Economic crisis and the reforms to overcome it

 Civican, Avda Pio XII, 2 Pamplona 22/02/2012 00:00h

Alberto Recarte, former president of Libertad Digital and State Economist, said in Pamplona that the labour law reform can make employment rebound more quickly when Spain grows again. In his opinion, the greatest virtue of the new laws is that they allows companies to adapt the templates to their needs: One may lose a job, but companies maintain physical capital, know-how and legal guarantees for shareholders, for what they are prepared to create jobs again when things improve. Another success is that wages are decoupled from inflation in Spain, which prevents Spain from losing competitiveness, he explained.

The author of the Recarte Reports on the economic crisis was invited by Civismo to Pamplona to evaluate the economic policy of the People’s Party Government and explained that correcting labour regulation is a priority, because it is responsible for over one and a half million or even two million unemployed people, but even without it we would have reached very high unemployment numbers because the growth cycle had been exhausted and our debt capacity had reached the limit.

Regarding the financial reform, the speaker considered that it has the virtue of anticipating the necessary recapitalisation, but it is not enough. In his opinion, the third wave of the FROB should have been endowed with between 15,000 and 20,000 million to recapitalise banks, at the same time that the sanitised entities are forced to take over bankruptcies. Despite everything, the monetary contraction may end at the end of the year or the middle of the following, because banks are dedicating a large part of their profits to provisions. Recarte insisted that, as the European Central Bank lends money at 1 percent, it is possible that the Spanish bank will ask for close to 200,000 euros to face the turbulence of the coming years and place it in national debt, so that the Treasury would have some independence from the markets. The speaker seemed appreciative of the fact that the central Government was responsible for the defaults of the regional and local administrations through the ICO, at the same time that they were forced to maintain a certain fiscal discipline. A mandate included in the Constitution since 1978, he stressed.

“We can only create jobs again if companies resist”

Alberto Recarte

Recarte pointed out that, at best, it is possible to reduce the deficit to 5.5 percent of our GDP, so Rajoy will surely have to renegotiate the conditions in Brussels. All things considered, it would be very complicated, because it would imply reducing 35,000 million in spending when GDP is falling. Much of the investment can be cut, but current spending is more complicated. To put it in data, the economist put the excess of personnel in some 400,000 civil servants and public employees. The number of workers for the public sector increased by 300,000 during the crisis years, so it would practically be a matter of returning to the previous situation. For Recarte, the biggest adjustments have to be made on the spending side, so the tax hike is not successful. The president of Centunión would have opted for a radical change in the tax system: lowering social security contributions by five or six percentage points, eliminating deductions from corporate taxes in order to lower it to 20 percent and collecting the same, eliminating the wealth tax, a tax that the upper classes have a special ease to avoid and it ends up affecting only average people, and raise the VAT three points to equal it to the EU average.

The former president of Libertad Digital stressed that these types of measures are those that Portugal has implemented by recommendation of the EU, since raising VAT allows incentives to export while making imports more expensive and, on the other hand, lowering social security contributions allow to lower production costs. He argued that this measure could be very beneficial, since if Spain can grow it is based on exports, because domestic consumption is stagnant and public spending is already oversized.

On the other hand, he recalled that in Spain about there have been over 10 percent more investment than the EU average during the economic boom, so it is now normal for it to decrease. Perhaps Navarra, due to its ease of exporting, has an easier recovery, he said. In the Foral Community, the family business model is not defended, but a model that is open to competition and attracts multinationals. In addition, the agroindustry sector has a lot of output.