Spain's unemployment at lowest level since 2011. Is austerity to thank?
The fiscal austerity and labor reforms pushed through by Spain's prime minister have also been upheld by European leaders as an example for embattled Greece. But many economists are unsure whether his policies are really responsible for the sluggish recovery of Spain’s labor market.
After nearly seven years of economic misery that left 26.9 percent of the population unemployed and caused hundreds of families a day to be evicted from their homes after falling behind on mortgage payments, Spain’s economy finally seems to be improving.
While still unusually high, Spain’s jobless rate dropped to 22.4 percent in the second quarter of 2015, its lowest rate since 2011. Now, in the lead up to Spain’s general elections in December 2015, Prime Minister Mariano Rajoy is attempting to convince Spaniards that his adoption of unpopular economic austerity measures is responsible for this small measure of improvement. The fiscal austerity and labor reforms pushed through by Mr. Rajoy have also been upheld by many European leaders as an example of the path embattled Greece should follow. Nevertheless, many economists are unsure whether his policies are really responsible for the sluggish recovery of Spain’s labor market.
“My personal opinion is that the most important contribution to the fall of the unemployment rate and the economic recovery was the monetary policy of the European Central Bank, especially when it created the OMT [Outright Monetary Transactions] in July 2012, and even more recently the quantitative easing program,” says Juan Antolín-Díaz, an economist at Fulcrum Asset Management, in an e-mail written in Spanish.
“These measures, together with the restructuring of the banking system, have given rise to the recovery of credit and economic confidence. While Rajoy’s reforms have lowered salaries and debilitated the rights of unions to collective bargaining, they have had little impact on job creation,” he adds.
Meanwhile, many experts note that, even if the labor reforms pushed through by Rajoy in 2013 succeeded in reducing the number of people registered as unemployed, many of the jobs created are temporary and provide little stability on which to rebuild the country. In a blog entitled “Nada Es Gratis”, or nothing is free, labor economists José Ignacio Conde-Ruiz and Ignacio Marra point out that 83.5 percent of the employment created in the second quarter of this year was temporary employment. Only 16.5 percent of the 411,000 new jobs were permanent contracts.
“It is not just the headline unemployment figure that is worrying; it is also the type of unemployment,” Antonio Barroso of the consultancy Teneo Intelligence told the Guardian.
“Forty per cent of unemployed people are over the age of 45, so difficult to retrain and bring back into the labor market. You also have to look at the types of jobs being created. Most new positions are temporary contracts, where people are left in a precarious position with very few rights – this does not breed confidence,” he notes.
Meanwhile, unemployment for those under 25 in Spain still hovers around 50 percent.
Still, economists are predicting that the country's economy could reach its 2008 level by the end of the year.
“Growth has surprised on the upside, and GDP growth is now expected at 3.1 percent in 2015 and 2.5 percent in 2016, well above the euro area average,” the IMF noted in a report last month.
“Significant external tailwinds are now helping the rebound, including from lower oil prices, the depreciation of the euro, and the European Central Bank’s (ECB) very supportive monetary policy. All this has contributed to lower government borrowing costs and improving financial conditions,” the report adds, echoing the observations of Antolín-Díaz.
Nevertheless, if Rajoy manages to convince the Spanish public that his economic policies have allowed the country to avoid a fate similar to that of Greece, it could help him gain an upper hand in the upcoming elections.
“Seeing what is happening to others right now, one has to say: It was worth it,” Rajoy said in a recent radio interview about the Greece crisis and Spain’s fiscal policy.
In recent municipal elections, however, Rajoy’s Popular Party experienced a crippling defeat, while members of the left-wing Podemos Party, an anti-austerity group analogous to Greece’s Syriza, made important gains.
“Just months before Spain’s general elections, Greece’s woes are injecting an unpredictable element into what has already been a topsy-turvy political year in Spain,” David Roman wrote for the Wall Street Journal. “The showdown between Athens and its creditors is playing out here as a proxy fight between Spain’s beleaguered governing conservatives, who support the EU and Berlin, and the upstart Podemos, which backs Athens.”
Podemos, which sprung out of a protest movement as recently as January 2014, advocates reforming the European Central Bank’s mandate to prioritize growth and employment. The party vocally opposes Rajoy’s labor reforms.
Recent polls show the Popular Party is neck-and-neck with the center-left Socialist Party and Podemos – each party has between 21.5-23 percent of support. With fewer than six months left until elections, it remains to be seen whose economic narrative will win the day.