On Tuesday, the Prime Minster from Spain, Mariano Rajoy informed that the Spanish government will restrict programs that allow people to take early retirement as part of overhauls to rein in the country's debt and shore up its shrinking economy. He said the government wouldn't eliminate the option of early retirement but would limit the capacity of individuals to stop working at around 60, as many do now. link
He also stated that Spain would not be requesting a rescue package from the euro-zone bailout fund until Spain's borrowing costs remain "too high for too long."
But Spain's borrowing costs rose and its stock market fell sharply on the eve of Madrid's announcement of new austerity measures, putting the shaky economy again at the center of Europe's race to preserve its currency union. link
What should Rajoy do? Do you think Spain should continue to hold back on the request or would it be wise to ask for it now?
This goes back to the long run or short run fixes we were talking about in class. With big issues like this, the best solution might not take effect over night. If the president and his staff have done their research and came up with their strategy, they should stick with it. As unpopular as this may make him, his job is to make the tough choices and be the bad guy. It's all for the greater good. He needs to stick to his guns
ReplyDeleteAusterity measures will always be incredibly unpopular in the eyes of the people. Just look at the rioting in Athens which is in an incredibly similar economic position. It is difficult, for austerity measures to propel an economy forward in the short-run, but agreeing with Travis above^, these plans were made for a long-term overall fix. Of course the immediate stock reactions will be negative. When a country restricts its spending, the stock markets will immediately reflect this. I think that policies like this are the only direction Spain can go given the predicament they are in. The 'rescue plan' would be a short-run fix, but it's the overall economy the nation is concerned with.
ReplyDeleteNot only is Spain going in the right direction with the austerity measures, like reducing benefits for early retirement, perhaps the US should as well. Early retirement with benefits produces a double drag on the economy, aging populations factor in these increased benefits when choosing whether to remain productive members of the economy, while the working population funds their retirement. Essentially, by retiring early, the functional elderly go from adding to the economy to drawing from it. Regrettably however, there is no way to mitigate the political damage and unpopularity that comes from telling people that they should feel less entitled, and then taking away the entitlement. This is doubly politically unpopular because the (near-)elderly will take it as a slap in the face, as well as a hit to the wallet.
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