Loosening Up The Labor Market

By Global Tax Weekly

Nobody is pretending that Spain is out of the woods yet after getting sucked into the eurozone crisis. But the way the economy is performing compared to the rest of the eurozone suggests that the Government must be doing something right in the area of economic policy. Last month, the Bank of Spain said that improving domestic demand was helping to sustain a recovery, and that the eurozone’s fourth-largest economy would grow by 1.4 percent in 2014 and possibly by as much as 2 percent in 2015. Given anemic growth elsewhere in the eurozone, especially in France (predicted 0.5 percent growth this year) and Italy (probably even slower 2014 growth than France) – the second and third-largest economies in the single currency area – it almost looks like boom time in Spain. Why is this the case? Well, economies are complicated things, and there are countless variables coming into play here. But I think the fact that Spain’s conservative Government has managed to pass structural economic reform, perhaps the most important part of which was loosening up the labor market, something neither France nor Italy has managed to do, is one of the main reasons for the three countries’ contrasting fortunes. Spain has also reformed and cut taxes, a policy that is reaping dividends, according to Secretary of State for Finance, Miguel Ferre Navarrete. You might have noticed that taxes have got rather high in France lately. QED. Spain’s fate is of course still tied to the fortunes of the eurozone, which is currently staring over the precipice of a deflationary sinkhole. What? You think my language a little hyperbolic? Well, the fact that the European Central Bank has been permitted to print money like there’s no tomorrow is an indication of how seriously the deflationary threat is being taken in Brussels and Berlin. But Spain must nevertheless try to keep up the good work.

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