financial markets with the “independence” of central banks and the financing of public deficits and debts through bonds, which means the dependence of states from the international financial markets. As Lordon (2014) has pointed out in the EU this is made through the Article 63 of the Treaty of Lisbon which says: “all restrictions on the movement of capital between member states and between member states and third countries shall be prohibited”. Then, this article means that all movement of capital, inter and extra European, will be absolutely free. The consequence is that national economic policies will be constrained and controlled by the capacity of normalization and control of the international financial markets. That is to say, the European Union countries have no chance to implement sovereign and discretionary economic policies at all. It is the end of the sovereignty of the states. The end of the possibility of doing national economic policies.



Artus, Patrick, 2014: “Southern euro-zone countries: Even if there is no accident and no new crisis, a return to normal will take a very long time”, Flash Economics. Economic Research, Nº 246, 3 April, Natixis.

De Grauwe, Paul and Ji, Yuemei, 2013: “The Legacy of Austerity in the Eurozone”, CEPS Commentary, 4 October.

European Commission, 2013: “Public Opinion in the European Union”, Standard Eurobarometer, 80, Autumn.

Lordon, Frédéric, 2014: La Malfaçon. Monnaie européenne et souveraineté démocratique, Paris, LLL Les Liens qui Libèrent.


(speech delivered at the international conference “A Europe without the euro”, Rome, April 12th 2014)

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