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Wednesday, October 23, 2013

Spain's Economy Grows, Exits Recession

People queue up outside an unemployment registry office in Madrid, Spain, Tuesday, June 4, 2013. (Daniel Ochoa de Olza/AP)

People queue up outside an unemployment registry office in Madrid, Spain, Tuesday, June 4, 2013. (Daniel Ochoa de Olza/AP)

Spain’s economy grew 0.1 percent in the third quarter, after nine consecutive quarters of shrinking.

Despite cautious optimism, unemployment remains at about 26 percent, and Spain is not expected to reach its pre-crisis growth for several years.




From NPR and WBUR Boston, I'm Robin Young. It's HERE AND NOW.

We have some good news for Spain, which suffers a whopping 26 percent unemployment. New data released today shows the economy is back on track and growing after a two-year recession, one of several recessions since the global economic collapse of 2008.

Derek Thompson is the business editor at The Atlantic. And, Derek, we want everyone to be healthy economically, but why else should we care about Spain getting out of recession?

DEREK THOMPSON: Right. I'm motivated by superlatives, so here are some superlatives about Spain. It's the fourth largest economy in Europe, the 13th biggest economy in the world, and yet 60 percent of its youth are unemployed. It's just a staggering figure for a country as rich as this. And, you know, policymakers are always saying, will we become Greece? Well, I think the more interesting comparison really is Spain. Here's a rich country with a bloated housing market that imploded. It tried stimulus. It tried austerity and slowly now recovering. So I think if you're looking for the most interesting economic story in Europe, I think it's Spain

YOUNG: Well - and Spain did get hit by the housing bubble that burst, but why did it maybe get hit harder?

THOMPSON: Right. So if the U.S. had a housing decade followed by a housing crash, Spain had a housing half century followed by a housing catastrophe. This is a country where nearly 90 percent of adults own a home. In the U.S., which, as we all know, is rather, you know, housing obsessed, it's never been above 70 percent. So when housing prices collapsed in Spain, it didn't just wipe out families. It wiped regional banks. It wiped out companies. All of this debt got absorbed by the Spanish government. And they don't have a central bank. They don't have their own Ben Bernanke, so they couldn't do this sort of monetary policy tricks that we did that have helped the U.S. to a great deal. So they've had to cut and cut and cut and raise taxes. And it's been a pretty dramatic experience for them.

YOUNG: Well, you mentioned that they also tried spending at one point, and now real belt-tightening measures, spending cuts, tax hikes, we remember people protesting. What does this all mean, though, in the debate over - or rather between spending and cutting? The Obama administration went with spending on the front end to stimulate the economy and, as you say, the conservative government in Spain has been cutting. What does it say that they seemed to be recovering?

THOMPSON: Right. I mean, Spain is at the heart of this question, of stimulus versus austerity. And for Spain, the very quick story is they tried stimulus. It became too expensive for them to run a stimulus. They had to cut dramatically. And they're only now growing after two years because of exports. What that means is that the Spanish economy is too weak to grow Spain. So they have to rely on outside economies to demand products from Spain, and that demand has grown in the last two years.

And one reason that it's grown is a sad reason, actually. It's that there are so many Spanish people who are unemployed, wages have fallen so much, that they become somewhat competitive compared to other manufacturing and industrial juggernauts throughout the region. And as a result, their products are cheaper and more people are demanding them.

YOUNG: Yeah.

THOMPSON: And that's why what we're seeing now is a recovery born from this sort of renaissance in Spanish exports.

YOUNG: Well - but how long before the Spanish people will enjoy that, if you're saying that part of it is because of the low wages and such?

THOMPSON: Right. And that is the key question here. I mean, Spain's job market still has a long ways to go at 60 percent unemployment for youth. I mean, that essentially means that if you're a young person looking for a job, you are more likely to not be able to find a job than find any sort of unemployment. And in the U.S., we know what drives recoveries. It's houses and it's cars. It's big ticket items.

But Spain can't rely on housing to drive their recovery because it's a housing crisis. And then - so I think what you're going to see is a lot of money is going to have to come into Spain from all of these exports, all of this industrial recovery, and only then will you see wages rise enough that Spanish people can continue to buy houses. And that's, I think, really where sustainable economy - recovery for this country is going to come from.

YOUNG: But not inflate them too much or the bubble blows up again.

THOMPSON: Exactly.

YOUNG: Derek Thompson, business editor at The Atlantic. Thank you so much.

THOMPSON: Thank you.

YOUNG: And you're listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.

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