The causes of this major financial crisis; the policies that have been implemented; the state of the Spanish economy and possible solutions are some of the themes analysed during the round table entitled “The Financial Crisis and the Government’s Role in the Economy: A Change of Direction?" organised by the ESADE Alumni Public Management Club.
The Deputy Chairman of the Club, Óscar Cortés, was responsible for presenting the event, and Francesc Xavier Mena, Professor of Economics at ESADE - coming expressly from the Barcelona site - was moderator.
There were two speakers at the debate: Luis de Guindos and Ernesto Ekaizer. Luis de Guindos has had a distinguished career in both the public and the private sector. The positions he held during the Partido Popular’s terms of office included Secretary of State with Rodrigo Rato. In the private sector, he has been a partner in AB Asesores, Chairman of Lehman Brothers in Spain and Portugal, and is currently working at PricewaterhouseCoopers as Head of Financial Services. Ernesto Ekaizer is a widely experienced journalist who has worked for a variety of media such as El País, Actualidad Económica and Público, and often features on radio and television programmes.
The Crisis in History
Professor Mena’s speech was sprinkled with his typical humour, and focused on a historical look at the main economic crises of the past century, and the various methods employed to deal with them.
The current situation has produced “an absolute disaster which has led to a situation where we have to decide what it is that we need to reform and then do it, with no room for mistakes. The global financial system is badly affected, and there have been breath-taking losses – nothing exactly like this has happened in any previous crisis".
"The Spanish economy has gone into a deep recession which looks as if it is going to last, with the collapse of the housing market and the added problem of increased unemployment". Our public sector policy has been “Do what you have to do, even if it gets you into debt. We have gone from a surplus of 2 % to a deficit of 10-12 %. And the public debt, which stood at 38 % of the GDP, is now around 60 %, and looks like it could rise to 120 %. The banks are financing the public sector, not individuals and businesses, and it is the public sector which keeps increasing the Spanish economy’s debt top the rest of the world".
Two Ways of Seeing the Causes
Luis de Guindos began by pointing out that “Sometimes, in economics, things are not what they seem, and we can never be sure of the consequences of the policies we implement to get us out of the crisis¿. He stated categorically that this is “the worst crisis since the Great Depression - which it echoes to a great extent. The main thing that they have in common is that both began with banking".
But, he wondered, “What really started this crisis? The bankers? The leasing agencies? Poor regulation? It is fairly simple: interest rates have been too low for too long. When this is the case, certain things happen: financial leverage begins, and “bubbles" appear, along with one really basic thing: risks are underestimated".
In Ernesto Ekaizer’s opinion, “You need to think about one question: how does this crisis differ from previous recessions? This is no classic recession; it is a balance-sheet recession, with heavily in-debt families, businesses and banks needing to get out of debt and de-lever. And this is a long drawn-out process".
The Reality in Spain
As Luis de Guindos sees it, “Spain has three basic imbalances, which alone would have led to some slight economic adjustments being needed, but together with the financial crisis have led to a hugely complex change which may well become greater as time goes on.¿ These imbalances are the huge private sector debts; the expected readjustment of housing market prices, and Spain’s lower level of competitiveness compared to other countries. “All this, together with stringent credit restrictions, has caused the Spanish economy’s biggest recession".
The financial crisis in Spain can be clearly seen in three areas, says De Guindos: “There is a crisis in work because unemployment has risen far more than in other countries in the OECD; there is a crisis in budget because of major cutbacks, and there is a banking crisis, not so much in terms of debt, but in terms of the narrowing of the profit margin".
He went on to say that “The crisis caught us without one important tool of economic policy: devaluation, which Spain has always used to make necessary economic adjustments. What is more, bank adjustment is postponed. As for the budget, Spain needs public deficit, but without putting the sustainability of public finances at risk".
Ernesto Ekaizer believes that “Zapatero’s government had a plan - probably calculating that the crisis was going to be shorter than it is - which was to bring in an economic stimulus package and then deal with the deficit; this was impossible, since the size of the figures was outside any control. Government deficit is something we will have to learn to live with. Where I disagree with the government is that it introduced, in the context of a policy of stimuli, a policy of reducing the government deficit".
“The economic stimuli have not been very well directed", he continued. “Anyone who thinks that we will come out of this crisis with economic growth is wrong: at most, the situation will be stable. What is more, this crisis has revealed a number of hidden historical problems that the Spanish economy had compared to other great economies of the world".
The complexity of the subject and the various ways its analysis can be approached, along with all the possible short or medium-term solutions, meant that the crisis and the Government’s role were the focus of most of the conversations that the attendees and the speakers had, over a glass of Spanish wine, after the round table.
The ESADE Alumni Public Management Club is organising a session on the keys to the public sector’s role in dealing with the economic crisis
The economic crisis that is affecting us is characterised by a depth and size that have no precedent in recent decades. We have seen a series of analyses, proposals, measures, etc., regarding what should be done to overcome the crisis, in addition to speculation about what will become of our socioeconomic structure after this period has passed. The public sector is playing a significant role in this situation: governments are implementing various types of policies, some of which already seem to have run their course. Are we seeing a shift in the state’s role in the economy? What will the public sector’s new role be once we emerge from the crisis? How does the private sector view the role of the state during and after the crisis? Do we need a different administration to carry out these new responsibilities? Is international governance of markets possible?
To find answers to these and other questions, the ESADE Alumni Public Management Club will be hosting a debate featuring important figures from the public, private, intellectual and academic spheres who represent different ideological and professional perspectives.
Luis de Guindos, former Spanish Secretary of State for Economic Affairs
Ernesto Ekaizer, journalist
F. Xavier Mena, Professor in the Department of Economics at ESADE
Oscar Cortés, vicepresident of the ESADE Alumni Public Management Club
Luis de Guindos Jurado
Bachelor’s Degree in Economics and Business from CUNEF.
Extraordinary End-of-Studies Award from the Complutense University of Madrid.
Commercial advisor and economist to the state.
Extensive experience in both the public sector (from 1996 to 2004, he served as Director-General of Economic Policy and Defence of Competition, Secretary-General of Economic Policy, and Secretary of State for Economic Affairs) and the private sector (having served as Board Member of AB Asesores, Chairman of Lehman Brothers for Spain and Portugal, Chairman of Nomura Securities, and currently as Director of Financial Services at PricewaterhouseCoopers).
Lecturer at Instituto de Empresa.