are technology improvements contractionary – The professor of Economic Theory, academician of Language and former Governor of the Bank of Spain (1992-2000) who inaugurated the entity’s autonomy, Luis Ángel Rojo (Madrid, 1934), draws attention to the low ‘rhythm of investment productive sector in Spain‘, where ‘the public sector, and above all the private sector, pay little attention to technological improvements, which affect productivity very significantly’. He defends the presence of the State in the forefront to finance the country’s physical equipment and recalls that the fiscal balance must understood cyclically, “not as a zero deficit every year.” He criticizes the political interpretation of the Stability Pact, and the nationalism of European governments, which have prevented company mergers and have harmed Spanish banking: ‘
What circumstance has allowed Spain to maintain notable growth while the European economies have entered prolonged recessionary processes?
Spain entered the monetary union in 1999 in conditions of strong expansion that were the result of a very sharp drop in interest rates. In 1995 the intervention rate of the Bank of Spain was 9.50% or 9.75%, and just before entering, in December 1998, it was placed at 3%. And with it, the entire range of interest rates practiced by banks had been lowered. On the other hand, the combination of monetary policy and fiscal policy had worked very well: the first had autonomy, the second had improved the situation of public finances since 1995, with a policy that intensifies the Government of the PP, and the result it is a very satisfactory combination of monetary and fiscal policy.
Is there an explanation for employment growing for six years above GDP, even damaging productivity?
Between the mid-seventies until the crisis of the European monetary system, in 1992, there had a formidable loss of employment, excessive, which should recovered as soon as there was an improvement in growth expectations. At least two million jobs would be lost in the period cited, and then about four million have been created, and a good part of it is compensation for previous losses. Logically it affects productivity, which when it has grown the most has been precisely when there has been job destruction, and moderated when employment has skyrocketed.
Has there been neglect of productive investment are technology improvements contractionary
Of course, the rate of growth of productive investment in recent years has been lower and that affects productivity. There’s no doubt. Just as it affects the absence of R&D expenses, which are very low in this country.
But we must not lose eyesight of the influence of overinvestment in construction. The sharp decline in interest rates has pushed people to borrow to cover the lack of residential investment of the past decades. This phenomenon started in 1999, and in 2001 the stock markets crashed. People then wonder what they are putting their money into, and homes become an alternative to investing in the stock market. When a very important part of production resources goes to construction, it has to affect other sectors. It is not good that the construction grows so much; affects the dynamism of the economy.
Has the Government’s obsession with entering the EMU and fiscal balance been able to condition decisions?
The efforts for fiscal balance were mandatory. To enter the monetary union it was necessary to stabilize the economy monetary and fiscally, this stabilization led Spain to a strong expansion. The unification of monetary and fiscal policies in Europe creates difficulties. In order to maintain stability, the ECB has concluded that inflation rates should be below 2% per year. And that has led him to apply a monetary policy that was too contractionary for countries that were in times of low activity, and too expansionary for those that were in high growth. In the first years of the EMU, the policy is very expansive for the Netherlands, Portugal, Greece or Spain; but very contractive for Germany.
A common monetary policy never suits everyone at once; that’s impossible.
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