dissertation financial crisis. april 2014. glasgow caledonian university of london

MSc Dissertation with Research Methods

Carlos Curbera Mateo-Sagasta I

International Financial Crisis

Causes and possible solutions

Spain

Program:

MSc. Banking, Finance and Risk Management

Module:

MSc. Dissertation with research methods

Carlos Curbera 04/2014

S1308801 Word count:


Carlos Curbera Mateo-Sagasta II

Acknowledgements

I would like to take this opportunity to sincerely thank the following

people for their assistance during the course of my Masters degree.

Sovan Mitra and Franklin Ngwu for their excellent support and

comments during the course of this work; and Simon Smith for his

assistance over the year.

The small to medium sized family business companies, and financial

directors who took the time to complete my questionnaires.

I would also like to offer my gratitude to Alexandra Gandini for the

assistance and patience she has provided over the past months.

My utmost thanks to my parents, Leopoldo and Marta. Without their

support and encouragement, the completion of this degree would not

be possible and for that, I am extremely grateful.

Finally, I would like offer my special thanks to Elena for her long-

standing belief and continual motivation.


Carlos Curbera Mateo-Sagasta III

Abstract

The economic crisis has affected Spain differently compared to other countries

such as the United States or United Kingdom. A large proportion of Spain's economy is

driven by small businesses and for this reason the crisis has had a different level of

intensity, severity and overall impact. I believe that it is important to study the case of

Spain, and give solutions, because the main reason why Spain will not emerge from this

crisis, while other members of the European Union will do, is that by failing economic

liquidity today, companies cannot finance their business needs and are forced to close,

and if there are no companies, there are no jobs.

The gradual recovery of confidence defines the current economic model. This

economic model is based on confidence in the sustainability of the Euro project, and

confidence that the Spanish economy progressively recovers control over its

imbalances. The actions of the European Central Bank and political developments that

have been made on the Banking Union and the European budget have eradicated fears

about a partial or total crack of the Euro zone. This has been done by confirming the

decision of Member States, including Germany, to maintain the Euro zone in its current

form through appropriate reforms.

The Spanish economy is at a point in which it can observe a balance being

restored, its debts being reduced, unit labour costs of its economy improving,

exportation competitiveness being reinforced and its public deficit begins to show

symptoms that is finally under control.


Carlos Curbera Mateo-Sagasta IV

All efforts, sacrifices and reforms within the concept of “internal devaluation” are

finally beginning to show their fruits, even though many problems remain to be

resolved. Among these, in particular, are the high levels of unemployment and the

burgeoning public debt that threatens to exceed 100% of GPD for the first time in

history.

It is necessary to maintain trust as a country, through implementing resolute and

deep reforms that allow firms to improve their competitiveness. Reforms such as the

market labour reform or the reform of Public Administration, alongside clear and well

explained measures, are vital to restoring confidence in the international markets, thus

enabling companies to grow and generate employment.


Carlos Curbera Mateo-Sagasta V

Table of contents

Title Page

Acknowledgements........................................................................................II

Abstract........................................................................................................III

Table of contents..........................................................................................V

List of figures..........................................................................................VIII

Chapter One – Introduction........................................................................1

1.1. Brief Background of the Problem.........................................................1

1.2. Relevance of the Research.................................................................3

1.3. Aims and Objectives........................................................................5

Chapter two - Literature review.....................................................................7

2.1. Introduction.....................................................................................7

2.2. Brief overview of earlier literature......................................................8

2.3. Review of the recent literature............................................................9

2.4. Globalisation and state capacity .......................................................11

2.5. Limitations.................................................................................12

2.6. Conclusion.....................................................................................13

Chapter Three ...............................................................................................................14

3.1. Spain and the Subprime Mortgage Crisis of 2007-2008..............................14


Carlos Curbera Mateo-Sagasta VI

3.2. An Analysis of crises in Modern Spain.............................................17

3.3. Conclusion..................................................................................18

Chapter Four – Methodology......................................................................19

Chapter Five - Proposals to revitalise the national economy.............................22

5.1. Introduction..................................................................................22

5.2. Signs of a slow resurgence leading to assured economic recovery............24

5.2.1. More confidence in companies than in the global economy...........25

5.2.2 The necessity to recover confidence............................................26

5.3. Measures to revive economic activity.................................................27

5.3.1 Flow of credit to boost domestic demand.................................28

5.3.2. Public spending geared towards activities that generate growth........29

5.3.3. Cut taxes to boost private consumption.....................................31

5.4. The structural reforms must be continued..............................................32

5.4.1. The reform of the Public Administration is a pending issue..........32

5.4.2. The companies do not want hurdles in the internal market...............35

5.4.3. Important reforms are still pending.........................................36

5.4.4. A more efficient public administration would be an expression of

confidence for the markets..............................................................37

5.5. Export development and innovation to enhance the competitiveness.......39


Carlos Curbera Mateo-Sagasta VII

5.5.1. Active support to exportation..................................................39

5.5.2. Innovation in order to grow...................................................41

Chapter Six – The Family businesses............................................................43

6. Study of the effects of the European financial crisis in family businesses.......43

6.1. Effects and measures........................................................................43

6.2. Confidence and optimism in light of the severity of this crisis..................45

6.3. The importance of values for a stronger and united family.....................46

Chapter Seven - The internationalisation of the Spanish companies and the

decision to export as a solution for the Crisis.................................................48

7.1. The International scope of the business.............................................48

7.2. Five actions to promote the internationalization of the businesses..............48

7.3. What is export?............................................................................49

7.4. Why to export?...............................................................................52

7.5. Conclusion...................................................................................56

Chapter Eight – Conclusion.......................................................................58

References and bibliography.......................................................................62


Carlos Curbera Mateo-Sagasta VIII

List of Figures

Figure Page

Figure 1: Representativeness of the different sectors..........................................21

Figure 2: Greater pessimism in Spain………………………………………………26

Figure 3: Reduction of the public deficit to generate confidence……………………27

Figure 4: The reactivation of the demand is top priority…………………………….29

Figure 5: Different prioritisation of the public expenses, focusing on the expenses that

generate business activity…………………………………………………………….30

Figure 6: Cut taxes are emerging as the most efficient measure to revive the private

consumption in the short term……………………………………………………….32

Figure 7: The necessary harmonisation of the Spanish internal market………………33

Figure 8: The current State model must be reformed……………………………….34

Figure 9: Impact of the reforms in the growth………………………………………..34

Figure 10: A single Administrative authorization…………………………………..35

Figure 11: Avoid duplications and overlapping competencies between

administrations…………………………………………………………………………37

Figure 12: It is imperative to address the efficiency improvement of the Public

Administration……………………………………………………………………….38

Figure 13: The financial aspects appear to be key for the exports promotion………...40

Figure 14: The boost for innovation in Spain passes through encourage the mobility of

the talent and the efficient management………………………………………………..42


Carlos Curbera Mateo-Sagasta 1

Chapter One

1. Introduction

1.1. Brief Background of the Problem

The economic and financial crisis, which has affected developed countries in

recent years, has been significant, given its intensity, complexity and the difficulties

involved in overcoming it (Bank of Spain, 2012). During the recent financial crisis no

issue has generated more passion than financial institution bailouts (McKinley, V.P.

2012). Since the Lehman Brothers’ bankruptcy, the thought that any bank wouldn’t fail

in any case, being as bigger as the biggest, were no longer in mind, with the result that

every bank was deemed to be risky (Elliott, L. 2011).

In the days following the fall of Lehman Brothers, the fear of a domino effect

affecting the global financial system across the world rose sharply. This situation finally

forced western governments to inject vast sums of capital into their banks to prevent

them from collapsing. In this sense, the banks at risk were rescued, but it was too late to

prevent the global economy from going into a crisis.

In the case of Spain, the story illustrates the fact that the Euro zone's problems run

far deeper than the issue of excessive borrowing by ill-disciplined governments (BBC

News, 2012). Moreover, BBC illustrates that before 2008 Spain’s economy increased

sharply but its debt-to-GDP ratio was falling. Government borrowings were under

control with a balanced budget on average every year until the boom of the financial

crisis.



However, after joining the euro, Spain experienced a long boom, supported by a

housing bubble. The housing supply increased dramatically and, in the beginning, prices

decreased slightly resulting in a rise in employment within the homebuilding industry.

This caused many people to leave school and foreigners to come to Spain to work in

construction. Unemployment was at its historical minimum. This bubble was financed

by cheap loans to builders and homebuyers, and as a consequence, many people began

to buy houses. Nevertheless, this increase in the demand in house buying, caused house

prices to rise by 44% from 2004 to 2008, and those who did not stop buying houses

with loans they could not afford, found themselves with debts of hundreds of thousands

of Euros and, ironically, a home the size of a small hiding place, to hide from all their

accumulated debt.

Furthermore, since the bubble burst, prices have fallen by a third. Homebuilding

stopped instantly and hundreds of thousands of people who worked in construction

became unemployed. This contracted the economy, GDP went down dramatically and

those who had bought houses were now in debt, with no income, no job and no assets to

face their payments. These people are called ‘NINJAs’ (No Income No Job and Assets)

by Leopoldo Abadia, as he explains in several talks he made across the country.

Spain’s economy, which grew at a steady 3.7% on average from 1999 to 2007, has

dropped at an annual rate of 1% since then.

The main objective in this essay is to analyse the Spanish crisis. In particular, I

will assess those facts which have determined this crisis having a more significant and

long-lasting impact compared to previous ones and the issues which have arisen in

attempting to find a way out of the recession.



I will highlight the mistakes of the past which must not be repeated in order to

prevent falling at the hands of future crisis. In particular, I will discuss the actions to be

taken in order to overcome these mistakes as well as the actions that should be taken for

the future stages and furthermore, I will attempt to provide an insight into banking risk

management and the associated role of governments’ actions within the banking system.

The end result is to provide valuable knowledge with this research, for financial

institutions and governments globally.

1.2. Relevance of the Research

Members of the Spanish society, including students studying abroad, are seriously

concerned about the intensity of the current financial crisis in the Spanish economy in

the context of the recession that still plagues us.

This research reflects some of the ideas about the origins and effects of the crisis

in Spain, as well as specific proposals, and substantiated solutions, that will allow Spain

to emerge quickly and in a reinforced manner.

One of the first conclusions that can be drawn from this research is that the current

crisis will significantly modify the present growth model. However, the problem at this

point in time, is that no one, especially the government (and the opposition), knows

which sectors will excel in the following years. Thus, it is important for production

resources, capital, technology and employment, to be able to easily deploy as fast as

possible in the new propellers of growth, so that this growth can really be produced.

How can we achieve this? Not by maintaining artificially moribund sectors. The

historic evidence at this point is conclusive. Allowing companies with no future to



remain active is to sentence the economy to decades of backwardness in terms of

progress for both, developing and developed countries. Thus, the promoting entities

who cannot sell the flats that were created during the years of real state paroxysm

should be removed. This liquidation process should be carried out in an orderly manner,

but we must not give in to the temptation of subsidizing council flats to emerge from the

juncture, neither to improve the housing tax environment. If anything, it would have to

be those tax deductions which result from purchasing homes which are reduced. The

same lesson should be extended to other sectors, for example the automobile sector.

There needs to be greater investment in infrastructures, but only to the point which these

are required. Improvement of freight traffic on the road and in rail transport, and

investment in ports and “highways of the sea” is much more important, but perhaps less

appreciative for politicians than the launch a new high-speed railway, lavish airports or

highways in the middle of nowhere.

In order to emerge from the crisis, the country should relocate its workers to

emerging sectors. It is important that the labour market allows sufficient flexibility such

that these sectors would want to hire such workers. To take a couple of examples, there

is an urgent need to reform some of the collective agreements in place, to allow simple

opt-out clauses for those companies suffering form more severe problems. It is also

important to improve policies for training the unemployed. The results obtained from

this training should also undergo a strict evaluation process, in order to ensure that the

money invested in this training is producing the best possible results. Furthermore, it

would be beneficial if unemployed people were allowed to decide the outplacement

service, public or private, that better suits them. Fiscal policy may also help and play a

significant role. Our experts say that lowering taxes on labour has a bigger impact in

combating the recession and unemployment than any other fiscal policy measure.



1.3. Aims and Objectives

The family business is one of the most important solid pillars of the Spanish

society. That’s why I have undertaken this study in order to make known the effects of

the crisis in this type of businesses.

In addition, in order to answer my research question, I will analyse the survey

directed to several Spanish CEOs in order to create value through applied research.

Here, I have opted to give priority to the proposals of the managers, or the owners of the

companies, for the economic recovery. Taking into account the delicate situation of our

economy, I believe that this approach involve an additional input to the necessary

debate around the ideas so much demanded by the Spanish society.

The aim of this study is to show the difficulties that Spain had to face and the key

issues that made the international financial crisis deeper and longer in all the aspects

compared to in previous instances of occurrence in the Spanish economy. Furthermore,

we will explore those tasks which need to be carried out, which the government are still

ignoring, and the reasons behind why qualified people have to emigrate in order to find

a job, etc. This will be achieved through the following objectives:

To analyse the housing bubble financed by cheap loans and its burst in 2008.

To analyse the government at a regional level, its debt and actions.

To analyse the national government level, its size and responsibilities.

To explore the seizure in the banking system.

To evaluate the weak external competitiveness and the high private debt in

Spain.

To analyse the role of trading in the Spanish economy.



To explore the sky-rocketing unemployment rate in Spain in the past few years.

To analyse the emigration of qualified workers to other countries.

For the future, a good warrant is to try not to dictate to financial institutions to

whom they should lend and how much. Funding is becoming scarcer compared to

previous years as Spain has always been a country focussed around investment rather

than saving, and these investments would then be paid out by foreign funds. This capital

has now withdrawn considerably. In the context of high levels of bad debt, bankers must

therefore act with prudence in order to avoid greater problems. Companies need to be

tailored to this new background. This also means that some financial innovation should

be reinforced. Leading enterprises will require more capital, and this should not be

totally funded by banks, but also through specialised investment funds. These

specialised investment funds, and other innovative financial resources, require a

renewed regulatory framework.

Science and technology have improved compared to the recent past, but as a

country, Spain still hold back in rewarding good researchers. A country that can afford

the best football players worldwide should ease their bureaucratic structure to be able to

pay what the best researchers are worth. It can be expensive, but will certainly be

cheaper than a top-class footballer. It can also be properly measured against researchers’

productivity. Scientific publications and citations of their articles are the equivalent to

goals and matches won. And since we are comparing science to football, it is time to

recall that the increase in public expenditure in science has been higher than private

expenditure in recent years. Companies must realise that their survival in hard times is

achieved through innovation.



Chapter two

2. Literature review

2.1. Introduction

The main objective of this chapter is to ‘analyse the causes and effects of the

global financial crisis on the Spanish economy, understand the political and governance

factors which affected states’ ability to effectively respond to external shocks,

particularly the global financial crisis, and how policy can be made more responsive and

capacity strengthened’.

The main purpose of the literature review is to review the evidence of the effects

of the crisis to date and to synthesise existing definitions and propositions about state

capacity, which we will then apply through the case study. To address these issues the

literature is organised in three main parts:

Part 1 provides a brief overview of earlier literature and case studies on the effects

of previous financial crises, and to identify if and where the political and governance

implications have been addressed.

Part 2 focused on the review of the (mostly academic) literature on state capacity

to respond to external economic shocks, drawing on literature, on the Spanish financial

crisis as well as recent literature regarding structural adjustment, new institutional

economics and impacts of globalisation.



Part 3 reviews some of the recent literature on state capacity and globalisation,

placing the current crisis in its historical context.

2.2. Brief overview of earlier literature.

The recent subprime mortgage crisis and its repercussions have stimulated

renewed interest in the study of other financial crises. Demirguc-Kunt and Detragiache

(1998) and Laeven and Valencia (2008) identify crises by determining if one of several

conditions is met. These factors include the ratio of non-performing assets to total assets

in the banking system exceeding ten per cent, the cost of a government rescue operation

being at least two per cent of GDP, banking sector troubles resulting in a nationalization

of banks, or large bank runs.

Kaminsky and Reinhart (1999) show that generally a multitude of weak economic

fundamentals precede economic crises. Bordo (2003) examines boom-bust cycles in

both the United States and abroad, and concludes that recessions originated in stock

market crashes are deepened only if there were already elements of financial instability

(see also Bordo, Eichengreen, Klingebiel, and Martinez-Peria, 2001; Bordo and Jeanne,

2002), Garcia-Herrero and Del Rio (2003) use a sample of seventy-nine nations

between 1970 and 1999 and found that when the objective of central bank is price

stability, the likelihood of a banking crisis is reduced. Suarez and Ceron (2006) provide

international evidence on hot and cold housing markets. Cihak (2007) shows that the

more independent the central bank is, the more stable the financial institutions are.

Reinhart and Rogoff (2008, 2009a, 2009b) claim that parallels can be drawn

between crises in the United States and other countries. Boyd, Nicolo, and Loukoianova



(2009) question whether a “banking crisis” is actually a crisis in the banking system or

just a response to government interventionist policies. However, Klomp (2010)

concludes that there is no common factor that causes crisis.

2.3. Review of the recent literature

Economy is a science, not an exact science but a human and social science in the

meaning that there are truths and errors (Franch Meneu, J.J. 2012). The economic crisis

has been produced by central banks (Manso, R. 2012). What we are suffering is a crisis

of freedom and a political hyper interventionism crisis. This started in much intervened

markets such as housing and finance markets. The reaction having much intervention

and less freedom was reducing freedom even more and increasing interventionism

(Boceta, V. 2012).

In ‘Financing Failure’, Vern McKinley closely observes areas discussed in this

essay, by examining the policy decisions behind the southern Europe bailouts and

showing their connection to previous government interventions. Similarly, in the wake

of the worst recession in fifty years, David Beckworth (2012) writes about the critical

role the Federal Reserve played in creating a vast speculative housing bubble during the

2000s and plunging the world economy into a Great Recession.

Banks hold more troubled real estate assets than non-troubled ones. As we can see

from the Spanish Ministry of Economy and Competitiveness, of all €323 billion (£269

billion) in assets which are linked to loans from developers, around €175 billion (£146

billion) of these are considered "troubled" by the Spanish government.

http://www.businessinsider.com/charts-doomed-spanish-financial-sector-shortcomings-of-ltros-2012-3#banks-hold-more-troubled-real-estate-assets-than-non-troubled-ones-2



Spanish house prices continue to fall, exacerbating the consequences of the

housing bubble. Societe Generale analyst Michala Marcussen wrote that house prices

have already dropped 25 percent from their peak. The decline in Spanish land and

property prices is probably less than half complete (Buiter, W. 2012). It is expected

these will drop around 60 percent from their peak.

The struggling Spanish financial sector is highly exposed to Portugal (Bank of

International Settlements). Recent estimates show that the Spanish financial sector has

€78.81 billion ($103 billion) in exposure to the neighbouring country.

The Spanish government has passed the most severe austerity budget since it

transitioned to democracy 30 years ago.

J.P. Morgan has estimated that Spanish banks could need a full €75 billion of

recapitalization, and Goldman believes they could need €25 billion beyond the €19

billion already devoted to Bankia.

And analysts are also beginning to believe that Spain won't get by without outside

help. J.P. Morgan's David Mackle wrote recently: “Crisis management is all about

burden sharing: who bears the cost of prior mistakes. Spain looks to have gotten to the

point where it cannot bear the burden alone. The Spanish government recognises the

need for burden sharing, but it does not want the kind of burden sharing that was made

available to Greece, Ireland and Portugal. The Spanish government wants the ECB to

directly purchase its sovereign debt and for the EFSF/ESM to directly recapitalise its

banks.”

The international sphere of business in the financial sector operations worsen an

international financial crisis (Ely, R.T. 2000) given the international dimension in which

http://www.businessinsider.com/socgen-spanish-home-prices-to-fall-15-percent-2012-4

http://www.businessinsider.com/charts-doomed-spanish-financial-sector-shortcomings-of-ltros-2012-3

http://www.businessinsider.com/charts-doomed-spanish-financial-sector-shortcomings-of-ltros-2012-3

http://www.businessinsider.com/jp-morgan-a-spanish-bailout-would-be-350-billion-2012-5

http://www.businessinsider.com/jp-morgan-a-spanish-bailout-would-be-350-billion-2012-5

http://www.businessinsider.com/goldman-sachs-heres-the-worst-case-scenario-for-spanish-banks-after-bankia-2012-5



it operates in ways that would not occur in a closed economy. However, it is important

to bear in mind the major role that fundamental domestic flaws can play in bringing on a

crisis. For example, to exclude situations where the poor performance of domestic

economies could lead to debt servicing problems; or to exclude currency crises in

countries forced to adjust exchange rates. However, as we shall see, devaluations can

frequently presage international financial crisis.

The Bank of Spain published a document about the Spanish economic crisis, its

key factors and growth challenges, written by Eloisa Ortega and Juan Peñalosa. The

crisis is described by explaining what has been experienced in the past few years by the

Spanish economy. The authors then review the steps which have made this a deep and

long recession, as well as the obstacles which prevent overcoming it. The document

focuses on macroeconomic developments and economic adjustment, and concludes by

seeking to draw lessons from the crisis, in particular with regards to the external sector,

the real estate market, fiscal policy and the labour market.

2.4. Globalisation and state capacity

Whether globalisation strengthens or hinders national states’ capacity to respond

to economic and other types of external shocks is an open debate in academic circles, or

so it appears from an analysis of the literature.

There are a number of reasons cited to support the hypotheses that globalisation

has severely undermined states’ capacity. These include:



The internationalisation of production networks (embodied by the rise of

multinational corporations as powerful actors) and potential footloose nature of

corporations

Rise of international finance and increased international capital flows

Constraints on policy space arising from international policy

norms/requirements

In contrast to these arguments, the majority of the authors in the literature

surveyed maintained the perspective that states still have the potential to continue to

play an important role in protecting the well-being of their citizens and retain significant

capacity for policy autonomy:

Challenging the collapse of the welfare state: the insulating effect of state

spending in highly ‘open’ economies

Uniformity of state policies being overstated and national institutions continuing

to be significant

Capacity of the state to adapt the ‘toolbox’ and develop new forms of capacity to

meet the need of globalisation.

Differentiated state capacity to resist imposition of formal and informal policy

constraints, but also to take advantage of opportunities offered by globalisation.

2.5. Limitations

This study does not have many limitations. Given its impact and repercussions in

the global economy, it is the topic that has been on everyone’s lips these years. The

limitations that I have faced are mainly: time, due to this being a Master’s dissertation;

the number of meetings I have been able to arrange with those experienced in the



subject; and the lack of accuracy of the information, given the many different opinions

that have been formulated on the subject. The main issue will be classifying this

information and selecting that which better explains the subject, an important yet

equally time-consuming task.

2.6. Conclusions

My intention with this research is to show how a country which went into

recession with all the difficulties that had to overcome, such as political, social,

economic and/or financial issues, can turn over a new leaf, create new ways of business

and pull itself out of the crisis. Explain the logical facts which Spain has to face, and

why these are still being ignored. I will also explain the reasons behind why

experienced and graduate students have had to move abroad to be successful in their

jobs.

This research will most definitely help to understand the mistakes made in the

past and could help prevent these from being made in the future. The idea is to give a

course of action and variety of ideas to manage the risk of falling into the depths of a

new financial crisis in the future. This research can result in valuable information and

knowledge for all financial institutions and governments globally.

Furthermore, it should provide an insight into banking risk management and the

associated role of governments’ actions within the banking sector.



Chapter Three

3.1. Spain and the Subprime Mortgage Crisis of 2007-2008.

Spain had a major role in the subprime mortgage crisis of 2007, largely due to the

issuing of 40-year loan products. Unemployment more than doubled from almost 8.6%

in the fourth quarter of 2007 (Bank of Spain, 2007) to 19.3% by September 2009

(United Nations Department of Economic and Social Affairs, 2010).

Relative to other twenty-seven European countries, Spain experienced a sharp

decline in construction from 2007 to 2009. Similar to other countries that bought and

sold subprime mortgages, the effects of the recession still prevailed long after

economists declared the recession over in late 2009. Like most of the Western world,

Spain used politically controversial stimulus measures undertaken by the Bank of Spain.

The aim was to increase lending and avoid an economic contraction expected to ensue

when the market eventually fell. The Central Intelligence Agency (CIA, 2011) and the

Brookings Institution (Prasad and Sorkin, 2009), estimate that the cost of the stimulus

program in 2009 for Spain was about 5.7% of its GDP.

Moody’s, the ratings agency, had announced at the time that it would consider

reducing its rating on over €16.9Billion Spanish mortgage-backed securities, to adjust

for the rising default rates and declining home values. Furthermore, Moody’s estimated

that the average Spanish homeowner had a debt-to-income ratio above the 40%

benchmark recorded in 2005, which it deemed problematic (Hugh, 2008).



To further illustrate the crisis of the Spanish market, in the first half of 2008, retail

sales were down by 7.9 per cent. The country launched an unsuccessful attempt to

stimulate the economy by requiring one million electric cars by the end of 2014 (Hugh,

2008), and by 2010 the deficit run up to just short of 10% of GDP (CIA World

Factbook, 2011). Spain also imports all of its fossil fuel, making it more susceptible to

inflationary risks. Thus, the 5 per cent inflation that occurred in early 2008, followed by

the burst of the property bubble in late 2008, and the decrease of stock prices in early

2009, shifted concerns to the risk of deflation instead (Reuters, 2009).

A related theory for the mechanism behind the current Spanish crisis holds that

the entrance of Spain to the European Monetary Union led to low interest rates which

caused increased demand for construction and higher inflation. This combination

dampened self-corrective influences, leading to over-investment in construction and the

housing bubble which was doomed to burst (EEAG, 2011).

Some claim that the recent turmoil can be traced to 1970 and resulted from a

combination of Spanish banks taking full advantage of loose monetary policy.

Additionally, Spanish economic growth was highly reliant upon the housing boom from

the late 1990s through 2007. The European Central Bank (ECB) published an

examination of the average government debt-to-GDP ratio and the per-capita GDP

growth rate for several countries dating to 1970, including Spain (Checherita, 2010).

This examination reveals the means through which government debt, both in

absolute levels and in rate of change, impacts economic growth including private

saving, public investment, total factor productivity, and sovereign long-term interest

rates, both nominal and real. Checherita (2010) suggests that when debt rises above 90-



100 per cent of GDP, it harms growth. The debt Spain incurred through loans from the

ECB dating to 1970 clearly had an adverse effect on its economic growth.

The Spanish economy was particularly reliant upon construction. From 2003 to

2006, annual percentage changes for construction and housing far exceeded all other

sectorial demand for credit. During the same period, home purchases comprised the

largest annual percentage change for credit to individuals (Bank of Spain, 2008).

Once the ECB reversed its policy, recession set in, similarly to other member

countries of the Organisation for Economic Co-operation and Development (OECD).

The proponents of this viewpoint maintain that reliance upon fiscal stimuli has resulted

in large public deficits and expanding debt. Rather than improve the economic condition

of Spain, that reliance has worsened it.

Spain has been struck during the crisis by extremely high levels oof

unemployment, which have soared from around the European Union (EU) average to

over twenty per cent in 2010 (OECD Labour statistics, 2010). Some claim that this

phenomenon is tied to its labor market structure and overdependence on the

construction sector.

The importance and concomitant fall of the Spanish construction sector led to

notable unemployment levels, especially among its young population, estimated to be as

high as forty per cent. The Spanish economy finds itself restructuring away from

construction, so that the job loss in this sector is often permanent (EEAG, 2011).

Short term contracts, which are beneficial in times of prosperity, are reversible in

times of crisis, leading to rapidly increasing unemployment. The temporary employment

rate in Spain has exceeded thirty per cent. This can be contrasted with France where



temporary employment has been around half that of Spain, hovering around fifteen per

cent over the same period, since around 1992 (Bentolila et al., 2008).

Prior to the crisis, France had a comparable total unemployment rate to that of

Spain, but its unemployment stayed below ten per cent during the financial crisis, about

in line with the EU average, whereas the unemployment rate in Spain shot to about

20%, double the one in France (Eurostat, 2011).

3.2. An Analysis of crises in Modern Spain

The current financial crisis in Spain, along with crises of recent decades, is an

interesting fusion of trends. As with other economies, one could point to lax

government regulations, attesting that the lack of oversight contributed to risky methods

of investment, which led to the crisis.

However, government attempts to remedy the downturn of the housing market

through aggressive policy were not effective. The Spanish budget deficit is at the time

of this writing, a source of international concern.

Moderate government spending in areas which foster investment buffers the

economy and contributes to economic growth. The impact of excessive spending by the

Spanish government has implications for other countries, like the United States, that

have turned to government stimulus and lower interest rates as the means for ending

recessions.

The Spanish government were focusing on alleviating the impact of the crisis by

cutting taxes and extending unemployment benefits. However, the expanding budget

deficit, has led to higher taxes, lower government services and reduced social benefits.



3.3. Conclusion

Many factors contribute to financial crises, and to “boom bust” cycles that are

typical of a capitalist economy. However, some measures can and should be taken to

lessen the intensity of financial crises. Specifically, Spain needs to decrease its

exorbitant budget deficit.

This deficit has contributed to inflation and to excessive government control of

the economy, stifling private investment and economic growth.

Prudent government involvement with limited regulations may prevent risky

ventures and investment. This is probably easier claimed than actually acted upon, due

to the extremely high unemployment rate that drives out Spain’s most talented and

skilled labour force.



Chapter Four

4. Methodology

This research will investigate the beginning of the global bank financial crisis, its

reasons for occurring and potential solutions. Moreover, I will study the case of Spain

and evaluate the situation before 2008, from 2008 to the present day and a forecast from

this point forward, critically analysing the results of actions put into practise.

In order to complete this dissertation, the materials which I will use are based on

actual information and official documentation from relevant institutions. These are

complemented by two questionnaires, one of which was directed to economists and

CEOs from several financial institutions, and experts in the subject area. The other was

directed to family companies’ owners to understand how they were, and continue to be,

affected by the recession. This will be followed by a number of interviews that I carried

out in order to explore further the key issues identified from data collected from these

questionnaires.

Later in this essay, I will discuss this in further depth, using knowledge gained

from assisting in university talks and forums, and also from the interviews I have been

able to carry out with experts in the field. I will also use data which is available in the

public domain, as opposed to data collected by researchers.

Sources used from the public domain include government and industry

publications, journal articles, books, talks and the internet. This data is usually wrong or

incomplete and often fails to answer a research question (Blumberg et al, 2005).



Therefore, primary data will be collected to answer specific research objectives (Riley

et al, 2000). Both quantitative and qualitative research will be utilised in this study

Quantitative research will be based on questionnaires and these will be

complemented by interviews to answer specific research objectives. Qualitative research

will be carried out using multiple sources of data with the characteristic of an emerging

design, whereby early data collection influences subsequent data collection. Qualitative

research requires a much smaller sample size than quantitative research.

The questionnaire responses will also be used to gain an overall idea of how this

financial crisis is affecting the banking sector, and to pinpoint the actions that these

institutions are putting in practise. According to Saunders et al (2009) a 30% response

rate is reasonable for delivery and collection questionnaires.

I applied this methodology for the purpose of continuing to ensure the

representativeness of the Spanish entrepreneurial sector. In these surveys, the figure of

the high director corresponds to positions such as CEO or Managing Director, and in

some cases the vice president or president, according to the organizational structure of

different companies.

The graphs that appear throughout the report do not include the responses of

Unknown/No reply (except in the cases where this has already been indicated),

therefore, the percentages do not necessarily add up to 100%.

The firms involved are a sample of the most representative sectors of the Spanish

economy, and many of them are benchmarks for their industry. Most of these are

Spanish companies based in our national territory and, to a lesser extent, multinational

companies headquartered in Spain.



On the basis of turnover volume, approximately a 70% of the surveyed companies

earn more than €700M per annum, while the other 30% are below this amount.

The interviews to the high directors were via online surveys. In conjunction with

these, seven in depth interviews were carried out to capture, with greater detail, the

perception of representative top management in the most sensitive economic sectors.

Figure 1: Representativeness of the different sectors:

Financial services (Banking,

Insurance, Private Equity); 21%

High consumption and retail; 11%

Manufacture of industrial

products; 11%

Pharmaceutical Industry; 4% Automotive; 3%

Energy; 7%

Technology, Information,

Communications and

Entertainment; 16%

Services (Construction and Transport); 27%



Chapter Five

5. Proposals to revitalise the national economy

5.1. Introduction.

In this chapter I will analyse the survey directed at several Spanish CEOs in order

to create value through applied research. Here, I have opted to prioritise those proposals

for economic recovery given by either the owners or managers of businesses.

Due to the delicate situation that the Spanish economy is currently in, I believe

this approach will provide additional support to the ideas currently being debated on the

economy, a debate whose conclusion is much demanded by Spanish society.

In order to create value, I have used data collected from 43 top managers

including Chairmen, Deputy Chairmen, CEOs and Managing Directors. These

constitute a highly representative sample of Spanish entrepreneurship and are a valuable

source of information to gain an understanding of the Spanish economy nowadays. The

companies surveyed are mostly Spanish, although the subsidiaries of several foreign

multinational companies have also been consulted. Their activities cover the key

production sectors of the national economy.

I would like to extend my gratitude to these companies for giving a helping hand

in this dissertation.



These top managers consider it important for the reform process to continue. In

particular, they believe it is necessary to address those changes which need to be made

to public administration structures.

Furthermore, they underline that we should focus on the competitiveness, the

internationalisation and innovation within businesses. However, at the same time, they

believe that we must take advantage of the positive signals of our economy to

effectively address policies for economic growth. Only thus can the partial improvement

which we can already observe, be transferred not only to the real economy but also to

the perception of the citizens. This is the first step to breaking out of the vicious circle

of the recession.

In addition to the above ideas, we should support a selective economic recovery

policy focussed on those sectors that could serve as a starting motor for the recovery. I

believe that the Spanish economy needs a change in its production model, however in

the current situation this renovation process of our structures cannot be carried out

overnight without being subject to risks. For this reason, I support the idea of an orderly

and cost effective transition between a low-cost economy and an economic system

based on added value. Therefore, to continue to offer good quality at a low price as

many companies are currently doing is surely the most reasonable strategy in the current

circumstances.

I believe that the proposals included in this research constitute a useful approach

to emerge from the crisis. The surveyed illuminated a way full of obstacles with their

answers, but also great rays of hopes. Let us hope that the national and regional

authorities realise it and make the most of these opportunities.



5.2. Signs of a slow resurgence leading to assured economic recovery

Spain is improving the competitiveness of its national economy as a whole, given

that there are positive signals showing some recovery. However, the effects on job

creation and the reduction of public deficit will take a little longer to make their

presence felt.

There are signs which show that we are in a different and slightly better situation

than we were five years ago. Liquidity and the price of debt have changed, and amongst

European countries, agreements have now been made around some key aspects of the

economy, such as banking and fiscal unions. The big problem is the social cost for a full

restructuring process to take place, a cost which at this point in time is too much of a

burden for the country to handle. (Nin, J.M., 2013).

Spanish executives have suggested that we are beginning to see some recovery

signs in our economy, such as improved Spanish competitiveness, cost reduction,

budgetary control and self-discipline in the public sector, the price of debt, one financial

sector capitalised, healthier sectors which are no longer cutting employment and the

increase of exports.

These signs are insufficient to create a more positive perception amongst citizens.

However, people are starting to perceive that the recovery will come with a positive

growth in the economy at the end of this year (2014).

Considering the different sectors, it is clear that the financial services,

technological, communicational and entertainment sectors carry the most optimistic

chance of recovery in the short term. Meanwhile, the industrial, energy and retail sectors

are more conservative, and are expecting positive growth in Spain at the later date of



2015. During the interview process carried out, it was found that 7% of the CEOs

interviewed consider that economic recovery will not materialise for the next two years.

5.2.1. More confidence in companies than in the global economy

Whereas on a global level trust in companies’ growth tends to stabilise around the

40% marker, confidence in Spain falls down almost to those levels observed at the

beginning of the recession. Since 2009, the confidence of senior officers in Spain in its

companies’ growth prospects has followed a parallel evolution to that registered

worldwide, but this year the differential is bigger than ever: 16 percentage points in 12

months, and 20 in three years.

On the other hand, globally 46% of those surveyed believe in a medium to long-

term recovery. This point towards a restoration of confidence in senior officers, 48% of

whom believed the same in 2011, and 50% of whom believed the same before the crisis.

This perception is absolutely different in Spain, with a degree of pessimism that meets

the difficulties experienced by Spanish companies at present.

The economic environment in the country alongside the growing levels of

unemployment, falling demand and a complicated social and political situation results in

the confidence of senior officers to be low.

In contrast, at an international level, the growing stabilisation of markets and the

economies of countries such as Indonesia, Brazil and South Africa (which grow steadily

and whose growth is predicted to accelerate), China, India and Saudi Arabia (which are

still growing but are currently experiencing a downturn phase), or the United States,

Germany, France, United Kingdom and Japan (which grows but are at risk of this



growth decelerating), boost the optimism of 46% of senior officers interviewed, which

shows lots of confidence in the expected growth of 2015.

Figure 2: Greater pessimism in Spain

Based companies: Spain 2013 (50), 2012 (82), 2011(98), 2010 (81), 2009 (87), 2008 (90); Global 2013 (1330), 2012 (1258), 2011 (1201), 2010 (1198), 2009 (1124), 2008 (1150), 2007 (1084), 2006 (not given), 2005 (1324), 2004 (1386), 2003 (989). Source: PwC Inform Global CEOs, 2013

5.2.2 The necessity to recover confidence

During these times, austerity measures are necessary for the build-up of trust

within the country and 65% of the Spanish senior officers recognise this. They are also

of the opinion that reducing the general government deficit is a priority. The directors

perceive that adequate adjustments are being made and that introducing cost reductions

will make us more competitive. This will help us emerge from the crisis, although at a

high social cost.

26%

31%

41%

52% 50%

21%

31%

48%

40% 36%

46%

53%

13%

23%

31% 30%

20%

26%

0%

10%

20%

30%

40%

50%

60%

2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2015

Percentage of Senior Officers who answered "Great Confidence"

Global

Spain



However, the directors also consider that the cuts must not be ballast for the

recovery of the demand. Thus, a 43% of the CEOs feel that the politics behind massive

cuts should be abandoned, and selective reforms should be undertaken to revive the

consumption instead.

Similarly, CEOs are also conscious that the reactivation of private consumption is

a priority and, therefore, 27% of them consider the greatest importance to be cuts to

taxes, prioritising growth over the timely fulfilment of Spanish deficit targets.

Figure 3: Reduction of the public deficit to generate confidence. Question:

Assess the relevance of the following stimulation measures. Prioritize from 1 to 3 the

following measures, where 1 is more

important and 3 less important.

The public deficit should be reduced,

continuing with the fiscal politics.

Some selective reforms must be undertaken to

revive the public demand, and abandon

cutting politics.

Taxes should be reduced to reactivate public

consumption, even though this will increase

the public deficit.

Austerity politics must continue to assure the

fulfilment of the deficit target.

Companies included: Spain (43). Source: Questionnaire Survey directed to top managers

5.3. Measures to revive economic activity

The economic recovery of Spain is now based on consumer confidence and an

increase in internal demand; however the resources needed to achieve this are currently

limited. It is not just a credit problem, but also a lack of solvent projects to invest in.

Any type of support from the government should also introduce an economic

profitability variable.

65%

43%

27%

20%

Percentage of CEOs that answered “Priority 1” in relation

to the stimulus measures of the Spanish economy



5.3.1 Flow of credit to boost domestic demand

The restrictions of the flows of credit to companies and families, together with the

containment of demand are two of the main aspects affecting the Spanish economic

recovery. The high profile directors interviewed were asked which measures they

believe will be the most effective in turning around these two factors. 42% responded

‘very important’ with respect to allocating part of the bail out money to direct lines of

credit to companies.

According to some directors, credit is now reaching companies and solid

entrepreneurial projects, in order to avoid making the same past mistakes. However,

they notice that there are still very few sectors with a clear, growing and solvent profile.

They assert that confidence in development should be encouraged to drive the

companies and investors to invest.

Other key measures to revive credit and demand include the empowerment of the

brand “Spain”. This measure, considered very important by 34% of the CEOs surveyed,

should facilitate access to international capital by Spanish companies, and promote

exports.

The concerns that exist about the brand “Spain” are linked to difficulties that

companies are experiencing in relation to the high risk premium associated with Spain

in international markets.

This perception vastly increases capital costs and makes international funding

difficult to obtain, thus impeding Spain’s development. They are also concerned about

the consequences that this funding differential could have on Spanish companies,

acquired and/or sold by foreign companies, who have access to cheaper funding.



5.3.2. Public spending geared towards activities that generate growth

For the economic recovery of Spain, it is necessary for the recovery of demand in

both public and private sectors to occur. 49% of top management suggested that top

priority should be given to the reactivation of private consumption, and considers that

the government’s economic policy must focus on achieving the upturn on consumption.

Figure 4: The reactivation of the demand is top priority. Question: Which

should be the priority for the government’s economic policy to revive the demand?

Prioritize from 1 to 3 the following measures, where 1 is more important and 3 less

important.

Reactivation of the public consumption

Reactivation of the private

consumption

Foment the exports

In relation to the public consumption, most of the high directors (64%) are of the

opinion that a different approach to public expenses is necessary, focusing in particular

on those expenses which generate business activity. It is not necessarily a question of

spending more, as a recovery of public consumption which is based on an increase in

government expenses, may not be understandable for the markets. It is considered that

49%

10%

4%

The graph shows the percentage of the top managers that answered “priority 1” to revive the

demand. Based in 43 Spanish companies, source: Questionnaire to Top Management



the Public Administration have to spend their money in a different way, focusing

towards expenses that generate investment and growth.

As a second priority, 43% of CEOs aim towards the development of a new

Provider Plan Services, which could prevent invoice accumulation and the

consequences that this issue has caused. One of the main consequences is lack of

liquidity among Spanish companies, particularly those most closely linked to the public

sector.

Furthermore, they have also noted the need for more flexibility in respect of the

fulfilment of the deficit objective in Spain, as an alternative to the reactivation of public

consumption, with 29% considering this to be ‘very important’.

Figure 5: Different prioritisation of the public expenses, focusing on the

expenses that generate business activity. Question: Which of the following proposals

do you consider most in line with public consumption recovery?

Based in 43 Spanish companies, source: Questionnaire to Top Management

0% 20% 40% 60% 80% 100%

Make a different public expense prioritisation, focusing in thoso which generate business

activity

Elaborate a new Provider Plan Services which would prevent from invoices accumulation in

the Public Administration

More flexibility in respect of the fulfilment of the deficit objective

Slow down the pace of cutting of determined public expenses that affects the companies

3%

1%

1%

8%

0

3%

17%

25%

8%

22%

19%

32%

25%

29%

32%

25%

64%

43%

29%

8%

Not Important Low Importance Important Very Important Most Important



Jaime Guardiola, CEO of Banco Sabadell said: “There is a long road of economic

reforms, including the improvement of the Public Sector’s efficiency, which would

allow for a certain softening in the compliance of deficit, in the case where Europe sees

this as a determined commitment for the reforms in Spain.”

5.3.3. Cut taxes to boost private consumption

Lowering taxes constitutes a key method for high management when asked how

to recover private consumption in the short term. 50% of CEOs consider this very

important, and a method which comes before the reactivation of credit flow from banks

to families (25%) and the encouragement of new employment niches (24%). Economic

policy is a rowing boat with two paddles, the fiscal one and the monetary policy one. If

Europe has control over the monetary policy paddle (and applies it restrictively) and, in

addition, requires Spain to restrict fiscal policy as well, then the whole ship sinks. Any

politician knows that the easiest way to adjust deficit is by increasing taxes, but the

consequence of taking money out of people’s pockets is a growth constraint.

Other measures, such as the Sectors Recovery Plan, are also considered important.

However, these are focussed around profitable industries with a bright future and who

are in nature, prone to aiding the rebuilding of the economy. As Ignacio Garralda,

president of Mutua Madileña, said: “Sectorial reactivation plans may make sense,

provided they are applied to profitable industries, and industries with a future. Public

expenses at sectorial level should have guidance for investment, as occurs in

technological sectors when a public purchase of technology is introduced, or in the

automotive sector when attracting new models to manufacture; but the essence is there,

in the recovery, which is not the same as sustainability.”



Figure 6: Cuts in taxes are emerging as the most efficient measure to revive

private consumption in the short term. Question: Which of the following measures

will be most efficient reactivating private consumption in the short term?

Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management

5.4. Structural reforms must continue.

The reforms which have been undertaken are improving Spanish competitiveness,

however there is still work to be done to deepen several reforms, or to address new

ones. For example, the reform of the public function is key, in order to note visible

effects in employment and the deficit.

5.4.1. The reform of the Public Administration is a pending issue.

The high directors interviewed recognise that the reforms carried out were

necessary, starting with the reform of the financial system, the labour reform and the

organizational adjustment realised at the private level. However, they consider that

0% 20% 40% 60% 80% 100%

Cut Taxes

Revive flows of credit from banks to families

Promote niches of employment (green economy sector, biotechnology, etc)

Extend the Sector Recovery Plans to other sectors

1%

1%

4%

11%

14%

22%

14%

21%

29%

25%

43%

17%

31%

29%

24%

50%

25%

24%

14%




these structural reforms should be kept or built upon, in order to increase the credibility

of Spain as a country, and to set us on the road to development and growth.

Thus, the vast majority of the high directors consider that it is necessary to

implement a legislative harmonisation at regional level in order to avoid the

fragmentation of the Spanish internal market (89%), and 86% believe that the current

State model must be reformed. In this sense, the survey reflected that the structural

reforms with more impact on the growth of companies in the short term would be, from

most to least important, the internal market reform, the State model reform and the

operative reform (improvement of efficiency) of Administration.

Figure 7: How necessary is the harmonisation of the Spanish internal

market? Question: Do you consider it is necessary to harmonise autonomic legislation

in order to avoid internal market fragmentation?


Though Spanish firms are accustomed to moving in a fragmented market,

nowadays, many entrepreneurs still think that different requirements, at a regional and

89%

4% 7%

Yes No Not know/No answer



local level, are a key impediment for the expansion of their businesses throughout

national territory, and agreed the reform the internal market to be a top priority.

Figure 8: The current State model must be reformed. Question: Do you

consider that the current State model –State of Autonomies- has come to an end and

needs to be reformed?


Figure 9: Impact of the reforms on growth. Question: Which of the following

types of structural reforms do you consider would have a more positive impact on the

growth of your company in the short term? Prioritize from 1 to 3 the following

measures, where 1 is more important and 3 less important.

Internal market reform

State model reform

Reform of the Public Administration


86%

11%

3%

Yes No Not know/No answer

29%

25%

10%

The graph shows the percentage of the top

managers that answered “priority 1” to obtain a

more positive impact in the growth of their

company.



5.4.2. Companies do not want hurdles in the internal market.

For years, the CEOE has consistently pointed out that the costs and barriers

derived from fragmentation and the diversity of the existent normative within the

national territory are a primary reason for the disincentive of investment in Spain and a

big obstacle for the competitiveness of firms. An excellent example of this is the graft

legislation, which was approved by the Council of Ministers at the end of January 2013.

This legislation attempts to ensure the free movement of goods and services throughout

the national territory. This idea behind it is also to eliminate the cost and growth

restraints which result from having to adapt to the different existing regulations. The

target here is to implement the European principles of single license and sole legislation

and authorisation, starting from the place of origin of the operation and throughout the

national territory.

Figure 10: A single Administrative authorisation. Question: If you consider

that a harmonisation of autonomic legislation is necessary to avoid fragmentation of the

internal market, which measures would you believe will contribute more to achieve a

single and authentic market in Spain?


0% 20% 40% 60% 80% 100%

Reorder the competencies over licensing concessions by concentrating on higher level …

Force a Basic Law from the Central Government

Recover the licence of national operator

8%

3%

27%

20%

10%

30%

30%

28%

27%

43%

60%

Not Importat Low Importance Importan Very Important Most Important



In order to obtain this single market in Spain, 60% of CEOs deem it very

important to recover the licence of national operator. This is compared to other CEO’s

which considered it most important to force a Basic Law from the Central Government

(43%) or re-order competencies over licensing concessions by focussing on higher level

administrative units (27%).

This is not about attracting competencies towards national organisms, but it is

about a permit granted by a regional or local Administration which is to be admitted as

valid by the rest of the Administrations in the national territory.

The Guarantee of Unity Market draft law is moving in that direction, in line with

the construction of the internal market at a European level. To this end, the new text

steps up on cooperation mechanisms between the general, autonomic and local

Administrations, which are key to developing this much needed internal harmonisation.

5.4.3. Important reforms are still pending

The high directors denote the public sector reform as the major pending reform,

within both structural (State model) and operative (efficiency) reforms. Furthermore,

other important reforms to undertake have been identified, such as the educational

reform, the justice reform, further releases in some sectors and the increment of labour

flexibility, etc.

The main problem with the current State model lies in the overlapping

competencies between Administrations. 68% of managers consider it very important to



create a unique window, and to 66% a clarification of the competencies in both the

Central Government and Autonomic Administrations is deemed necessary.

Figure 11: Avoid duplications and overlapping competencies between

administrations. Question: If you consider that the current State model –State of

Autonomies- has come to an end and should be reformed, in relation to the State reform,

how do you rank the importance of each of the following measures?


5.4.4. A more efficient public administration would be an expression of

confidence for the markets.

The high directors know that the same efficiency principles they have applied to

their businesses have to be implemented in the Public Administration, contributing to

the economic recovery of the public sector. Almost 50% of high directors deem the

improvement of efficiency in the provision of public services to potentially have a very

0% 20% 40% 60% 80% 100%

Drive a financial model in which every entity of the Public Administration must finance their …

Reinforce the coordination between State and the Autonomous Regions,

Reinforce the role of inspector and sanctions system of the Government to ensure the …

To clarify the competencies in both, the Central Government and Autonomic …

to create a unique window in order to end with the overlapping of competencies

2%

14%

7%

7%

3%

7%

29%

15%

15%

7%

42%

24%

39%

19%

22%

34%

36%

36%

66%

68%




important impact in the economic recovery, followed by the reduction of administrative

charges to companies, performance assessments and public policies.

There is a perception that adjusting the current public employment may be unfair

and demotivating, leading to a situation of a senior government being poorly paid and

extensive overstaffing that could lead to a voluntary administration, which may be

corrupted and inefficient.

Figure 12: It is imperative to address the efficiency improvement of the

Public Administration. Question: Which of the following reforms of the Public

Administration do you estimate will have a greater impact for economic recovery?


In the publication “What changes does the Spanish Public Administration need?”

(PwC, 2012), three necessary changes are pointed out in order to modernise the public

Administration: modify the way it operates, how it spends and how it functions. In all

three cases, efficiency is key.

0% 20% 40% 60% 80% 100%

Greater concentration to the service delivery

Assess the efficiency of the public policies

Performance assessment of the public employees and vinculate it to their career …

The reduction of the administrative charges to the companies

The improvement of the efficiency in the provision of public services

1%

13%

1%

3%

6%

1%

28%

21%

31%

14%

21%

35%

42%

26%

36%

32%

24%

35%

39%

44%

46%

Not Important Low Importance Important Very important Most Important



For ‘the way it operates’, the administration needs to be agile and efficient. It also

needs to evaluate public policies, reduce the burden imposed on citizens and firms and

integrate the electronic administration with the joint services centres.

For ‘how it spends’, costs should be reduced and structures rationalised, with good

debt and treasury management, financial restructuring, and public-private collaboration

in order to generate liquidity.

Modifying ‘how it works’ requires clear limits of the public function, widespread

performance evaluations and taking advantage of the internal mobility and teleworking.

5.5. Export development and innovation to enhance the

competitiveness

Exporting and innovation are the drivers of growth in Spain. Companies will be

driven to invest in development and innovation to achieve sustainable success in the

markets, whilst exports are increasing. Company growth and a more efficient cost

reduction process will help firms to gain competitiveness and thus emerge from the

crisis.

5.5.1. Active support to exportation

Spanish exports are currently the most important factor for optimism in the

country’s economy. While economic recovery still appears to be a long way off, the

balance of trade is increasingly balanced and Spanish companies are launching

themselves into foreign markets with ambitious plans in the pursuit of demand that is



restricted locally by the specific conditions related to the financial containment of

families and firms.

In this context of financial restrictions, 40% of high directors believe it to be very

important to ease access to exportation credits, and 36% to lower social contributions so

that the companies can take that step up and become international, boosting their growth

and the Spanish recovery with it.

Other measures, such as the development of external commercial relations and the

reinforcement of the “Spain” brand, constitute additional ways of promoting exports.

The actions that the government would need to undertake in to adopt these measures

would be welcomed by businessmen; as they are well aware that growth and becoming

international is not easy.

Figure 13: Financial aspects that are important for the promotion of exports.

Question: Which of the following measures do you consider important to boost exports

and the internationalisation of your company?


0% 20% 40% 60% 80% 100%

Support from commercial offices abroad

Repayment of export duties by the …

Sectorial Aids from the Government to …

The abandonment of the austerity politics in …

Greater emphasys on the development of …

Reinforce the brand "Spain"

Lower the social contributions to improve …

Simplify the access to credit for exportation

7%

3%

1%

6%

3%

3%

19%

30%

25%

25%

9%

20%

3%

7%

34%

34%

29%

20%

31%

24%

33%

14%

27%

14%

27%

25%

27%

19%

25%

30%

9%

9%

13%

16%

24%

31%

36%

40%

Not important Low Importance Important Very important Most Important



5.5.2. Innovation to achieve growth.

A well-known fact is that the countries with better ranking on rates of innovation

have a greater growing rate, which is more sustainable over time and has higher levels

of productivity.

The question is, how should this be promoted by public authorities? The first

executives distinguish between two main methods: those directed to create an

environment that is adequate for investment, and those with a direct impact. Amongst

the first, removing administrative barriers affecting demand and supply of employment

is the most relevant for 73% of surveyed people. This is followed by the management of

innovation, carried out by the Public Administration and based on efficiency and

profitability criteria (72%) and the creation of a more agile market of intellectual

property.

For those with a direct impact, increases in the average size of aid was considered

by 50% of those surveyed, while 42% selected the option of public management

focussing on innovation within a single agency. Finally the inclusion of innovation

demands for public tenders was believed to be most important by 40%, these three

being the top favourites.

Figure 14: The boost for innovation in Spain will encourage the mobility of

talent and efficient management. Question: Which of the following actions should the

Government put in place to boost innovation in our business and economic

environment?



0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Public management concentration of the innovation in a single agency

Innovation demands for public tenders

Focus and rise the average size of public aids for innovation

Creation of a more agile market of intellectual property

Management of the innovation needed by the Public Administration according to efficiency and

profitability criteria

Remove administrative barriers to the demand and supply of employmen

7%

3%

20%

23%

14%

15%

1%

4%

26%

30%

35%

31%

24%

22%

23%

20%

25%

25%

33%

28%

19%

20%

25%

28%

39%

45%




Chapter Six

6. Study of the effects of the European financial crisis in family

businesses

The family business is one of the most important and solid pillars of Spanish

society. Therefore, to highlight the effects of the crisis on this type of business, I have

chosen to include these as part of my essay. The questionnaire used was made available

to 134 businessmen and owners of family businesses in Spain. This was designed in

such a way that it has been possible to develop a barometer to indicate the effects that

the crisis has actually caused in family businesses. Thus, we can draw conclusions from

these questionnaires, in order to find the best proposals and solutions across the Spanish

economy as a whole. Furthermore, some of the questions were designed to understand

the impact that the crisis has had on relationships amongst family business owners.

6.1. Effects and measures

Currently, the unemployment rate in Spain stands at around 25% of the working

population, and according to estimates made by the Family Business Institute, family

businesses will collectively generate 75% of private employment. In this case, of the

firms surveyed, 35% acknowledge a high or very high impact of the effects of the

financial crisis. Meanwhile, only a 19% of the firms surveyed recognise that the crisis

has not affected their job positions. However, 44% of the companies assert to have

suffered a low or medium disruption.



Given the results obtained, one can conclude that the widespread fall in

consumption has been reflected in sales, as more than 54% of surveyed businesses

consider that the recession has affected their turnover in an significant way. This can be

compared to the 14% which considers that the crisis has had minimal or no impact on

their business. The fall in turnover, logically, is also reflected in the profits of these

companies. Therefore, more than the half of the companies asserts that there has been a

significant impact on their profits as a result of the recession.

At the same time, we can highlight that 36% of the surveyed businesses reveal

that their portfolio of clients has not been affected seriously, and almost 40% considers

that their portfolio of clients has been significantly affected by the economic crisis.

The most common measure in family businesses is to reduce costs, as voted by

84% of those surveyed. The second alternative (70%) is the search for new markets.

This is a sign of positive attitudes. This compares to the least common measure (only

20%) which is to become more energy efficient, and this does not cease to be an

indicative fact.

With the decline of sales, payment deadlines are lengthening. This situation

concurs with the cut in the capital credit lines by many of the financial institutions.

Thus, the lack of liquidity has become one of the main problems. When asked about

their relationship with the financial sector, nearly half of the companies, 46.4%,

revealed that its sources of funding had been affected significantly or entirely by the

crisis.

Among other statements, it is important to note that an 87% of the surveyed

businesses believe that the notion of leadership is very important in times of crisis.

Furthermore, 60.2% have experiences their market coming to a half or being reduced,



and more than half of the companies surveyed feel that is becoming increasingly

difficult to determine forecasts and make longer-term strategic plans. As a response to

the recession, more than half of family businesses maintain that they have attempted to

pursue alternative opportunities such as partnerships with other companies. It is also

worth noting that, despite many of the opinions voiced in respect of this, only 44% of

the surveyed businesses witnessed the economic crisis as a good opportunity to seek out

the talent available in the market

6.2. Confidence and optimism in light of the gravity of this crisis

In general, one can say that family businessmen’s trust in banks and other

financial institutions has been affected in a negative sense. Similarly, the financial

sector, together with the construction sector, appears, in the opinion of family

businesses, to be the key trigger of the economic crisis. 52% of those who responded

identified financial institutions as the main trigger factor; whilst the construction

industry is pointed out by 31.7%. Additionally, the responses given in relation to the

levels of satisfaction in respect of the steps taken by the government in the context of

the crisis have been forceful: a staggering 82.3% is totally or considerably expressing

disagreement.

However, despite the severity of the situation, family businessmen are more

optimistic about the ongoing timeline of the crisis in the case of their own business

rather than on a global level. More than a 60% of respondents considered that their

business will get through the crisis in the next 3 years, and 21% perceive that they will

achieve this in the next 12 months. On a global scale, less than half of the businesses

believe that it will take between 1 and 3 years to overcome the crisis and a further



33.5% feel it will take between 3 and 5 years. Only a 4.79% believe that on a global

scale it will take less than a year.

6.3. The solidity of important values for a stronger and united family

This optimism is also reflected in the wish for continuity within family

businesses. Perhaps precisely because of this, the most positive note of this

investigation is the fact that, despite the severity of the economic crisis, 87% of those

surveyed are confident about the future of their business projects and these clearly assert

that the sale of their business is not something they have in mind. On the other hand, of

those who have had to sell their business, almost 62% of them acknowledge that they

will eventually start a new business project. One might interpret this as an indication of

overall good health of entrepreneurial spirit, which in my opinion represents a key

element for the economic recovery in our country.

Another key element is the family unit. Every crisis generates strain in personal

relationships and business families do not escape these effects. However, at the question

which was posed as to whether the crisis has had direct impact in the quality of the

family relationships, almost half of those questions negated this. Only 30% revealed that

the quality of family relationships suffered due to the crisis. On the other hand 38%

acknowledged that economic difficulties had modified the conduct of family members.

All these answers lead to the final conclusion that the solidity of family values

help in difficult economic times. In fact, 88% of the responses are fairly broadly in

agreement with this statement.



In this time of crisis, when asked about what mechanisms the family have used

for adopting strategic decisions about important topics in their business, 47% of the

respondents affirm to making use of their family council in order to seek appropriate

solutions, whilst 41% resorted to the use of external experts. With regards to this

question, it should be noted that the restriction on the answers has led to some of the

surveyed businesses to lean towards the first of the three possible answers (Family

council, external experts, other). However, some recent studies on this subject matter

show that the family council is not formally operative among family businesses. As a

result, the interpretation that seems the most likely, from information obtained, is that in

the family business environment, the decision making process has been addressed “in

family”, in the widest sense of the term, independently of whether they formally have a

figure of family council or not.

A final element to note is that 134 Spanish family businesses were involved in this

survey from a wide variety of activities, but mainly from services, trading,

manufacturing, and consultancy and distribution sectors.



Chapter Seven

7. The internationalisation of Spanish companies and the

decision to export as a solution for the Crisis

7.1. The International scope of business

In a world where globalisation is constantly increasing, internationalisation is now

a key factor for the survival not only of large companies, but also for many of the

existing SMEs. The target is to continue to grow even after all domestic ground has

been covered. Thus, it is necessary for a business to expand its horizons, not only

because all existing ground has been covered, but also because of the need to follow its

customers wherever they go, in order to avoid being replaced by competitors across the

globe.

The financial crisis in Spain was not made public until mid-2008; although the

fact is that the first signs appeared as early as 2006. The recession has been particular

for businessmen since that date and, little by little, they have been seeking alternatives

in order to move their business onwards. One of the best solutions found has been the

exportation of both products and services, seeking demand and prices that cannot be

obtained within the Spanish frontiers.

7.2. Five actions to promote the internationalisation of businesses

1. To prepare and implement a Special plan in order to identify sectors and

business processes which are most likely to grow at a global level. In



particular, identifying needs, prioritising help for businesses, obtaining the

correct guidance from management in terms of business strategy and

providing the necessary administrative and institutional support for the

different sectors involved.

2. To establish amongst business sectors key performance indicators (KPIs) to

measure and compare the internationalisation and actions of Spanish

companies abroad, split by sector and the most competitive business

processes.

3. To promote the internationalisation of Spanish companies in the most

competitive regions of the world, such as China, India or South-East Asia at

the moment, in order to facilitate the implementation, expansion and

consolidation of these markets.

4. To adopt a new formative plan orientated in a specific form towards the

internationalisation of companies to promote the study of foreign languages,

marketing and management techniques of companies in expansion.

Furthermore to increase knowledge of the new markets, international hiring

and corporate culture in the target countries.

5. To fund part of the cost suffered by Spanish companies by accessing

international markets.

7.3. What is export?

We can define to export as the action of selling, delivering and charging products

and/or services to customers currently outside of the national market. Having said that, I

need to clarify here what is meant by a national market. A national market is one in

which our merchandise can circulate freely without customs or tariff restrictions. Under



these conditions and from our perspective, we could consider the European Union to be

a national market since there are no customs restrictions. However, there are currently

different forms of documentation needed to sell in the European Union territory, thus

leaving this territory at an intermediate stage between a national market and an

exportation one, and this is referred to under the term ‘Intra-community Transactions’.

Therefore, we will consider our state to be the national or domestic market.

There are a few reasons that may lead us to believe that exporting is a more

complicated operation than selling in the national market. These are related to the

existing differences between the different judicial systems, customs, communications,

commercial usage and language. Furthermore, until recently, it was also considered to

be a more complicated process due to the different documentation that was necessary,

the existence of greater tariff barriers and hurdles within customs and transport being

both more expensive and not as secure.

Currently, this picture has been modified as a consequence of the gradual opening

of frontiers, thanks to the activity of the World Trade Organization (WTO). Similarly,

as a consequence of the increase in competitors, there has been a reduction in transport

prices and, moreover a reduction in paperwork. This, associated with the ease in

communication, allows us to extend commercial networks towards new markets, and

consequently new clients which may result in a more attractive customer base than

previously held.

For this reason, exporting often implies change in a company’s attitude.

Simultaneously, this involves a change in behaviour based on new opportunities that

await businesses in different markets.



In spite of the differences that sales directed to national or foreign markets entail,

we can assert that these differences are not as deep as some of us have been led to

believe. Since both the national market and the foreign market have clients with

different buying habits, the need to produce products at a competitive price is inherent

to any market. In these two markets, we will have some difficulties related to the

possibilities of our company in terms of the positioning, purpose, etc. The diversity of

commercialisation channels, as well as administrative procedures, transport and delivery

of goods are present in any market. Finally, regardless of the methods used and the

relevant markets, what are indispensable for the survival of any company are the billing

process and, therefore, the payment for those goods or services which have been

provided.

Despite these similarities, we still have to consider some of the factors which do

not affect sales in the national market. Usually, in the overseas markets as a

consequence of geographic and cultural remoteness, it is essential for extensive research

to be carried out in order to obtain adequate information that allows us to adopt

decisions which will minimise the risks that are implied in all commercial operations.

Cultural and linguistic diversity include different forms of communication, negotiation

and interrelation at both an enterprise level and a market-client level. In this way, given

that they are different states, we find ourselves with the existence of no-customs

barriers, related to the different forms of business, law and traditions to which a

company must adapt. Even though previously we referred to distribution channels as not

being one of the substantial differences, in international trade these selling channels can

be longer. Consequentially, this can hinder and reduce the level of control held by the

company distributing the product, through the existence of several unknown or complex

intermediaries compared with those that can be found in the national market. Naturally,



this chain will contribute to production costs increases, as a consequence of the

additional costs involved in long-range transport, arranging cargo insurance,

commercial brokerage costs, tariff rates, transport and logistics costs in the target

market. On top of this, there is also the extra cost associated with the existence of

different means of payment, sometimes specific to international trading and which have

to be carried out in an adequate form.

All these differences could progressively be solved, by taking advantage of the

knowledge gained for each of these elements. The support of public institutions can help

reduce the risks present in these elements, by lending a hand through services they are

able to provide in the different areas which were discussed.

7.4. Why export?

From a macroeconomic perspective (balance of payments, trade deficit, etc.),

export is always positive for the country’s economy. However, a business decision must

not be based exclusively on this assertion, as each case will have to be analysed for the

desirability of the exports, and solely from the point of view of the specific situation for

each company.

I will now go through the pros and cons that would lead a company to determine

whether or not to export their products. Firstly, we will see the key benefits that can

determine the decision to confront the challenge of accessing the overseas markets:

Access to overseas markets provides risk diversification for the business

operations of a company. The existence of new international customers

reduces dependence on regular internal customers. This will provide more



markets in which to sell products and services, thus producing a positive

collateral effect from the perspective of sales, as sales made overseas can

stabilize possible fluctuations which occur in the domestic market or other

markets.

The existence of these new clients overseas results in an increase in

company turnover and enables it to achieve balanced growth in a

competitive market. Moreover, this turnover enhancement will not

increase competitive pressure in the internal market, as the external market

is larger, the increment of customers significant and as a consequence of

economies of scale, there may even be an improvement in the competitive

position within the national market resulting from the reduction in unit

costs.

In the same way, this wealth of experience enables us to learn from the

market. Opening up new markets brings new opportunities and new

challenges for companies. This offers a complementary vision which will

allow the adoption of new ideas, new products, new ways of working, etc.

In general, this makes companies more flexible and generates a greater

capacity of adaption to future changes.

In many cases, access to external markets considerably extends the useful

life of a product. Frequently, once a product has been saturated in the

national market or has become obsolete, it will be replaced by a new one.

This, however, may not be the case in foreign target markets, and this

replacement can therefore occur at a later stage. Access to overseas

markets where there is a huge technological difference enable us to extend

a product’s life cycle.



Sales and production increases will reduce the unit cost of manufacturing.

This directly results in an optimisation of productive capacity, allowing for

economies of scale and a reduction in the unit cost of production.

The global perception of the market should allow us to take advantage of

greater business opportunities. Companies are organisms that evolve to a

greater or lesser degree and at a greater or lesser speed, however what is

absolutely crucial to their survival is constant evolution. Strategies of the

past may now be ineffective in the present, and may seriously affect a

business if not replaced by new opportunities. In this respect, if a business

addresses the needs of different customers and develops their activities in a

different environment, this can then result in the discovery of new product

needs and this develop a whole range of actions needed for improvement.

Moreover, a global competence will force us to improve and to ensure that

we are not left behind. As a consequence of globalisation, international

markets are converging and eliminating differences. Not to access these

markets means to lag behind in the race to generate new or improved

goods and services compared to competitors who may have already been

able to adopt a strong position in certain overseas markets.

Last, but not least, internationalisation allows a company to create a

greater public image and prestige for itself. Its presence abroad and

international projection is an intangible asset on which a price cannot

easily be ascertained, however this undoubtedly revaluates and improves

brand image and the prestige of the company both, nationally and

internationally.



In spite of the benefits for businesses, access to markets abroad is not all plain

sailing. I will now turn to the possible disadvantages that a business could come across

should they choose to export:

Access to markets abroad with different cultures and buying habits can

force us to modify our products, packaging or presentation.

Different regulations in the markets can force us to obtain the

homologation or official approval of the product in target countries and

this can be costly.

In the same way, the recruitment of new permanent and specialised staff is

required, specifically people with language skills and knowledge of target

markets. It is possible to have to appeal to external expertise, which were

not necessary beforehand.

Distribution and logistical organisation can be slower and more

complicated than at national level.

Moreover, it may be necessary to obtain special certifications about the

quality of process management in order to gain access to certain overseas

markets.

The professional expertise of the company would need to be trained in

order to adapt to the changing needs of the target market.

Access to these new markets makes it necessary to undertake as

comprehensive a search as possible, using professionals skilled at the task.

There could be additional difficulties involved in choosing the best

distribution channel, which is not always a simple choice, as is initially the

knowledge of these markets is not sufficient.



In some cases, it may be necessary to design a strategic plan specifically to

export, given the diversity and complexity of the overseas markets.

In the case where a company needs funding, it may have to find a different

funding system from its usual one if additional investment is needed to

provide working capital for exporting.

Naturally, it is time consuming to access overseas markets, and as a

consequence to manage travel costs and external contracts involved.

There may need to be modification or investment in new advocacy and

communication materials.

Exports of products entail an increased administrative burden, which can

force us to change our management strategy, at least partially, a result that

could increase administrative costs.

This would involve time and patience to ensure that the benefits of the

overseas market return to the company.

Furthermore, the existence of higher risks both on an economic-legal level

and political level due to these markets being based in other countries can

contribute to additional costs.

These types of risks will force us to search for the necessary means to

cover the possible contingencies that may occur in respect of default, loss

or damage to products, political risks, corruption, etc.

7.5. Conclusion

The internationalisation of a company constitutes an investment in time and

human resources which are to be amortised over a long period. Therefore, as a priority,



a business must always analyse this from a financial point of view, before beginning

any export activities.

Once an entrepreneur has carried out a projected forecast for its commercial

activity in foreign markets, they would have to carry out a series of early internal and

external tests to enable the objective selection of the most cost-effective trade

opportunity, achieving the export “adventure” in a controlled manner in which risks can

be diversified within these markets.

Entrepreneurs must lift their eyes up from the crisis mudflat and look into the

future, beyond the immediate consequences of the current crisis, and abroad, in order to

find a solution; exporting. Companies committed to promoting external openness will

resist the crisis more easily and will emerge stronger from it. Moreover, it is important

to exploit these opportunities to export, as this will ‘weather the storm better’. Outside

of Spain the situation is difficult, but less so. In order to face these ‘cold temperatures’,

to face the bad omens, the everyday bad news and the evidences of the data that can

torment us, we need to provide solutions and react swiftly and effectively to future

changes, because we could only leave this crisis with the help of our companies.



Chapter Eight

8. Conclusion

The gradual recovery of confidence defines the current economic model. This

economic model is based on confidence in the sustainability of the Euro project, and

confidence that the Spanish economy progressively recovers control over its

imbalances. The actions of the European Central Bank and political developments that

have been made on the Banking Union and the European budget have eradicated fears

about a partial or total crack of the Euro zone. This has been done by confirming the

decision of Member States, including Germany, to maintain the Euro zone in its current

form through appropriate reforms.

The Spanish economy for its part is just seeing how the imbalances in the current

balance practically disappear, the indebtedness is reduced, the unit labour costs of our

economy improve, reinforcing the exportation competitiveness, and the public deficit

starts to show control symptoms.

All efforts, sacrifices and reforms within the concept of “internal devaluation” are

finally beginning to show their fruits, even though many problems remain to be

resolved. Among these, in particular, are the high levels of unemployment and the

burgeoning public debt that threatens to exceed 100% of GPD for the first time in

history.

At this point, we must move swiftly and decisively in implementing the necessary

structural reforms for recovery. In particular, those reforms relating to the Public

Administration, in order to stop these from being an obstacle to the economic and social



dynamism in the country, and use them instead as a strong force to drive change and

innovation. To do this, efficiency targets need to be set for management, and

furthermore, simple procedures which can be easily followed should be implemented

and there needs to be a high level of co-operation between different levels (central,

autonomic and local).

Similarly, it is necessary to set up active policies for selective growth reactivation

that, based on well-defined incentives in the key sectors, will allow us to break the

vicious circle that frequently results in economic recession. In the same vein, it is

crucial to speed up the restructuration process of the financial sector to allow normal

credit flows to the real economy as soon as possible. We have to find the right balance

of credit to avoid the over-indebtedness that led us to the crisis, and the consumption

suffocation that takes us into recession.

The main structural reform that Spain has undergone in the last years is,

undoubtedly, the internationalisation of its production network. The beneficial effects of

this, in particular the survival of international firms in the midst of the crisis, should

push Spain towards internationalising more of its business areas which have not yet

expanded in such a way. On the other hand, having many and important companies

whose main turnover and business volume is outside of Spain, forces us as a country to

deeply rethink the essential questions around tax, labour, and social policies, including

the role of the State and new collaboration spaces between the public and private

sectors.

In light of a widespread, deep and continued process of change, we need

economic agents, businessmen and employees to have the appropriate tools and

behaviour needed to adapt to the requirements brought about by change. Innovation



within areas such as products, processes, and management becomes a strategic variable

category itself. This should not occur by chance but sought out consciously by the

corporation and with the support of public authorities.

Spain must find an intermediate path between competing as a cheap option and

competing via added value. The first will require a reduction in the standards of living,

which would be incompatible with democratic co-existence. The second will, most

certainly, require time that we simply do not have. Many companies and sectors are

finding the solution by working on these two fronts, by minimizing costs and

maximizing the added value. Furthermore, they are structuring their activities and their

relationships with suppliers and clients, based on the principle of producing quality at a

low price. That is what we should look for.

The reforms process must continue, and aim to promote the competitiveness of

companies and their internationalisation. Company directors are beginning to see signs

which point towards an on-going economic recovery; however this is still not sufficient,

neither to move into the real economy nor for the establishment of a positive citizen

perception.

We really are at a turning point now, and from 2014 it is possible that we will

begin to see actual growth in Spain, although the high unemployment levels and the

high social suffering caused by the crisis and the austerity politics will result in slightly

slower growth.

It is necessary to maintain trust as a country, through implementing resolute and

deep reforms that allow firms to improve their competitiveness. Reforms such as the

market labour reform or the reform of Public Administration, alongside clear and well



explained measures, are vital to restoring confidence in the international markets, thus

enabling companies to grow and generate employment.

Austerity politics are necessary in order to generate trust. However, we must not

forget measures aimed at rapid economic growth and sustainable development. The

country needs to be capitalised and to work harder and more efficiently in order to

create wealth. The expenditure control allows increasing competitiveness, but we must

continue to make progress, promoting efficiency to firms and the Public Administration.

The key focus points for economic recovery are the internationalization of

companies and innovation. For both of these it is necessary to promote the increase in

the average size of the current Spanish business network, generally comprised of small

and medium-sized enterprises for which it is harder to assume the risks associated with

the venture of external markets and innovation.



REFERENCES AND BIBLIOGRAPHY

“A two-finger salute to Brussels”. The Economist. March 10th

2012. Madrid.

[Accessed online at: http://www.economist.com/node/21550002].

“An Overview of Spain’s economy”. Euro-Challenge.org. [Accessed online 4th

April

2013 at: http://www.euro-challenge.org/doc/Spain.pdf]

“Euro zone crisis explained”. BBC NEWS. 28 September 2012. [Accessed online 3rd

April 2013 at: http://www.bbc.co.uk/news/business-17549970]

“Spanish unemployment hits record 5.64 million”. BBC NEWS. 27 April 2012.

[Accessed online at: http://www.bbc.co.uk/news/business-17866382]

Albizu, Vidal, Uría and Associates, S.L. (AVU) and REDBUS, S.L., Starting to

export, Chamber of Commerce, Industry and Shipping, Madrid and IMADEX,

Madrid, 2005.

Andrés, Javier and Arce, Oscar (2008) “Banking competition, Housing prices and

Macroeconomic Stability”, Bank of Spain, DT 0830.

Arce, O. and Lopez-Salido, D. (2008) “Housing Bubbles”, Bank of Spain, DT nº

0815

Bank of Spain (2007). Annual report 2007. (Madrid).

http://www.bde.es/webbde/SES/Secciones/publicaciones/publicacionesanuales/infor

mesanuales/07/Fic/en/inf2007e.pdf

Barajas Íñigo, Mª Ascensión (2006) “Innovation and Internationalization, an

indissoluble combination: presentation of eight business cases” in the bulletin ICE

about “The intangible of the business internationalization”, number 830, May-June

2006, pp 71-78.

Beckworth, David (2012) “Boom and Bust Banking: The Causes and Cures of the

Great Recession”. The Independent Institute

Bentolila, S., Dolado, J. and Jimeno, J. (2008) “Two tier employment protection

reforms: the Spanish experience”, CESifo DICE Report, 6, Winter 2008, pp. 49-56.

Bordo, M. and Jeanne, O. (2002) Boom-busts in asset prices, economic instability,

and monetary policy. National Bureau of Economic Research.

Bordo, M., Eichengreen, B., klingebiel, D., and Martinez-Peria, M.S. (2001) Is the

crisis problem growing more severe?. Economic policy. 16 (April). 51-82.

http://www.economist.com/node/21550002

http://www.euro-challenge.org/doc/Spain.pdf

http://www.bbc.co.uk/news/business-17549970

http://www.bbc.co.uk/news/business-17866382

http://www.bde.es/webbde/SES/Secciones/publicaciones/publicacionesanuales/informesanuales/07/Fic/en/inf2007e.pdf

http://www.bde.es/webbde/SES/Secciones/publicaciones/publicacionesanuales/informesanuales/07/Fic/en/inf2007e.pdf



Bordo, M.D. (2003) Market discipline and financial crisis policy: a historical

perspective in Market discipline in Banking:Theory and evidence, Kaufman, G pp.

157-182.

Bover, Martinez-Carrascal and Velilla (2005) “The Wealth of Spanish Households:

A microeconomic Comparison with the United States, Italy and United Kingdom”,

Economic Bulletin, 7/2005 Bank of Spain

Boyd, J., De Nicolo, G. and Loukoianova, E. (2009) “Banking crisis and crisis

dating: theory and evidence”. International Monetary Fund Working Paper,

WP[09/11].

Caballero, Ricardo J., Farhi, Emmanuel, and Gourinchas, Pierre-Olivier (2008) “An

equilibrium Model of ‘Global Imbalances’ and Low Interest Rates”, American

Economic Review, 98:1, pp358-393.

Castañeda, Rios-Rull and Diaz-Gimenez (1998) “Exploring the income distribution

business cycle dynamics”, Journal of Monetary economics 42(1):93-130

Central Intelligence Agency (2011) The world Factbook.

http://www.cia.gov/library/publications/the-world-factbook/geos/sp.html

Checherita, C.Rother, P. (2010) The impact of high and growing government debt on

economic growth: An empirical investigation for the euro area. European Central

Bank WP[1237]. http://www.ecb.eu/pub/pdf/scpwps/ecbwp1237.pdf

Cihak, M. (2007) Central Bank independence and Financial Stability Conference.

Does Central Bank Independence Still Matter? Milan, Italy: Bocconi University.

Demirguc-Kunt, A. and Detragiache, E. (1998) The determinants of banking crises in

developing and developed countries. IMF Staff papers, 45. Washington, DC.

Durden, Tyler (2012) “ECB's Refusal To Play Ball Means Spain Has To Foot A

€350 Billion Bailout Bill Alone”. ZeroHedge.com 30/5/2012

Elliott, Larry (2011) “Global financial crisis: five key stages 2007-2011”. The

Guardian, Sunday 7 August 2011.

European Economig Advisory Group (2011). The EEAG report on the European

economy, “Spain”, CESifo, Munich 2011, pp. 127-145.

Eurostat (2011) Harmonised Unemployment rate by gender – total.

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm0

20&tableSelection=1&plugin=1

http://www.cia.gov/library/publications/the-world-factbook/geos/sp.html

http://www.ecb.eu/pub/pdf/scpwps/ecbwp1237.pdf

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm020&tableSelection=1&plugin=1

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm020&tableSelection=1&plugin=1



Foxman, Simone (2012) “14 Horrible facts about the Spanish economy”[30/05/2012]

and “The doomed Spanish financial sector illustrates the shortcomings of

LTROs”[22/3/2012]. Financial Post. Business Insider.

Franch Meneu, Jose Juan (2012) “Crisis económicas y finacieras. Causas profundas y

soluciones”. Ed. Every View. Date of publication 10th of May 2012.

Gil-Robles, Enrique (1995) “Prior objectives and requirements to export”, in

Economic Bulletin of ICE, number 2454, May 1995.

https://delicious.com/eurochallenge/Spain

Hugh, E. (2008) Spain’s mortgage lending and building permits down – seeking

alpha. http://www.seekingalpha.com/article/87951-spain-s-mortgage-lending-and-

building-permits-down

Kaminsky, G. and Reinhart, C. (1999) The twin crises: The causes of banking and

balance-of-payment problems. American Economic Review, 89(3), pp. 473-500.

Klomp, J. (2010) Causes of banking crisis revised. North American journal of

Economics and Finance, pp. 72-87.

Laeven, L. and Valencia, F. (2008) Systemic Banking crisis: A new database.

IMF[wp224]. Washington DC.

Laeven, Luc and Valencia, Fabian (2008) “Systemic banking crises: A new

database”, IMF Working paper, 08/224, November, 2008.

Martínez Pérez, Pere (2008) “The internationalization: the true pending challenge” in

Revista de la Facultad de Ciencias Sociales y Jurídicas de la Universidad Miguel

Hernandez de Elche, Vol. I, number 3, January 2008, pp 250-264.

McKinley, Vern P. (2012). “Financing Failure: A Century of Bailouts”. The

Independent Institute.

Ortega Giménez, Alfonso and Medrán Vioque, Rafael (Coords.) (2008) “Practical

handbook of foreign trade”, Grupo Difusión, Barcelona, 2008.

Ortega, Eloisa and Peñalosa, Juan (2012) “The Spanish economic crisis: Key factors

and growth challenges in the Euro area”. Banco de España. Occasional Document

Nº1201

Piñeiro Fernandez, Serafín (2000) “The exportation department of the company”, in

Economic Bulletin, if ICE, number 2639, January 2000.

https://delicious.com/eurochallenge/Spain

http://www.seekingalpha.com/article/87951-spain-s-mortgage-lending-and-building-permits-down

http://www.seekingalpha.com/article/87951-spain-s-mortgage-lending-and-building-permits-down



Prasad, E. and Sorkin, I. (2009) Assessing the G-20 stimulus plans: A deeper look.

The Brookings Institution.

http://www.brookings.edu/articles/2009/03_g20_stimulus_prasad.aspx

Reinhart, C. and Rogoff, K. (2008) “Banking crises: an equal opportunity menace”.

National Bureau of Economic Research.[wp14587]

Reinhart, C. and Rogoff, K. (2009a) This time is different. Princeton: Princeton

University Press.

Reinhart, C. and Rogoff, K. (2009b) International aspects of financial market

imperfections: The aftermath of financial crisis. American economic review, 99(2),

pp. 466-472.

Reuters (13 February 2009) “Spain’s vegara does not expect deflation”. Forbes

(Madrid:Forbes)

Sachs, Jeffrey and Radelet, Steven(1999) “What Have We Learned, So Far, from the

East Asian Financial Crisis?” Mimeo, Harvard University, January 1999.

Schneider, F. (2007) “Shadow economies and corruption all over the world: New

estimates from 145 countries”, Economics, 2007-9. “La evasion fiscal en el sector

inmobiliario ronda los 8600 millones de euros anuales”, El Mundo, 11th of November

2007.

Suarez, J. and Ceron, J. (2006) “Hot and cold housing markets: International

evidence”. CEPR Discussion paper No. 5411

Summers, Lawrence H. (2000) “International Financial Crises: Causes, Prevention,

and Cures”. Richard T. Ely Lecture

United nations department of Economic and Social Affairs (2010) Global Outlook

2010. http://www.unctad.org/en/docs/wesp2010_en.pdf

Weisenthal, J. (2012) “The Spanish Housing Chart That's Going To Crush The

Banking System”. Business Insider. March 28th 2012.

http://www.brookings.edu/articles/2009/03_g20_stimulus_prasad.aspx

http://www.unctad.org/en/docs/wesp2010_en.pdf

dissertation financial crisis. april 2014. glasgow caledonian university of london

Documents