"A policy restricting expenditure would free us from being the focus of all markets"

03/07/2010

http://assets.fundacionfaes.org/prensa/CAMPUS2010/FDEZ_VILLAVERDE_W1.jpg! "In just two years time we"ve had a net fall of 13 points of GDP, quite shocking compared to other countries" "Four deficit points have been generated by explicit decisions, by royal decrees" Reforming the financial and labour system is urgent "otherwise we"re going to have the same problem as Italy and Portugal, countries that have not grown in ten years" He denounced the increase of 150.000 public employees "when private economy was destroying 10% of employment" "Between 1995 and 2007 the average spending on civil servants was of 10% and now we have reached 12% of GDP" He claims that the Spanish labour system must be reformed "it"s a Palaeolithic dinosaur that doesn"t work" Navacerrada (Madrid), 03.07.10.- Pennsylvania University Economics lecturer, Jes?s Fern?ndez-Villaverde, has pronounced today, Saturday July 3, the conference "Fiscal Policy and Financial Restrictions during the Spanish Crisis" on the second day of the Economics course of the 2010 FAES Campus. A policy restricting expenditure would have led us to a deficit of 7% in 2009 and now we would be free from being the focus of all markets" he remarked. Fern?ndez-Villaverde has stressed, in this sense, that "in 2007 the administration as a whole had a surplus of nearly 2%, and in 2009 we have closed with more or less a deficit of 11.2%. In just two years time we"ve had a net fall of 13 points of GDP, quite shocking compared to other countries". This deficit, which means 118 billion euros, is something "that has to be solved". Pennsylvania University speaker has claimed that the Government"s management has some responsibility for the economic situation. "Four deficit points have been generated by explicit decisions [of the Government], by royal decrees", he remarked. He then expressed doubts on the full effectiveness of the measures limiting the budget: "even after cutting the simple parts, there are still four or five deficit points left that are quite difficult to cut". In the chapter regarding fiscal policy, the speaker has also stressed that "increasing public expenditure in four points right now means either more taxes or less public spending in the future". ESSENTIAL REFORMS Speaker Fern?ndez-Villaverde has said implementing fiscal consolidation and the reform of the financial system is urgent, as well as making structural reforms and of the labour market, otherwise we"re going to have the same problem as Italy and Portugal, countries that have not grown in ten years" In the case of Spain, the economist thinks it is better to start a fiscal consolidation focused on reducing expenditure and not on increasing taxes, as "there"s evidence suggesting that works", like in Sweden"s case, a country which in 1993 cut nine GDP points of its debt this way. Furthermore, Fern?ndez-Villaverde has deeply analysed the situation of the Spanish labour market, of which he said it was a "Palaeolithic dinosaur" and explained that "it doesn"t work" if we take into account that, for instance, "in 2008 and 2009 they have continued raising wages above the CPI". In this context, Fern?ndez-Villaverde "denounced the increase of 150.000 public employees when private economy was destroying 10% of employment", an imbalance caused, above all, by the "absolute lack of control in public hiring" by autonomous communities and city councils, responsible for hiring 110.000 persons. In consequence, remuneration of civil servants has increased two GDP points. "Between 1995 and 2007 the average spending on civil servants was of 10% and now we have reached 12% of GDP" in spite of which he thinks "autonomies are going to continue doing what they have always done, which is spending everything, plus 10% more".