Working Paper: CEPR ID: DP7909
Authors: Javier Suarez
Abstract: This paper reviews the background and key policy challenges of the current situation of the Spanish economy. It describes the strengths and weaknesses of Spain?s recent long growth cycle, the real and financial imbalances accumulated towards its end, and the troubles faced at the current stage. Particular attention is paid to the developments in private and public sector finances and, specifically, to their implications for the banking sector. Attention is also paid to the political-economy background, especially in regards to the undertaking of structural reforms. It is argued that recent external pressure, partly initiated by unjustified catastrophic expectations about Spain, provides an opportunity for accelerating the reforms needed to resume strong growth.
Keywords: economic crisis; Spain; Spanish banks; structural reforms
JEL Codes: E66; G20; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International financial crisis initiated in 2007 (F65) | abrupt end to a long growth cycle (E32) |
| abrupt end to a long growth cycle (E32) | significant real and financial imbalances (F65) |
| significant real and financial imbalances (F65) | vulnerabilities in the banking sector (F65) |
| structural weaknesses (overspecialization in construction and sluggish productivity growth) (L79) | vulnerabilities in the banking sector (F65) |
| external pressures (catastrophic expectations about Spain) (H12) | necessary reforms (P41) |
| necessary reforms (P41) | restoration of confidence and return to strong growth (O52) |
| lack of timely reforms (E69) | severity of the crisis (H12) |