Constraints and Alternatives for Employment and Output Growth: Spain during the Great Recession

The Great Recession of 2008 is having a devastating effect on unemployment and output in Spain. Hence, the first challenge for economic policy should be driving the economy back to pre-downturn figures. However, the prospect is rather gloomy since Spain faces several constraints which drag output, as a consequence of accumulated imbalances during the previous prosperity period, from 1997 to 2007. This article shows the shortcomings of the current strategies of economic policy undertaken in Spain (fiscal austerity and supply-side reforms) for reaching this goal, and argues for an alternative strategy at a European level, consisting in increasing fiscal spending and, simultaneously, balancing trade surplus and deficit countries within the euro zone.

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