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Fernando Pérez de Gracia, Professor of Economics and Business Administration, University of Navarra, Spain School

Responses to the crisis

Mon, 02 Aug 2010 10:26:47 +0000 Published in Expansion (Madrid)

The first major financial crisis of the 21st century - firstly - and the current economic crisis - secondly - have changed our lives. Things will no longer be as they were before the summer of 2007. Gone, and already somewhat forgotten at report, is the golden age of Spain's Economics , with fees unemployment at 11%, healthy public finances reflected in a budget surplus and fees GDP growth among the highest in the euro zone. For some economists, it is the worst economic crisis since the Great Depression of the 1930s, and the responses to the crisis have been differentiated for both public authorities and ordinary citizens.

The crisis has led the government to modify the economic policy design . Since the beginning, the actions of the political authorities in relation to the financial and economic crisis have gone through three opposing stages, as easily as a chameleon adapts to a new habitat. The first stage was one of denial of a clear and certain financial and economic crisis of global impact. During this first stage, inactivity predominated in subject of economic policy in the face of the crisis. The second stage was characterized by an expansive fiscal policy, reflected in increases in government purchases - unlike the first stage, which was characterized by total inactivity. This policy was translated into excessively generous fiscal stimulus plans, led by the well-known Plan E and Plan Renove, among others. In the third stage, the political authorities have opted for a policy of fiscal retrenchment, as opposed to expansionary -I repeat, as opposed to the previous policy-. This stage has been followed by a reduction in government purchases - previously expansionary - and an increase in taxes.

However, the response of households and families as a whole to the crisis has not been as contradictory as that of the government. Economic agents, ultimately written request, wish to maintain a stable and lasting standard of living over time, and their reaction to any uncertainty status is usually the same: an increase in the savings rate, as a precaution. This fear of the unknown, of what is yet to come, and which may be more or less lasting over time, translates into a reduction in present consumption and an increase in savings - future consumption -.

Increasein savings

Since 2008, data shows a continued increase in the savings rate among Spanish citizens, in response to the economic crisis. Specifically, the factors that help to understand the increase in savings are as follows. First, the crisis has translated into an increase in the destruction of employment and in the unemployment rate, so that labor income as a whole has been reduced. Second, the crisis has eroded household financial wealth. Finally, as a result of the crisis, access to credit by financial institutions has been limited. On summary, the responses to the crisis have been differentiated, both for public authorities and for ordinary citizens. While the government has not maintained a stable and credible economic policy over time, ordinary citizens have done so, increasing their savings. The expected economic recovery requires an adequate, credible and stable economic policy - which will improve confidence, investment and the creation of employment - and citizens who are savers - who will finance the actions of the class policy -.