Saving Spain's Economy: The Political Cost of Reform

By Lemus, Jonatan | Harvard International Review, Summer 2011 | Go to article overview

Saving Spain's Economy: The Political Cost of Reform


Lemus, Jonatan, Harvard International Review


After the Portuguese government requested a bailout from the European Union, many argued that Spain would he next in line. Although recent reforms led by Prime Minister Jose Luis Rodriguez Zapatero provide reason to be optimistic about Spain's economy, they have come at a high political cost. In fact, Zapatero has announced that he will not run for a third term as Prime Minister to keep his party, the Partido Socialista Obrero Espanol (PSOE), in power; however, current polls indicate that the PSOE will lose the next election anyway. Despite this weak standing, Zapatero is determined to continue pushing forward controversial economic reforms.

The fear that Spain could fall into a deep economic crisis is not unfounded. Spain's budget deficit is the third highest in Europe. This is partly due to the global financial crisis, as well as the increase in government spending during Zapatero's first term in office. Before 2008, Spain had been growing at a rate of 3.2 percent every year. At the end of 2004, Spain had a budget surplus of 2.2 percent. Unemployment and inflation were also low, which created optimism for the country's future. However, unemployment started increasing after the economic crisis and has now reached a historical high of 20 percent. In addition, the Spanish economy seems to be recovering slowly. For 2011, the government predicts economic growth of 1.3 percent. This situation has not Only contributed to the decline of Zapatero's popularity in the country, but has also led many to question whether Spain will be next to request a bailout from the European Union.

However, it is too soon to declare the economic collapse of Spain. Immediately after the economic crisis that hit Greece and Ireland, the Spanish government started to push forward a set of reforms to counteract a potential economic breakdown. These reforms aim to reduce government spending by cutting public workers' wages and slashing welfare payments, among other measures. One of the most controversial reforms establishes an increase in the retirement age from 65 to 67 years. The reform was so unpopular that a nationwide general strike was organized in September 2010 in protest. Zapatero's reluctance to eliminate the policy added to his declining popularity. According to a survey by the Center for Sociological Research (CIS), 80 percent of the population disagreed with the packet of reforms proposed by the Prime Minister. In spite of the great political cost of these reforms, Zapatero seems determined to carry them forward.

Although the full impact of the reforms will be determined in the long run, short-run measures adopted by the government are beginning to improve Spain's economic outlook. Certainly, they have contributed to decreasing the budget deficit, which has gone from 11.1 percent in 2009 to 9.3 percent in 2010. Zapatero's government aims to further decrease the deficit to 6 percent this year.

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