Paul Krugman mentions Spain

The Spanish Economy" an interesting take

Given that Americans ignore anything that isn't American (try finding the international section in any US paper) and Paul Krugman is a well known economist writing abou tht ecredit crunch it's rather surprising that he mentioned Spain. The article it's self isn't so interesting it's the comments posted that I found of interest.

http://krugman.blogs.nytimes.com/2009/01/19/the-pain-in-spain/"

I posted them in the next comment

Comment Nr 1

Great, wage cuts, good idea. I don’t know if you’re informed about the wage level in Spain: since the euro entrance in our economy, we (the population) have had to carry a prices increase of around a 60% in the first year (or month, in fact, it happened since the very beginning of the euro experience). Then, the prices kept rising year after year, with real increases way higher than the official inflation declared by our government (which has been truly ridiculous year after year, compared to the actual reality). None to say that, during this whole prices rising party, the wages kept being the same, hence, our purchasing power dropped dramatically. Said that, it comes out that Spanish population cannot carry a wages cut (we already have the price increases and the job loses, very much critical than the USA’s, isn’t it enough?).

The real problem in Spain is productivity. But the real productivity problem is not found within the entrepreneurial stratum, but in the official/state stratum. In Spain, you’ll find 1 government employee per each 8,67 active workers, and the vast majority of these government employees work in an extremely anti-productivity way, with wages way higher than those of the rest of active workers. Furthermore, everything related with the state, in one way or another, is a bottomless pit of money (and everybody in Spain well knows that). In Spain, if you want to enjoy a problem-free and quiet life, all you have to do is make sure you get a job as a government employee, or get involved in some kind of business with the government.

Mr.Krugman, I’m not an economist, but I live here, and I’m pretty sure of what I’m saying. I hope this makes you reconsider your opinion.

This tends to mirror my comments regarding Spain and the Euro, yes prices increased alot, but one only has to look to Eastern Europe to see what happens to small currencies. I don't have updated numbers but Denmark and Sweden both which stayed out of the Euro have paid a steep price in much higher interest rates. While th ECB is busy cutting rates those central banks are busy raising rates to defend the currency against a run

Long live the Euro

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What this article says is mostly true, but misses to tell some other interesting key points:

It is true that Spain needs to be more competitive, and it is also true that it can’t play the devaluation card anymore because it uses the Euro currency. But let’s face the other option; if we had our old currency, the “peseta”, the government could have devaluated it to increase the competitively.

But the government would not have to do it anyway, the Spanish Peseta is not the British Pound. and it would have been devaluated by the currency exchange market itself to unseen levels.

Just take a look at the Iceland meltdown, there you can see the consequences of not being in the Euro (ironically, Iceland is asking to enter the Euro, so what happened to their currency will not happen again)

The Euro has its advantages and disadvantages, right now, having a strong Euro is indeed bad for the Spanish economy, but considering the alternatives, everybody here still agrees that adopting the Euro has been a good idea

This answers a question about how the Spanish survive low wages and high cost of living. HIs point and Edward Hugh is wage cuts are the answer-

Kind of hard to lower wages in a country with a virtual wage freeze over the last 10 years, inundated with immigrant workers, with temporary tourism and agricultural jobs lasting only a few months per year. Especially when the aforementioned wages are some of the lowest in Europe.
Housing rental and purchasing costs are still prohibitive for Spanish citizens and wealthier tourists alike, even though there are hundreds of thousands of vacant properties.
Spain may well do what it has always done in times of crisis; look inward, prey on its own and collapse into a poverty-stricken, introspective mess. What’s to stop this happening? The mutual support of extended Catholic family structures, a tradition of low wages and the constant pickings to be had from guaranteed tourism.
All of the above and the Spanish ability to survive and indeed enjoy life with very little.

Enough of the copy and paste, loads more interesting comments about the Spanish economy, many from Spaniards themselves.

This message was last edited by Rob in Madrid on 1/24/2009.