The pick-up in our competitive capacity is highly tangible in terms of Spain’s unit labour costs relative to those of the rest of the euro area. These costs fell by 14% between 2008 and 2019, after rising forcefully during the pre-crisis years. The gains in competitiveness vis2/6  à-vis the euro area were reflected, in the early stages of the crisis, in heavy job destruction, and throughout the subsequent period, in wage moderation. Contributing to this were the successive amendments to the labour market legal framework during the crisis, which proved to be effective levers for boosting the recovery in employment. Overall, these developments enabled the competitiveness lost in relation to the other euro area countries – measured via relative unit labour costs (ULCs) – to be restored. Specifically, while for the market economy as a whole ULCs growth in Spain from 1999 to 2008 exceeded that observed in the euro area by 16 pp, the current relative level is 5 pp below that of 1999. We must add to these improvements the enhanced financing conditions for resident agents as a whole. Included among these agents are Spanish firms which, from end-2012, saw their financial costs ease strongly. Also, most particularly, there was a correction to the differences in the interest rates they had previously to pay compared with their competitors in the core euro area countries.
To continue reducing debt vis-à-vis the rest of the world, sustained external surpluses must be run. And that in turn calls for the maintenance of gains in competitiveness, which throughout the recovery have been based on the moderation of labour and financial costs and which, hereafter, should hinge to a greater extent on productivity gains. Indeed, in the recovery to date, the increases in total factor productivity continue to be smaller than those in other developed economies. That is in response to numerous institutional, regulatory and structural factors that public policy should seek to correct. These factors include certain shortcomings in the labour market – such as excessive turnover and temporary contracts – and in the education system; scant generation and dissemination of technological advances; competition-curbing regulatory elements; and the improvable quality of business management. In this respect, it should be borne in mind that, during the expansionary phase prior to the crisis, the loss of competitiveness in terms of the surplus per unit of output was on a similar scale to that mentioned for ULCs. However, the subsequent correction has been much smaller, which explains why the current level of the value-added deflator has grown 10 pp more in Spain than in the euro area as a whole in cumulative terms since the monetary union began functioning. The design of a regulatory framework more conducive to competition should allow for a greater contribution of business margins to gains in competitiveness visà-vis the euro area.