International Relations

Question

I want you to do research about the economic challenges in Spain and Greece, Compare and contrast. 
1- Back ground of each country. 
2- History of each country with the economy.1. 
3- Show me whether unemployment rates are the same or different in Greece and Spain. Or show me them declining in Spain and not in Greece.
4- Tell me why Spain is declining and not Greece’s. What policies is Spain doing that Greece is not?

Answer

Name of Student

Name of Professor

International Relations Paper

10 May 2024.

Economic Challenges in Spain and Greece

Introduction

The economy of Spain seems to be emerging at a promising rate from the longest and profound recessions the country has ever suffered. A report by the International Monetary Fund (IMF) shows the country’s economy will be growing at a record 3.1% towards the end of this year, leading to job creation and improved living standards for the citizens who have suffered extreme levels of unemployment and decline for the past seven years. However, many citizens who are yet to see any improvements in their living standards worry if there will be enough repair to the damage even if a sustained recovery is achieved (Leser 25). On the contrary, the economy of Greece does not seem to be improving much since it continues to suffer from what may be regarded as structural problems. Presently, the country faces soaring unemployment indices and huge debt levels, problems that have been attributed to its lack of an effective growth strategy. Although Spain and Greece were facing the same problem of economic recession seven years ago, the former is seen to be doing more in terms of recovery than the latter (Demekas and Kontolemis 1). This paper will assess the economic challenges of Greece and Spain by comparing and contrasting the situations both economies particularly in regard to the problem of unemployment. It will further assess the strategies employed by both countries in improving their economic circumstances by first and foremost providing a historical background for each of them.

ORDER INTERNATIONAL RELATIONS PAPER NOW

Background of the Economies of Spain and Greece

Spain is located on the Iberian Peninsula to the south of Europe, and it covers approximately 504,783 sq. km. The population of this nation is estimated at 39,996,670 people, and a growth rate of 0.11% per year. It has three major cities: Madrid, Barcelona, and Valencia with a population of four million, two million, and 754,000 people respectively. Since the 19th century, the illiteracy levels in Spain have gone down considerably, with the highest rates found in rural areas especially among women. The system of government is a parliamentary monarchy ruled by the king and the president, with a bicameral legislative system.

On the other hand, Greece is a nation a very affluent history and it is home rich cultural heritage that has been widely recognized throughout the process of human civilization. It is situated in the southern part of Europe near the Asian continent. The Modern Greek state was formed after a rebellion and military action after gaining independence from the Ottoman. Its history has been marked by a chain of conflicts and wars. The international community has been focusing more on the political aspect of development in Greece and as a result, the economic aspect was overlooked for long. Though a poor nation, it always found ways to protect and improve the lives of the war-stricken population (Andreu 211). Nevertheless, its modern history is characterized by contradictory factors such as speedy development, economic crises, economic advancement and a governance system that is founded on an exotic legal regime.

Economic History of Spain and Greece

The economic history of Spain dates back to the ancient era of the Iberians and the Celts. Presently the country’s economy is the fifth-largest in the EU and the fourth largest within the Eurozone. Globally, it is the 13th and 16th largest economy based on GDP, and purchasing power respectively. Until after 2007, Spain’s economy was considered the most active within the EU, drawing considerable amounts of foreign investment. The country started to recover from the recession but was faced with high rates of unemployment worsened by the massive return of Spanish migrant workers from nations hit by the recession. Between 1998 and 2007, the economy had been improving, but the unemployment rate still remained high particularly at the time the country joined the Eurozone in 1999. In 2008, the global financial crisis affected the Spanish property sector causing its near collapse, while the unemployment rate soared. The government then experienced serious financial challenges and was affected by the sovereign debt crisis. Consequently, the unemployment rate rose to a record high of 25%. Financial institutions in the country including big banks went into serious problems and had to be bailed out. After stern measures characterized by asceticism and big changes to the economic structure, Spain came out of the recession in 2013. Its economic growth presently stands at 2.5% and is projected to improve (Mujal-Leon, Gunther and Perez-Diaz 497). More jobs are being created, but the unemployment rate still remains high at 21 percent.

On the other hand, the economy of Greece can be traced through millenniums from the ancient Greek world to the present-day EU-member state. Since gaining independence, the country’s achievements have been hindered by several wars, which resulted in reduced attention to the economy. However, the country has managed to achieve tremendous growth over the years. In 2008, Greece entered the longest and deepest recession ever, and by mid-2010 the nation needed help to come out of the crisis. In the process, the government found itself in the largest sovereign debt default. In 2014, it sold five-year government bonds at the global market to raise capital. Subsequently, it started to realize a GDP growth of 0.7 percent for the first time in five years. Presently, Greece has the highest percentage of unemployed people in Europe (Krajewska). The economic challenges it faces can be attributed to the adoption of inappropriate economic rules and processes which have adversely affected economic growth.

Unemployment Rates in Spain and Greece

Greece and Spain are more or less at the same juncture when it comes to the problem of unemployment. The two countries have been hit by the same economic crisis, although the crisis in Greece has been deeper than in Spain. The two countries are the top two on the list of the European countries with the highest rate of unemployment, with Spain coming second after Greece. Presently, the latter tops the list with a soaring rate of 25%, followed by Spain with 21%. Following the economic crisis, the GDP of Greece has declined by about 25% while that of Spain has shrunk by only 7%. Also, different from Spain, Greece was forced to give in to foreign bailout by the ‘troika’ (the ECB, the EC, and the IMF). Nonetheless, some financial institutions in Spain had to be rescued, although the country came out of this program some few years back unlike Greece which is still indebted to the ‘troika’.

Although the unemployment rate in both countries is equally high (as shown in the fig. 1 below), Spain lost 3.8 million jobs between 2007 and the end of 2014 while Greece lost 1.1 million jobs during the same period. However, according to statistics from Eurostat, the economy of Greece is much smaller than that of Spain, with the two countries’ economies making 2% and 10% contributions to the Eurozone GDP respectively. During the same period, Greece created 107,000 job opportunities while Spain created 553,400 job opportunities, representing 9.2% and 14.5% respectively of the jobs shed (Apergis 93).

Fig. 1: Comparison between unemployment rates in Spain and Greece between 2006 and 2014.

Evidently, Greece has a weaker labor market, but it has a relatively greater general-government gross debt than Spain. The former has an unsustainable gross debt of 175% of the country’s GDP while that of the latter stands at approximately 100% of its GDP. This situation explains the recent lobby by Syriza, a left-wing political party in Greece, for debt forgiveness, which has left many Europe’s leaders worried. For comparison, it is worthwhile to note that the Greek economic crisis started with a debt burden of over 100% while that of Spain stood at below 40%. The two countries are now running current-account excesses in GDP terms, at an estimate of 1.5 and 0.2 percent in Greece and Spain respectively.

Meanwhile, Eurozone’s GDP has remained below its 2007 level as a result of the global financial meltdown and subsequent self-governing debt crisis in neighboring countries. The rate of unemployment clearly shows that some Eurozone member states have done much worse than others. For example, unemployment rates in Greece and Spain are higher than the Eurozone average. The situation was different in 2007, whereby the unemployment rates for both countries were lower than the Eurozone average. The decrease in the employment rate in Greece is proportionate to the decreasing GDP both in the country and within the Eurozone (Leser 27). On the other hand, the decline in Spain’s unemployment rate, which is higher than that of its national output, is large as a result of its remarkable labor market flexibility.

An assessment of the total employment in the two countries (as shown in Fig. 2 below) reveals a comparative view of the percentage decrease in employment for the two countries between 2007 and 2012. Job losses started being experienced earlier in Spain with the crumple of the country’s housing bubble, while Greece, like the rest of the Eurozone area, managed to maintain preexisting employment levels. However, extremely deep employment declines occurred following the sovereign debt crisis that hit the country as of 2010. In subsequent years, the employment rates in both nations went down by as much as 15%.

Fig. 2: Total employment in Spain and Greece between 2007 and 2012.

Demographically, the elements of the soaring unemployment rate are comparable in Spain and Greece. The figures below show the employment-to-population proportions across age groups and gender changed in 2007, 2009, and 2011. Although the two countries have different figures of employment and unemployment rates, the trend in the decline of employment across different ages is somehow comparable. The similarity in trends also highlights the effect of the sovereign debt crisis. The familiarity of the employment level in Spain as compared to that of the Eurozone are generally portrayed positive economic consequences of adopting a high degree of flexibility in managing the labor force (Muffles 84). On the other hand, there is optimism that the advantages of the typically flexible labor market will soon begin to be felt as firms will rush to employ as soon as the economy starts to recover (Krajewska). In essence, this kind of labor market flexibility may have contributed a lot to a reduction in Spain’s unemployment rate prior to the recession.

Fig. 3: Employment-to-population ratio by gender and age in Greece

Fig. 4: Employment-to-population ratio by gender and age in Spain

From the above figures, it is evident that male workers and those of younger age were the most affected by the unemployment rates as they are the ones that suffered the most from the loss of employment in both countries. Older workers were not affected as much, with males maintaining pre-recession levels and older workers realizing some gains. The reason why the latter performed well across the two countries maybe because of delayed retirement decisions due to the unfolding reality of economic insecurity. However, the outward look that the job losses were analogous in nature in both nations disappears when compared with the dimensions of output decrease (Christopoulos). For instance, the average output of the Eurozone area reduced by one percent in 2007. With a decrease of 4 %, Spain has fared poorly compared to the rest of the region, although this reduction is significantly smaller that of Greece, which faced a 19% output decrease. 

Accordingly, the high rate of unemployment in Greece is understandable owing to the seriousness of the nation’s recession and subsequent debt crisis. However, a major question is on how to explain the high rate in Spain, considering that it was not as deeply hit by the recession as Greece. Many factors can explain this, such as the components or the structure of the country’s labor market which exposed the economy to severe job losses during the recession. Unlike in many other countries in the region, a high percentage of employees in Spain were in temporary employment primarily in construction. The heavy reliance on the industry exposed employment more to recession given that the construction industry typically bears most of the brunt of a recession. Another aspect is the high number of workers linked to temporary work in Spain. Statistics show that when the recession struck, 32% of employees were working under temporary contracts in Spain as compared to only 10% in Greece (Livanos 405).

In the meantime, many countries within the Eurozone, including Spain, have shown signs of economic recovery. However, the unemployment rate in Greece has remained next to its uppermost levels since the beginning of the economic crisis. It is also projected that the rate may remain the same for some time. The quality of the working conditions is also at its lowest levels. A typical Greek employee is faced with high job demands with limited resources to deliver on expectations. This situation not only affects productivity and output but it also affects the attitude and overall wellbeing of the workers.

Apart from the recessionary factors, the high unemployment rates are to some extent as a result of structural factors. The economic and political structure of Greece has contributed immensely to the maintenance of the high rates of unemployment in the country. For instance, the government sets and formulates legislations and institutions but it does not implement or is reluctant to support their implementation. Owing to the structural nature of the problem, effective economic policies are required to address it (Livanos 407). This explains why the unemployment rates in Spain are declining while Greece’s tend to remain high despite the fact that the economic challenges that the two countries face are largely similar.

Moreover, the decline in the unemployment rates in Spain is also attributed to economic recovery arising from the proper strategies and efforts made by the country’s government. The country is among the few EU member states that have demonstrated strong reform orientation. It has shown significant growth during the past six quarters, with a job growth rate turning out to be higher than anticipated and tax revenues increasing considerably. The sharp increase in the job growth can be explained by the country’s flexible policy environment which has been replicated through labor market flexibility. Spain has outdone many players in the region economically and it is expected to continue doing so in the coming years. One of its main advantages is that unlike Greece, it has never lost the ability to finance itself, and this gives it unfettered access to the capital marketplace (Song and Wu 186). Similarly, Spain’s labor market remains highly functional due to the reforms made in 2012 that have cut severance pay for unfair sacking while giving companies more freedom in setting wages and conditions by themselves as opposed to industry-wide bargaining.

Employment Policies in Spain and Greece

The Case of Spain

In recent times, the labor market environment in Spain has been affected by myriad factors. They primarily include external factors such as European integration and globalization on the one hand and internal ones such as territorial restructuring, cultural changes, political democratization, and social demands on the other (Banyuls et al. 247). The reasons why Spain has lower unemployment rates than Greece may be explained based on three reasons: strong regulation of the labor market, labor market flexibility, and promotion of self-employment in an environment of rapid growth in entrepreneurship development.

According to the OECD, Spain has one of the highest levels of labor market regulation in Europe (Aguirregabiria and Alonso-Borrego 934). This regulation is mainly in terms of strict rules governing job security, hefty severance payments, restrictions on fixed-term contracts and the imposition of new terms of employment, and constraints on training contracts. Although some elements of labor-market rigidity were removed during the reform that was undertaken in 1984, most of the above-mentioned restrictions were left intact. In the wake of the recent global economic recession, the Spanish government embarked on an aggressive policy change initiative aimed at make the labor market more responsive to the prevailing economic circumstances. For example, it makes no sense for the existing policies to favor permanent employment when the majority of Spanish workers are on temporary contracts. It is not only unfair to employers but also fails to reflect ground-level employment realities. 

The newly introduced labor market changes that were introduced during the last four years have had far-reaching benefits for employment, one of them being that it has become less expensive for employers to hire and fire workers. The resulting labor market flexibility has created an environment in which it is fairly easy for workers to get a job. Due to the subsequent flexibility in Spain, the proportion of temporary work has remained constant at about 30 percent (Aguirregabiria and Alonso-Borrego 954). This outcome may be considered undesirable since preference would be on a situation in which the number of temporary workers decrease over time while that of their permanent counterparts continues to increase. However, the situation is better compared to that of Greece where many workers have been unable to secure even temporary work. Unsurprisingly, though, this 30 percent of the labor is the one that bears the brunt of employee turnover.

Fortunately, the Spanish government is putting in place measures designed to reduce the gap between permanent and temporary employment. One of them is the move to remove dismissal costs for the country’s permanent workers. Since temporary contracts remain unregulated, the duality of the labor market remains in place. Meanwhile, recent proposals on the use of single contracts are unlikely to discourage human capital investment and job creation. Thus, they are highly likely to benefit temporary workers thereby contributing to the avoidance of an unemployment crisis similar to the one that is being experienced in Greece.

Labor market flexibility has been an integral component of the Spanish labor market. One way in which this phenomenon is manifested is through a high level of movement between temporary work and unemployment and vice versa. Although a low number of Spanish temporary workers are transitioning into permanent jobs, the likelihood of remaining in unemployment for a period of over one year tends to be lower. This situation is in sharp contrast with that of Greece whereby temporary have a low chance of getting into permanent work and a high chance of sliding into unemployment. In most cases, the latter situation is associated with poor economic performance.

In order to examine labor market flexibility in Spain in an effective manner, the focus should be on involuntary temporary workers. These are workers who have been flung into temporary contracts due to the inability to secure a permanent job. At the same time, recent government efforts to deregulate the labor market should also be put into consideration. In this deregulation process, focus has primarily been on the adoption of fixed-term contracts across the sectors of the economy.

A point worth noting is that although a high number of workers are highly likely to land a temporary job, chances of stagnating at that level after securing permanent employment are high. This situation creates the impression of an economy that is neither performing poorly enough to slide into a recession nor well enough to guarantee employment security for its workforce. Under such circumstances, the likelihood of a worker becoming unemployed is higher than that of becoming permanently employed.

Moreover, labor flexibility in Spain has been greatly boosted by growing public support for temporary employment. The social systems that have been put in place make it easy for unemployed workers to secure temporary employment, particularly in the private sector. However, the phenomenon is not attributable to subsidies and policy support alone. Rather, it may also be attributed to labor market effects. For example, production constraints are a major hindrance of absorption of temporary workers into permanent employment. Presently, a major challenge for the Spanish government is to ensure that the existing disparities between permanent and temporary work conditions do not continue to widen. The policies that have been put in place should be monitored closely to ensure that they serve the dual objectives of preventing both the persistence of unemployment and rigidity in temporary employment.

Meanwhile, Spain has adopted highly effective policies to counter the unemployment problem occasioned by the global economic recession. A case in point is the promotion of self-employment as a way of creating jobs. Individuals have been encouraged to start their own businesses as a way of reorienting the labor market. This approach can be said to be successful if a growing number of hitherto unemployed individuals become self-employed or paid-employed workers in the private sector.

Spain’s move to create employment through the start-ups is in line with an emerging trend globally in which entrepreneurship is increasingly being promoted as an ideal way of reducing unemployment. The policy fits in well into an environment of economic recovery characterized by high unemployment rates because people can transition from unemployment to self-employment and afterward to paid-employment as economic prospects continue to improve.

It is imperative to address how Spain is working towards promoting employment considering that by the end of the year 2009, the global economic recession had destroyed more jobs there than in any other European country. This development should be viewed in light of the fact that Spain’s labor market is one of the most regulated in the OECD. Accordingly, it is worthwhile to note that employment protection legislation such as the one that has been adopted in the country can discourage entrepreneurs from hiring new workers.

The future of employment growth in Spain rests in entrepreneurship. Thus, the government should put in place numerous incentives and policies that encourage more citizens to engage in entrepreneurial activities. In this regard, focus should be on both the short-term objective of resolving the unemployment problem and the long-term goal of achieving innovation and economic growth. The stimulus programs being introduced in the country may need to be pursued with care because the highly regulated nature of the Spanish labor market may lead to an undesired outcome in which paid-employees may be unwilling to step out into the world of self-employment with the objective of creating employment through entrepreneurship. Too much employment protection leads to complacency among paid-employees who become reluctant to get away from the comfort zones created through highly protected jobs. For policymakers, focus should be on how to strike a balance between protecting employment and promoting self-employment through entrepreneurship development.

The Case of Greece

Following the recent global economic recession, the Greek economy has been severely affected particularly in regards to employment. One way in which the government has responded is by introducing austerity measures in an attempt to reduce the adverse effects of the crisis on income distribution. One way in which the government is responding to the problem is by introducing policies aimed at reducing unemployment levels. With the sharp post-recession rise in unemployment, many primary earners across the country have been affected, thereby increasing the risk of poverty.

The unemployment problem in Greece may be blamed on the adoption of ineffective policies mainly in the form of labor market deregulation. In many cases, weak implementation of labor policies has been a major challenge for successive Greek governments. In many cases, regulatory and legislative provisions affecting the labor market were introduced, but they were not implemented in an effective manner. In the meantime, labor-market deregulation has been pursued for a long time in the country based on the view that weakening labor market institutions and lowering compensation for workers would increase competitiveness.

Before the onset of the crisis, Greece operated through a social protection system with the labor market being a core pillar (Matsaganis 17). The level of social protection provided by the government was far lower than that of most European countries (Milios and Sotiropoulos 231). However, as the crisis neared, the country covered most of the distance in terms of social-protection disparities. Subsequently, the peaking of the crisis coincided with rising benefit claims and falling contribution income. As a result, the Public Employment Service relaxed some of the eligibility conditions it had imposed for unemployment benefits. In most cases, it increased their duration. Other measures that the state adopted during and soon after the crisis included extending unemployment insurance to cover self-employed workers, unemployment assistance within the non-contributory category was retained and its eligibility conditions were extended as well.

            Like in Spain, the Greek labor market is highly segmented. On the one hand, those who work in the public sector receive numerous benefits, including absolute employment protection, social benefits, and family wages. On the other hand, private-sector workers are lowly paid and in temporary work contracts. However, recent efforts towards partial privatization and deregulation have led to a reduction in the level of employment protection in the country’s public sector. In some sectors such as tourism and construction, temporary employment is the norm. For this reason, many employers get away with regulatory violations particularly in the realms of social protection and minimum wage.

ORDER INTERNATIONAL RELATIONS PAPER NOW

            Although some legislative provisions have been introduced to reduce employment protection like in the case of Spain, the country has not achieved the desired outcomes due to the high level of deregulation in the labor market. Moreover, increased reliance on government as the main source of both employment and social protection greatly contributed to the exacerbation of the unemployment problem (Matsaganis 32). To address this problem, the policies that have been introduced to regulate the labor market should be implemented in a more effective manner. Moreover, entrepreneurship growth should be promoted in order to foster job creation and by extension, economic growth. Rather than getting preoccupied with unemployment protection policies, the Greek government should introduce incentives for private sector innovation and investment as the best strategy for long-term employment growth.

Conclusion

Both Spain and Greece faced severe economic challenges following the onset of the global economic recession in 2008. However, the former has recovered from the crisis at a faster rate than the latter. One of the areas in which these differences are manifested is employment. Today, Spain’s unemployment level is lower than that of Greece despite the fact that both encountered similar challenges when the recession hit nearly a decade ago. These differences may be attributed to the high flexibility of the Spanish labor market in addition to the country’s higher level of effectiveness in enforcing employment policies in addition to promoting entrepreneurship development. While employment policies in Greece are characterized by a very high level of liberalization, Spain has one of the most highly regulated labor markets in Europe. 

A major reason why unemployment is lower in Spain than in Greece is because of the strong government regulation of the labor market currently in place coupled with a high level of labor flexibility. It has also been contributed to by the newly introduced labor market changes that have had far-reaching benefits for employment, one of them being that it has become less expensive for employers to hire and fire workers. Consequently, the country’s labor market flexibility has created an environment in which it is fairly easy for workers to get a job. On the other hand, unemployment remains high in Greece primarily because of extreme labor market deregulation together with weak implementation of policy, regulatory, and legislative provisions affecting workers. To address the problem of exceedingly high unemployment levels, the Greek government should aggressively pursue the goal of regulating its labor market. Moreover, it should promote entrepreneurship development to increase private-sector employment.

Works Cited

Aguirregabiria, Victor and Alonso-Borrego, Cesar. “Labor Contracts and Flexibility: Evidence from a Labor Market Reform in Spain.” Economic Inquiry, 52.2 (2014): 930–957. Print.

Andreu, Juan Hernández. “The Development of Modern Spain. An Economic History of the Nineteenth and Twentieth Centuries.” Journal of Economic History 61.1 (2001): 210-211. Print.

Apergis, Nicholas. “An Estimation of the Natural Rate of Unemployment in Greece”. Journal of Policy Modeling, 27.1 (2005): 91-99. Web.

Banyuls, Josep., Miguélez, Fausto., Recio, Albert., Cano, Ernest & Lorente, Raúl. The Transformation of the Employment System in Spain: Towards a Mediterranean Neoliberalism? Palgrave Macmillan: London, 2009. Print.

Christopoulos, DimitrisK. “The Relationship Between Output and Unemployment: Evidence From Greek Regions”. Papers in Regional Science, 83.3 (2004): Web.

Demekas, Dimitri G. and Kontolemis, Zenon. “Unemployment in Greece: A Survey of the Issues”. IMF Working Papers, 96.91 (1996): 1. Web.

Krajewska, Anna. “Fiscal Policy in the EU Countries Most Affected by the Crisis: Greece, Ireland, Portugal, and Spain”. Comparative Economic Research, 17.3 (2014): Web.

Leser, C. “Variations in Unemployment Rates.” Bulletin of the Oxford University Institute of Economics & Statistics, 13.1 (2009): 23-31. Web.

Livanos, Ilias. “The Incidence of Long-Term Unemployment: Evidence from Greece”. Applied Economics Letters, 14.6 (2007): 405-408. Web.

Matsaganis, Manos. “Social policy in hard times: The case of Greece.” Critical Social Policy, 4.12 (2012): 25-49. Print.

Matsaganis, Manos. The Greek Crisis: Social Impact and Policy Responses. Berlin: Friedrich Ebert Stiftung, 2013. Web.

Milios, John and Sotiropoulos, Dimitris. “Crisis of Greece or crisis of the euro? A view from the European ‘periphery’.” Journal of Balkan and Near Eastern Studies, 12.3 (2010): 223-240. Print.

Muffels, Ruud. (Ed.) Flexibility and employment security in Europe. Northampton: Edward Elgar, 2008. Print.

Mujal-Leon, Eusebio, Gunther, Richard and Perez-Diaz, Victor M. “Politics, Society, and Democracy: The Case of Spain.” The American Political Science Review, 88.2 (1994): 497. Web.

Song, Frank M., and Wu, Yangru. “Hysteresis in Unemployment: Evidence from OECD Countries.” The Quarterly Review of Economics and Finance, 38.2 (1998): 181-192. Web.

Get a 15 % discount on an order above $ 30
Use the following coupon code :
tpc15
Our Services:
  • Essay
  • Custom Essays
  • Homework Help
  • Research Papers
  • Argumentative Essay
  • Assignment
  • College Papers
  • Powerpoint Presentation
  • Dissertation
  • Thesis Paper
  • Dissertation
  • Editing Services
  • Review Writing
  • Lab Report
  • Book Report
  • Article Critique
  • Case Study
  • Coursework
  • Term Paper
  • Personal Statement
Order a customized paper today!