On September 27th the Spanish Government announced its austerity budget for 2013 with a mix of spending cuts (12% average cut across all departments) and tax increases. One day later the independent auditors, Oliver Wyman, reported the results of their stress tests and concluded that Spanish banks will require an injection of 59 billion euros to recapitalize balance sheets and write off loans made at the height of the Spanish property boom. All of this will likely precipitate the flow of euro funds to shore up the banks, start the ECB bond buying program, and likely lay the ground work for a full scale Spanish bailout. The country will soon be awash with cash!
What remains in short supply, however, are details on the structural reforms to improve the underlying competitiveness of the Spanish economy – assuming Spain stays in the euro and devaluation is out of the equation. The attached chart featured on BBC News shows the real human cost to Spain’s economic crisis. As the fourth largest EU economy, Spain’s unemployment rate is more than twice the EU average, and one out of every two individuals under age 25 are out of work. No amount of austerity or liquidity is going to deal with this fundamental issue of loss in human productive potential. Ultimately what the Spanish people need to articulate is how they are going to get back to work. Over the summer the Spanish employment minister visited his opposite number in Germany to encourage German firms to employ young Spaniards, but more importantly to learn about Germany’s trade and vocational schools (Berufsschule) which are at the heart of Germany’s technical educational system and technical leadership in Europe. Encouraging their people to move across borders to seek work, and more importantly investing in the education and training of their youth are two tangible ways Spain can start to right the astonishing human cost of this economic crisis.
So you may ask what has all this got to do with day to day business? As leaders and managers of small, medium or large businesses ask yourself, are you following the German model of investing significantly in the productive capacity of your workforce through training and development, or will your company one day go the same way as Spain?
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