Spain, the European Union and the Global Economy Slide 2 Modern
Spain: In 1813 Spaniards, with British help, booted the French out
(Napoleon conquered in 1789) Differences over how Spain should be
governed fuelled civil war in the 19th century, with some demanding
the establishment of a republic. After a false start in 1873, a
second Spanish Republic was finally and enthusiastically welcomed
in 1931, along with a modern, democratic and secular constitution.
But divisions between right and left over religion, land and social
reforms sparked the Spanish civil war (1936-1939) in which some
500,000 Spaniards died. It was won by the right under General
Francisco Franco, a Fascist dictator who annulled most Republican
reforms, brutally suppressed regionalism and re-established the
power of the Catholic church. In 1969 Franco designated Juan
Carlos, of the Bourbons, as the next head of state and maintainer
of Francos authoritarian regime. But when Franco died in 1975 the
new king instead helped stage-manage the re-establishment of
parliamentary democracy. A new constitution, approved in 1978,
established modern Spain as a constitutional monarchy, restricted
the Catholic church and army, and offered Spain's diverse regions
limited autonomy. Following the legalization of political parties,
the first free election for 40 years was held in 1977. In 1978 a
referendum approved a new democratic constitution and repealed many
of the laws of the Franco era. In 1986 Spain joined the European
Community (now EU). Spain was one of the founder members of
economic and monetary union (EMU) in January 1999. Slide 3
Political structure Spain is a constitutional monarchy. The king,
Juan Carlos, will be succeeded by his son, Felipe. The parliament,
or Cortes, is bicameral, but effective power resides in the
350-seat lower house (Congress of Deputies). The upper house
(Senate) has 208 directly elected members and 51 regional
representatives. Parliament is elected for a maximum term of four
years. Spain, alongside Germany, is now the most decentralized
large country in the EU after Belgium, but demands for greater
autonomy by Catalonia and the Basque Country are a source of
political tension. There are 17 autonomous community (regional)
parliaments within Spain. For the national government the Council
of Ministers is headed by the president (prime minister), who is
appointed by the king, but must win investiture vote in parliament.
Jose Luis Rodriguez Zapatero, the leader of the Spanish Socialist
Workers' Party (PSOE), was re-elected president in March 2008. Main
political parties: Spanish Socialist Workers' Party (PSOE); Popular
Party (PP); United Left (IU), including the Communist Party (PCE);
Convergence and Union (CiU), a centre-right Catalan nationalist
federation; the centre-right Basque Nationalist Party (PNV); Herri
Batasuna (HB), an outlawed separatist Basque coalition with links
to the paramilitary Euskadi ta Askatasuna (ETA); Catalan Republican
Left (Esquerra Republicana de CatalunyaERC), a left-wing Catalan
separatist party; Canary Island Coalition (CC); Galician
Nationalist Block (BNG); Union, Progress and Democracy (UPyD), a
centre-left anti-nationalist party. Slide 4 Lets look at some
graphs and statistics reflecting the state and recent trends in
Spains major economic indicators: Slide 5 But this snapshot doesnt
give us a sense of how Spains economy has been changingso we need
to look at the change in GDP: Okay, this dip in GDP growth look bad
yet this is what happens in a recession. So why has Spain been in
the news so much lately and said to now be in a state of contracted
crisis? Slide 6 PIIGS Slide 7 So why is this particular state of
things a crisis? After examining data from dozens of countries over
the past two centuries, economists Carmen Reinhart and Kenneth
Rogoff found a connection between high debt and reduced economic
growth. Specifically, they found that when a nation's gross debt
reaches 90% of its economy, it often loses about one percentage
point of growth a year. One percentage point lower growth may not
seem huge. But it's equal to roughly a third of the average annual
GDP forecast over the next decade. And slower growth can reduce the
number of jobs created, which in turn can hold down household
incomes. The more debt the government accrues, the more it will pay
in interest and the less it will have to spend on the basic
services Spaniards expect from their government. Reinhart has said
the relationship between high debt and low growth is
"self-feeding." Low growth ravishes government revenue and
increases the need to borrow. More borrowing builds more debt.
Higher debt increases pressure to tighten fiscal policies in order
to reduce the risk that investors lose confidence in the country.
But tighter policies can slow economic growth. Before we move on
lets look at the things Spain sells to the rest of the world and
what they buy as well Slide 8 Principal exports 2007 % of total
Principal imports 2007 % of total Raw materials & intermediate
goods (excl energy) 50.7 Raw materials & intermediate goods
(excl energy) 47.1 Consumer goods (excl energy) 35.7 Consumer goods
(excl energy) 27.4 Capital goods (excl energy) 9.2 Energy 14.9
Energy 4.4 Capital goods (excl energy) 10.6 Main destinations of
exports 2007 % of total Main destinations of imports 2007 % of
total France 18.6 Germany 15.2 Germany 10.8 France 12.2 Italy 8.5
Italy 8.7 UK 7.5 OPEC 7.5 EU 70.1 EU 59.1 Slide 9 Private State
Resource Ownership Resource Allocation Market Capitalism Command
Centrally Planned Socialism Market Socialism Centrally Planned
Capitalism Types of Economic Systems Slide 10 Private State
Resource Ownership Resource Allocation Market Capitalism Command
Centrally Planned Socialism Market Socialism Centrally Planned
Capitalism Types of Economic Systems United States Slide 11 Private
State Resource Ownership Resource Allocation Market Capitalism
Command Centrally Planned Socialism Market Socialism Centrally
Planned Capitalism Types of Economic Systems Spain, 1939-1975 Slide
12 Private State Resource Ownership Resource Allocation Market
Capitalism Command Centrally Planned Socialism Market Socialism
Centrally Planned Capitalism Types of Economic Systems North Korea
Slide 13 Private State Resource Ownership Resource Allocation
Market Capitalism Command Centrally Planned Socialism Market
Socialism Centrally Planned Capitalism Types of Economic Systems
Spain Today Slide 14 Understanding an Economic System: A.Need some
definitions before we go on... Institution: Institutions are rules
of the society that structure the interaction among people. - Are
made up of formal rules and regulations. - And informal rules as
well at times. - They are the informed ways by which people deal
with each other every day norms of behavior. -Institutions,
collectively, are the framework within which all of human
interaction... political, social and economic... takes place.
Economy: The economy of a society is comprised of institutions that
perform economic functions. These institutions are structured and
behave according to established working rules. Philosophical Basis
for an Economy: A viewpoint which specifies the place of an
individual within society; an ideal state of political, social and
economic reality to serve as a set of ultimate goals for society;
and a general program suggesting broad policy measures that will
guide society from its actual conditions toward the ideal reality.
This economic philosophy will be multidimensional in the sense that
social, political, and cultural, as well as economic elements are
contained therein. Slide 15 1.Capitalism Adam Smith - dominance of
"the invisible hand" in guiding economic activity. Limited role of
government (provide public goods and define the rules of the game).
A process ideology. B. Institutional Economics: 1.While there is no
hierarchy of importance in the tenets of institutional economics,
one of the most important for our purposes is that... [a] Economies
are fluid rather than static. [b] The second tenet is that one can
understand an economy only within its historical context. - The
constellation of factors shaping an economy is unique. - A
corollary to this tenet is that what might work for one nation
might not work for some other due to historical inconsistencies.
[c] Third, the values of a nation's people can be understood best
by studying the philosophical/religious underpinnings of its
culture. - Old and new philosophies alter attitudes that may
subsequently lead to a change in work rules and therefore
institutions. Slide 16 [d] A fourth general tenet is that the
values, institutions and work rules which operate in one nation
will not necessarily function in another nation. - A corollary
tenet is that values, institutions and work rules which functioned
in the past may not function in the future. G. C. Allen: "One of
the most common fallacies in the minds of academics, or the
citizenry of a nation, is that once a trend is established it will
persist indefinitely." [e] Finally, the basic structure and
performance of an economy are influenced by the dynamics of the
society's social and political structure. 4. This broad theory is
based upon the interrelationship between a society's beliefs, power
structures, and working rules of institutions. [a] The theory can
be used to explain the nature and evolution of economic systems.
[b] Changes in working rules can modify institutions or create new
ones, with the economy evolving in the process. [c] The
philosophical basis accepted by authorities and the economy's
performance determines whether the working rules are retained,
modified, or replaced. 5. Working rules... -Establish the
boundaries of economic activity between institutions. 6. Principal
institutions... - Socially determined: not inherent. Slide 17 [a]
Instrumental in establishing and coordinating most production and
distribution patterns of behavior, and giving meaning and
durability to routine activities. [b] Significant features: Origin,
the activities participants perform, working rules governing them,
their impact on the economy, and the philosophical basis for these
activities and rules. 7. Behavior of the economy... -Three
components: How it is organized to resolve the economic problem
(what, when, how, for whom), institutional change, and performance.
In describing how each society is organized to resolve its economic
problem, three questions need to be addressed: 1. How is the
resource allocation decision organized... [a] Centralized (state
control) or decentralized (markets) or some combination. Decision
making rules and institutions. 2. What are the rules regarding
ownership and control over productive resources? -In each economy
the rules differ...even where similar, differing restrictions
exist. 3. What type of social process has been adopted for
coordinating information and for making production and distribution
decisions? - Including markets, traditional mechanism, or some form
of economic planning. Slide 18 Concepts to Define & Understand
at the Beginning 1. Comparative advantage - def: A nation has a
comparative advantage over a trading partner in the production of
an item if it can produce that item at a lower unit cost than its
partner. Implications... a.Any country can increase its real income
by trading, because the world market provides an opportunity to buy
some goods at relative prices that are lower than those which would
prevail at home in the absence of trade. b.The smaller the country
the greater this potential gain from trade, but all countries
benefit to some extent. c.A country will gain most by exporting
commodities that it produces using its abundant factors of
production most intensively, while importing those goods whose
production would require more of the scarcer factors of production.
The theoretical benefits of freer trade: 1.Theory of comparative
advantagefocuses on relative labor costs (David Ricardo).
2.Heckscher-Ohlin theorem (labor and capital): factor proportions
determine the direction of trade.. A country relatively well
endowed with capital should produce and export capital intensive
goods, one well endowed with labor should produce and export labor
intensive goods (relative costs). Slide 19 3.Stolper-Samuelson
effect: if a labor-abundant country produces cheap labor- intensive
goods, over time the increase international demand for these goods
will raise their price and by association the price of their key
input: labor. Stolper-Samuelson effect => trade will in time
benefit the least well-off. The poor workers. 4.Factor price
equalization theorem: over time wages will rise in labor-abundant
countries and fall in capital-rich countries => international
prices of labor and capital will each converge (idea behind PPP
& Convergence Hypothesis). 5. Other theoretical work by Krugman
suggests that once a country opens itself up to trade there will be
a period in which inequality will increase, followed by a period in
which the Stolper-Samuelson effect will assert itself and
inequality will decline (importance of growing middle class with
increasing political power). 6. Empirical work conducted by the
World Bank for the 1970-1990 period show that those countries with
open trade regimes grew at a 5.0% per capita rate. Nonglobalizing
developing countries struggled through this period with a 1.4% per
capita growth rate (David Dollar)=> trade does seem to create
higher growth (but not necessarily development [Rodriguez &
Rodrik]). Slide 20Graph (1:$1.20) Demand side - People who want to
import European goods, invest in Europe, travel in Europe, or
others who just want to hold Euros. When North Americans demand
more European cars, wine, or whatever, (D curve shifts right) the
price of the Euro will rise in terms of dollars."> 2. Balance of
Payments - Exports (X) & Imports (M) B of P = P x X P m M P x =
vector of prices of exports P m = vector of prices of imports
Surplus = excess of exports over imports Deficit = excess of
imports over exports Merchandise trade account, service account,
capital account, reserve account. 3. Exchange rates - def: The
price of one nation's monetary unit in terms of the monetary unit
of another country. - Foreign exchange market: A market in which
buyers and sellers of bank deposits denominated in the monetary
unit of many nations exchange their funds. - Exchange rates can be
allowed to fluctuate freely, can be "managed" or can be pegged to
the currency of a major trading partner. => Graph (1:$1.20)
Demand side - People who want to import European goods, invest in
Europe, travel in Europe, or others who just want to hold Euros.
When North Americans demand more European cars, wine, or whatever,
(D curve shifts right) the price of the Euro will rise in terms of
dollars. Slide 21 Supply side - those who want to import goods into
Europe from the US, invest in the US, travel in the US or just hold
$. (1)When Europeans demand more US cars or computers (S curve
shifts right) the price (in $) of the Euro will tend to decline (S
of Euros shifts r). Note: Size of the FOREX market: an average of
$1.9 trillion crosses national borders each day. Appreciation and
depreciation of a currency: When country A's currency becomes more
valuable relative to country B's, country A's currency is said to
appreciate relative to that of country B and country B's currency
is said to depreciate relative to that of country A. Determinants
of Exchange Rates: 1. What determines the relative positions of
S&D curves for currency? (a) Relative price levels - constantly
changing (b) Relative rates of growth (c) Relative interest - rate
levels (d) Expectations (Speculation) (e) Random daily trade and
financial flowsnoise Note: Market exchange rates vs. PPP rates
(purchasing power parity).PPP rates Slide 22 Econ. 4132 The Big Mac
Index (7/2009) The Big Mac index is based on the theory of
purchasing-power parity. Under PPP, exchange rates should adjust to
equalize the price of a common basket of goods and services across
countries. Our basket is the Big Mac.Big Mac. Video Clip Slide 23
The European Union An international organization of 27 European
states Members of the European Council Slide 24 Slide 25 Population
Total (2010): 501,259,840 GDP Total (2008): $18.394trillion
(nominal US dollars) Note: Larger than USs $14.2 trillion Per
capita GDP (2008): $30,513 The EU economy is expected to grow
further over the next decade as more countries join the union -
especially considering that the new States are usually poorer than
the EU average, and hence the expected fast GDP growth will help
achieve the dynamic of the united Europe. However, GDP per capita
growth for the whole Union will lag behind the US. In the
long-term, the EU's economy suffers from below-replacement birth
rate and a rapidly aging population in the context of generous
social welfare systems. Good example of evolution of supranational
institutions and working rules Also a unique example of where
institutions follow working rules. 1.Levels of economic
integration: Free trade area each member has their own trade
barriers (tariffs/quotas/regulations) with non-member nations yet
have none between members. (e.g. NAFTA) Customs union uniform trade
barriers with non-members. (e.g. EEC)only covers finished and
semi-finished goods. Common market free flow of factors of
production between member nations. Slide 26 Economic and monetary
union Supranational institutions power increases common currency.
(e.g. the Euro/EMU) Full economic integration unified government.
(e.g. USA) 2.Economic effects resulting from economic integration:
Trade creation elimination of trade barriers generate gains =>
increasing the volume of imports from member nations each country
concentrates more on producing the goods in which it has a
comparative advantage relative to other member nations (trade and
GDP expands). Trade diversion trade diverted away form lower-cost,
non-member nation producers toward higher-cost member nation
producers. Necessarily inefficient since purchase is made from a
higher cost producer. Slide 27 2008 Slide 28 Slide 29 Slide 30
3.Two descriptions of the EU One economy - comprised of the
combination of member nations' economic performances (growth of
GDP, trade flows, rates of unemployment, inflation, investment,
etc.) Second pertains to the level of integration => 25 nations
seeking to achieve the economic and monetary union level of
integration. 4.EU is comprised of four separate organizations:
European Coal and Steel Community (ECSC) European Atomic Energy
Community (Euratom) European Economic Community (EEC) European
Central Bank 1999 (EMU euro) Slide 31 ... In reality the four are
one entity. Members have surrendered some national sovereignty to
supranational authorities. 5.Treaty of Rome 1957 Six signators:
Belgium, France, Italy, Luxembourg, the Netherlands, and West
Germany. Cornerstone of EU: established the goals and formal
working rules which provided the basic tenets for European economic
integration. Slide 32 History A united Europe was first proposed in
1834 by a group known as Young Europe. After WWI another
unification group began calling for the establishment of a
Pan-European Union. Neither resulted in EU yet established
"important precedents" and helped promote the idea across Europe.
More history - after WWII Europe was in ruins and in a weak
position of global power vis a vi America and the USSR. Prominent
European leaders began to push for the EU ('46 Churchill called for
establishing a United States of Europe), Within a decade, formal
means for unification came into existence (OECD, the Western
European Union, the North Atlantic Treaty Organization (NATO), the
Council of Europe, and the European Community). A gradual emergence
of formal rules beginning with the ECSC (1951) - considered a
success - led to formation of the EEC in 1957 - intent was to
promote economic integration "by means of four progressive
harmonization processes. [1] Elimination of internal barriers to
trade through removing customs barriers. [2] Achieve of a customs
union through applying a common external tariff toward nonmember
nations. [3] Establish of a common market by permitting the free
flow of factors of production plus goods and services. [4]
Attainment of further integration by adopting common policies (e.g.
agricultural, competition, social, transportation). Slide 33 Goal
was to have a common market by 1970 (common working rules and
policies should be implemented that applies to all aspects of
economic and social life of member nations). 6.Monetary Union (no
provision for in the Treaty of Rome) - first proposed at the Hague
Summit in 1969 with a proposed target date for full harmonization
of macroeconomic and monetary policies. Proposed in response to a
collective sense that they were still behind and that they had
little control individually in the global economy. Global oil
crisis of 1973 + collapse of the Bretton Woods agreement =>
inflation and unstable exchange rates throughout Europe => 1979
the European Monetary System (EMS) established designed to reduce
currency fluctuations through an exchange-rate mechanism (keep
exchange rates in bands). In 1986: signing of the Single European
Act - agreement to enlarge the scope of economic and social
cooperation to the monetary sphere. European Parliament established
a commission to investigate and in Aug. 1990 presented proposal for
an Economic and Monetary Union (EMU) primary purpose: to tighten
coordination of economic and monetary policies throughout the EU.
Slide 34 Called for a common currency, a central bank and a single
monetary policy, close coordination of fiscal policy, prohibition
of monetizing public deficits, and avoidance of large fiscal
deficits for all members. Approved by members in 1991 - Maastrict
Treaty: set target of 1/1/99. EMU went off without a hitch. More
rapid adoption of the euro than expected new bond issuance in euros
initially (mergers and acquisitions). Still, the euro was weaker
than expected and fell below parity with the dollar in 2000 (in
mid-2002 rose above parity and has stayed there since). Due almost
totally to the fact that the European Central Bank kept interest
rates relatively low. While euros were initially used exclusively
for government payments and financial markets in 1999-2000, they
began to be substituted for national currencies on 1/1/2001 by
being issued to the general public. 7. Need to turn our attention
to outlining the major institutions of the European Union. First,
lets take a diagrammatic look at the evolution of the European
Union: Slide 35 Lisbon Treaty of 2009 = ? Slide 36 The European
Union has several major institutions: 1. The European Parliament
The European Parliament is one half of a bilateral legislature (the
other half is the Council of the European Union). It has
co-legislative power with the Council in most EU policy areas, able
to accept, amend or reject proposals as it sees fit. Unique in that
it is directly elected by the people and has legislative power. 2.
The European Council The European Council, sometimes informally
called the European Summit, is a meeting of the heads of state or
government of the European Union, and the President of the European
Commission (picture at beginning of EU slides). 3. The Council of
the European Union (or Council of Ministers) Along with the
European Parliament, the legislative arm of the European Union
(EU). It contains ministers of the governments of each of the
member-states of the EU. The Council of the European Union is
sometimes referred to in official European Union documents simply
as the Council, and it is often informally referred to as the
Council of Ministers. 4. The European Commission The European
Commission (formally the Commission of the European Communities) is
the executive of the European Union. The Commission is headed by a
President (since 2004 Jos Manuel Barroso of Portugal). Its primary
role is to propose legislation and to carry it out. Slide 37 5. The
European Court of Justice The ECJ is the supreme court of the
European Union. It adjudicates on matters of interpretation of
European law. 6. The European Court of Auditors The Court of
Auditors checks that all the Union's revenue has been received and
all its expenditure incurred in a lawful and regular manner and
that the EU budget has been managed soundly (their Treasury). There
are several financial bodies, yet the most important is: 7.
European Central Bank The main goal of the ECB is to focus on price
stability. In order to keep prices stable, the ECB may cut or raise
interest rates. Decision-making procedures: The decision-making
procedure within EC institutions is significant, since working
rules passed at the supranational level influence each member
nation. Prior to the Single European Act unanimity, was required
for new initiatives or objectives, not majority rule. By the late
1980s, under the cooperation procedure specified in the Single
European Act, qualified majority votes were to be taken when EC
institutions passed certain measures, regulations or administration
actions. The cooperation procedure has enhanced the efficiency and
reduce time spent in decision-making at the EC level. Slide 38
Important issues: Enlargement process (accepting a new member or
members) is important, for [1] It increases the opportunity for
trade creation while changing the political face of Europe. The
Maastricht criteria establishes basic standards to be met by
European countries if they seek to become full members of the EU.
The economic criteria are: 1.Candidate countries must have price
stability and an inflation rate of no more than 1.5 percentage
points above the rate for the three EU countries with the lowest
inflation over the previous year. In terms of budget deficit, a
candidate must have a rate below 3 percent of its GDP. Its public
debt must not exceed 60 percent of GDP, but if debt levels are in
steady decline, it may be allowed to adopt the euro as its basic
currency even though its debt level may be higher than this rate.
2.The long-term interest rate should be no more than 2 percentage
points above the rate in the three EU countries with the lowest
interest rates over the previous year. 3.The exchange rate of the
currency of a candidate country should have stayed within certain
pre-set margins of fluctuation for two years. The enlargement issue
hinges on whether advantages to existing members in the form of
trade creation, gains from greater specialization of labor, and a
stronger political bond with European neighbors outweigh the
disadvantages. Slide 39 The latter include reduced political
influence for each member, more social divergence within the EC, a
larger agricultural sector (necessitating more funds to support the
new member's agricultural sector), the possibility of trade
diversion, and the threat of migration of labor if the applicant
nation has high rates of unemployment plus lower wages than EC
members. Nations seeking to join the EC recognize the potential
economic benefits they can enjoy while increasing their political
influence in world matters. New members must be committed to
democratic political and economic institutions, and be accepted by
vote of existing members. Common agricultural policy costly yet
politically expedient. Affects price and production decisions for
most agricultural products. Some goals of the policy are to enhance
the EC's ability to lessen dependence on outside sources for its
agricultural needs, reduce the risk of food shortages, continue
farming as away of life for many people currently engaged in the
agricultural sector, stabilize food prices, and protect farmers
incomes. Interventionist measures, such as regulating the volume of
imports, are employed to manipulate market prices to desired
levels. Such measures are costly, accounting for almost two thirds
of all EC expenditures. Slide 40 William Chislett: Spain: Going
Places, Economic, Political and Social Progress 1975-2008, Chapter
#1: Overview What are Ceuta & Melilla? Are per capita GDP
between Morocco and Spain similar to that between Mexico and the
U.S.? What happened on October 2005 in Morocco? What are the major
immigrant groups and how much do they contribute to Spains GDP?
What is the E.U. Schengen Treaty? Does Spain have a demographic
problem? How does regional public spending compare to federal
government spending? What can you say about the Spanish Welfare
State? When are they going to run out of money? Is their university
education system a high quality system? Slide 41 Is their judiciary
objective (separation of powers)? What is the difference between
Common Law and Civil Law Legal Systems? The Morning After, The
Economist, November 6, 2008 Which country has been the single
largest beneficiary of EU regional funds? What happened to interest
rates after Spain joined the Euro zone in 1999? In the current
crisis have there been any financial problems with the big Spanish
banks? Why might Spain have an L-shaped depression? Zapateros
Gambits, The Economist, November 6, 2008 How and why did Zapatero
challenge the pact of silence, attempt to make peace with ETA and
co-opt the Catalan Socialist Party? How Much is Enough? The
Economist, November 6, 2008 Caf para todos: 17 autonomous
communitiesis this a good idea and has it worked? Slide 42 William
Chislett: Spain: Going Places, Economic, Political and Social
Progress 1975-2008, Chapter #2: The Economy Between 1985 and 2007
by how much did Spains per capita GDP increase. And what does
Chislett say is the cause of this? How big is Spains current
account deficitand how does he suggest this being addressed in the
future? What is exchange rate risk and how did it change once Spain
joined the EMUand what was its immediate effect? How does the ECB
determine interest rate policy and what effect has this had on
Spain? How high is household indebtedness in Spainand what about
corporate indebtedness? And what about the central governments
financesare they in bad shapewhat has driven this change? What is
the 2007 Law of Budgetary Stability? Whats been going on with
national debt? Slide 43 What does he say has been driving Spains
relatively higher rate of inflation? Has Spain benefited from the
EUs Structural and Cohesion Fundsand will this continue? Is Spain a
competitive economywhat needs to be done to change this? How does
Jaime Caruana (former head of the Bank of Spain) suggest a current
account deficit might be resolved within a currency union? Does
Spain trade much with the USwho are their largest trading partners
and which firms do most of the exporting? Banks, Bricks and Mortar,
The Economist, November 6, 2008 Spain has two giant banks,
Sandander and BBVA, a handfull of smaller banks, and 45 cajas
(largest is La Caixa). Which segment is in financial trouble? The
default rate is low2.9%...why is unlikely to go higher? Whats been
the most visible effect of the global financial crisis within the
Spanish economy? Slide 44 In Search of a New Economy, The
Economist, November 6, 2008 What is Spains new economic model? What
green technology has Spain invested heavily in? What has the rate
of growth in Spanish productivity in recent years and what does the
article say are the cause of its plodding productivity? What does
the article suggest is the best hope for recovery? A Cooler
Welcome, The Economist, November 6, 2008 Talk about the history of
immigration/emigration in Spainand what groups have been arriving
on Spanish shores over the past 10 years? Why hasnt there been a
backlash against foreigners? Why wasnt their an increase in
Islamophobia after the 2004 bombings against the 1.1 million
Muslims in the country? Slide 45 William Chislett: Spain: Going
Places, Economic, Political and Social Progress 1975-2008, Chapter
#3: Main Economic Sectors Is the agricultural sector of Spain
largeand is it important? Name one Spanish carmakerso is the
automotive industry unimportantand what development have there been
of late in this industry? What is Spains national bird?...the
cranethe building crane. How has this industry figured in Spains
economic landscape over the past decade or so? What are the nine
factors propelled the domestic property market? Are real estate
transactions cost high in Spain? Has the government tried to slow
down the inflation bubble? What are the construction companies
exposure to the domestic market and have they done anything to
diversify operations? Is tourism important to the Spanish
economyand what can you say about this sectors competitiveness,
changes over time and likely development in the coming years? Slide
46 Does Spain have a water problemand has the government done
anything about it? Is Spain energy independent and are they
efficient in their use of energy? Are they doing anything to
diversity their energy dependency? Is the energy market competitive
in Spain? What can you say about Spains telecommunications market.
Is Telefnica a monopoly? What are the names of Spains 2 largest
banks and how has this industry developed over the past two
decades? What is the IBEX-35? And what is Latibex? The Spanish
Legion, The Economist, November 6, 2008 What have been the three
factors contributing to Banco Santanders success? Have they been
sitting out the current credit crisis? Slide 47 What does the
article suggest has been a common theme of all Spanish
multinationals that have contributed to their relative success? The
Perils of Parochialism, The Economist, November 6, 2008 Is Spain an
outward-looking country? How does the article suggest this might
change? Spains Property Crash: Builders Nightmare, The Economist,
December 4, 2008 Does this sound familiar: , some still find it
hard to grasp that prices can ever fall.? What factors are at work
that are driving housing prices in Spain? Victor Mallet, Spains
Recession: After the Fiesta, Financial Times, February 17, 2009.
What level might unemployment hit this year, and the budget deficit
and the fall in real GDP for 2010? What does every chief executive,
orthodox economist and rightwing opposition politician conclude is
the only way for Spain to emerge stronger from the crisisand how
likely will this happen? Slide 48 What is a monoculture and what
does the tile industry of Villarreal have to do with this? Thomas
Catan, Spain Largely Avoids Unrest Evan as Economy Slumps, Wall
Street Journal, May 4,2009 Weekly quotas for arresting illegal
immigrants? Comment. What is the reason the article cites for why
Spaniards havent taken to the streets to defend their economic
interests? How does the Spanish family figure into the lack of
unrest? How big is Spains underground or black economy and what
role does it play in downturn? What European nation has seen the
most protests over the global economic crisisand is noted as an
exception? Slide 49 William Chislett: Spain: Going Places,
Economic, Political and Social Progress 1975-2008, Chapter #5:
Spanish Direct Investment in Latin America (LA) What four major LA
sectors have Spanish firms heavily invested inand what percent of
earnings come from the region? What Spanish firm has the largest
operations in LA? Why have Spanish firms moved into this particular
region of the global economy? What country made more FDI than Spain
in the early 2000s? Which LA country has the greatest amount of
Spanish investment. Why? In what sector does Spain make little
investmentand is this good or bad? When did Spanish FDI peakand why
hasnt it risen to its former lofty level? What happened after the
Spanish American War of 1898 regarding FDI in LA? Has the move into
LA been good for Spanish companies? Role of Latibex? Slide 50 What
worries Spanish multinational about the region? How important is
Spanish banking in the region? Does Spain have too many eggs in the
Latin American basketand are they doing anything about it? Two-tier
flexibility, The Economist, July 9, 2009. What can you say about
Spains two tier labor market? Why did it come about? What is the
Red Line Zapatero said his government would not cross? Toni Ferrer
is quoted as saying The problem is not labor regulation: what do
you think? Spain's growing budget deficit: Taxing times, The
Economist, September 10, 2009 How does the article suggest Zapatero
will raise taxes? Has Zapatero shown much of an appetite for
long-term spending cuts? Slide 51 Spain's economic troubles:
Unsustainable, The Economist, November 26, 2009 A couple of our
articles suggest that Spain entered the current economic crisis in
worse shape than other EU countries. Why? What was the
sustainability economy law Zapatero introduced into the Cortes late
2009 and what approach did it reflect the Zapatero government was
taking in tackling Spains economic problems? What does the article
suggest is forcing fiscal retrenchment? What is Elena Salgado, the
new finance minister, doing to respond? Slide 52 William Chislett:
Spain: Going Places, Economic, Political and Social Progress
1975-2008, Chapter #6: {Only} United States: On the Risepp. 176-184
In 2007 where did Spain rank regarding FDI in the United States?
What industry does the bulk of US FDI go into? How and when did
Spain move into the US M&A market? What is the company EADS
better known as? What other Spanish companies in America stories
did you find interesting? Have the Spanish banks moved into the US
market like they did in Latin Americawhy or why not? Are Santander
and BBVA strategies in the US similar? In what US city will you
find the most Spanish businessesand why? Slide 53 Spanish banks:
Savings and groans, The Economist, November 19, 2009 How would you
characterize the ownership structure of the Cajasand comment on
their market strategy over the past 10 years? What percentage of
outstanding loans are non-performing ? What does Spains central
bank governor, Miguel Fernndez Ordez, predicts will happen to the
cajas? Is the state of the cajas feeding into the Spanish credit
crunch? Richard Barley, Spain's Problem is Growth, Not Its Deficit,
Wall Street Journal, February 18,2010 Does Spain have any fiscal
credibility? Does Spain have any economic strengths? Zapatero's
stability plan indicates that Spains nominal GDP growth of 3.3% in
2011, 4.9% in 2012 and 5.2% in 2013. So whats the problem? Slide 54
Stephen Fidler, The Euro's Next Battleground: Spain, Wall Street
Journal, February 24,2010 Why does Desmond Lachman say that Spain
is the real test case for the euro ? What are the three options
most economists see for Spain? What would happen if Spain chose
option #3? What does Lorenzo Bernaldo de Quirs mean when he says,
Spaniards still "think like Cubans and live like Yankees. Talk
about the difference between public and private debt in Spain.
Where did the debt explosion originate and how bad has it become?
The article states that for years to come Spain will be at the
mercy of what? And what will determine that mercyor punishment?
Slide 55 William Chislett: Spain: Going Places, Economic, Political
and Social Progress 1975-2008, Chapter #8: An Image out of Sync
with the Countrys Reality How is Spain viewed in the world and why
is this out of sync with the reality of Spain? What is the Leyenda
Negra? Why is a countrys brand important? What are Spains top
corporate brand names? In what category does Spain rank highest in
the Anholt Nations Brand Index? In the US the word Spanish is
synonymous with what other word? Does Spain have a positive image
in Latin America? How does co-branding work and will it help Spain?
Is there any resistance within Spain to the promotion of a national
image? Slide 56 Country Report: Spain, Economist Intelligence Unit,
London, April 2010 Have the PSOEs difficulties favored the PP? Does
the EIU think that the Stability Program, announced last fall and
expanded upon and approved this past spring by the Cortes, will
reign in the governments deficit? The Spanish government
established a special commission to explore cross-party agreements
on economic policy measures. Does the EIU think this commission
will produce solutions to Spains problems? I said early in the
semester that an indebted nation needs to run a trade surplus to be
in a position to service its external debt. Does the EIU think
Spains dramatic reduction in the current account deficit between
2008 and 2009 will produce such a trade surplus? Mapping the EU's
debt, jobs and growth worries It is clear that Spain has major
economic, social and political challenges ahead that will play out
in a dramatic fashion over the next 10 years. It will be
interesting to follow the unfolding developments in this
fascinating country. But, whatever happens, keep in mind how far
Spain has come since Franco died in 1975 Slide 57 GLOBAL RANKING
DESCRIPTION: SPAIN (from 2007) Top 10 Seventh-largest OECD economy
Top 10 Sixth-largest net investor abroad (1997-2006) Top 10
Eighth-largest recipient of foreign direct investment (1997- 2006)
Top 10 Eighth-longest life expectancy at birth, sixth for women Top
10 Tenth-largest number of immigrants in the world (2005) Top 20
Sixteenth in the EIUs Democracy Index, ahead of the US Top 25 Score
of 6.7 out of 10 (the closer to 10, the cleaner the country), well
ahead of Italy (5.2), in the Corruption Perceptions Index Top 25
13th in the United Nations Human Development Index Top 30 27th in
the Index of Economic Freedom, well ahead of France Top 30 30th in
IMDs competitiveness index El Fin
