Spain’s position as one of Europe’s fringe states is best exemplified by one statistic: an unemployment rate of 20.1%. It gets even worse for 16-24 year olds, who face an unemployment rate of over 40% through 2011.
But how did Spain get here, and how can it hope to get out?
The reality is Spain has been hampered by its position in the eurozone, and ECB policies that powered the credit boom in the previous decade. That credit boom bust hard in Spain, and left in its wake a crushed real estate sector, a weakened manufacturing industry, and an economy too hampered by debt to pull itself out of the doldrums.
Instead Spain has been left with two options to revive its economic fortunes, according to Harvard Economist Dani Rodrik: quit the euro or reduce wages and the cost of services.
Some disagree with the way Rodrik displays his data, but it’s hard to begrudge him his dramatic conclusion.
Spain is in need of some serious adjustments if it is to survive this downturn.
Spain could cut wages, but it would mean private sector cuts too, or real wage losses would be massive
Spain could inspire new industry, but it is in a difficult fiscal position and this is time consuming
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