The editors of the Bloomberg View suggest that the Spanish economy is well on its way to recovery. This is critical, not only for Spain but for Mediterranean Europe and the wider Eurozone generally. If Spain recovers while part of the Eurozone as a consequence of policy, this undercuts certain Greek claims.
The economy suffered a crippling downturn in the financial crisis, then hobbled along until 2012 without anybody doing much about it. At that point, the government applied for a 100-billion-euro rescue package from the European Union. The situation was grim. Spain’s real-estate bubble had burst, unemployment (a blight on Spain for years) had climbed above 25 percent, and cascading bankruptcies further undermined confidence. The yield on 10-year Spanish bonds in July 2012 ran more than five percentage points over Germany’s, prompting the European Central Bank to step in to save Spain from speculative runs on its sovereign debt.
The government of Prime Minister Mariano Rajoy bowed to austerity demands, cut public-sector wages and benefits, and increased VAT to 21 percent (with exemptions) from 18 percent. Had he stopped there, Spain might have bumped along the bottom for a good while longer, rather than seeing the recovery it’s now enjoying.
Low inflation, a cheap euro, the fall in energy prices and renewed financial stability in Europe have supported consumer spending and lifted Spain’s beleaguered retailers. Holidaymakers have favored Spain this season, too — in part because visiting Greece without bundles of cash has presented difficulties. Put much of all that down to luck.
But Spain’s recovery today also owes a lot to hard reform aimed at particular failings in the economy. The Rajoy government braved street protests and the rise of an anti-reform left-wing opposition and persisted in a deliberate rewiring of the Spanish economy, with an emphasis on far-reaching labor-market and tax reforms.
In 2014, the government said it would gradually lower the corporate tax rate to 25 percent from 30 percent. The top marginal rate on personal income will fall to 45 percent from 52 percent. The government is limiting deductions, broadening the tax base and making a serious effort to curb evasion.