The scale of the global recession called for the implementation of demand-side expansionary fiscal and monetary policies. And it is in this context that the substantial cuts in central bank intervention rates seen over the past year should be understood, cuts that have been conducive to a significant decline in the cost of financing and to a sharp expansionary stimulus. In Spain, the potential effects of this pass-through are particularly powerful as a result of the prevalence of floating interest rate loans. Spain, too, has moved to adopt demand-stimulating discretionary fiscal measures in order to bolster the expansionary impact of the substantial transfers of income to the private sector, especially to households, arising from the operation of the automatic stabilisers. The fiscal drive by the Spanish authorities is of a considerable scale and generally exceeds that of other developed countries. Its budgetary impact has been accentuated, moreover, by the sharp fall in tax revenue as a consequence of the economic recession and of the magnitude of the real estate adjustment; accordingly, the fiscal situation has deteriorated rapidly. It should be recalled that the Spanish economy started from a healthy budgetary position, with a surplus of somewhat over 2 pp of GDP and a very low public debt ratio compared with our European counterparts.
Economic recovery in Spain requires structural changes that will encourage technologically dynamic productive sectors with high growth potential to take up the baton from construction. For this to occur, the labour market must function so as reallocate resources, increase and adapt workers’ skills to new demands, and make productive processes within companies more efficient. Reform should focus on ensuring that labour conditions adjust to the economy’s different cyclical junctures and, in particular, to the specific circumstances companies or productive sectors face. That should prevent the adjustment coming about through pushing large numbers of workers out of the market. Changes are also needed in hiring arrangements. These must allow workers who have lost their jobs to return promptly to active working life, so they do not spend long periods unemployed, the consequences of which were so adverse in the past. Improvements in labour market intermediation systems and in mobility and training for the unemployed are also very important. Resolute action here would help check business closures and lessen the risk of decapitalisation, which is admittedly very high at present. If, moreover, significant progress were made in eliminating administrative formalities, the Spanish economy would be better placed to resume a high growth rate once the world recovery began. To bring about a new productive pattern enabling high rates of potential growth to be regained, structural measures must span a wide range of fields. Improving the level of educational attainment of the labour force is vital for raising the quality and productivity of human capital.