May 22, 2011
That’s what readers of its front page piece on austerity in Spain must conclude. The piece asserts that Spain’s government has no choice but to make major cutbacks to the generosity of its welfare state.
This may be true given its situation as member of the euro zone. However, this is an outcome that is being imposed as a result of policy decisions by the European Central Bank (ECB). The ECB, which failed to notice the huge housing bubble in Spain and elsewhere, is deliberately imposing a relatively contractionary policy on the euro zone countries. This is leading to higher unemployment in Spain and other euro zone countries.
The higher unemployment and slower growth resulting from the ECB policy puts more fiscal stress on the Spanish government. The restrictive policies of the ECB are the proximate cause of Spain’s fiscal difficulties. The ECB’s role in contributing to Spain’s financial hardship should have been mentioned in the piece.
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