Arena in Seville, Spain

The Pain in Spain

After eight consecutive quarters of economic expansion, Spain has become the eurozone’s latest poster child for austerity and structural reforms. But the country's recovery is not quite what it seems, and there is scant evidence that its policy choices account for what progress has been made.

LONDON – Spain is the eurozone’s latest poster child for austerity and structural reforms. Its economy has expanded for eight consecutive quarters, steadily gaining momentum and easily outperforming the rest of the currency union. Export growth has matched that of Germany; unemployment has fallen by over a million people in two years; investment is picking up; and industrial production has jumped 5% in the last 12 months.

But Spain’s recovery is not quite what it seems, and there is scant evidence that what progress the country has made is the result of austerity and reforms.

In fact, far from adhering to the usual austerity narrative – according to which fiscal consolidation revives business confidence and thus investment and job creation – Spain’s return to growth partly reflects the easing of austerity since early 2014. The country has sensibly resisted pressure from the European Commission to take more aggressive steps to reduce its deficit, which, at 5.9% of GDP, was the European Union’s third highest last year.

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