The British budget.

[Alatriste]

Yes, Spanish unemployment has been unreasonably high, even during the height of the boom........even during a labour shortage 

There must be something about your mixture of welfare rules and employment protection laws that encourages people to define themselves as unemployed. Again, taking the long view, any Spanish government should be trying to solve this deep-seated problem.

'Fixed' employees, with undefinite duration contracts, enjoy a high degree of protection; so-called 'temporary' employees with contracts up to 3 years long (in practice very few are over 6 months) can be fired more or less at will. This matches all too well with a dual economy: a highly productive and competitive core, and sectors with low salaries, low productivity and low protection (services, turism, building... not surprisingly, activities that are labor intensive, often highly seasonal, and are the ones firing people like mad these days)

Actually welfare in Spain is not that extensive, but society is very different from say, Germany or Sweden. An Spaniard can rely on his family for 'welfare'. Fathers, brothers, cousins... will help you in times of need and expect help when they are in difficulties themselves. This paralel network makes perfectly acceptable levels of unemployment that would be unbearable in other countries. On the minus side it has lots of bad effects too... an Spaniard, for example, will think twice before accepting a job that forces him to move to another city, as that would mean losing family support (just to mention one example, he will have to pay a kindergarten instead of relying on grandma)

[Sheilbh]

There must be something about your mixture of welfare rules and employment protection laws that encourages people to define themselves as unemployed. Again, taking the long view, any Spanish government should be trying to solve this deep-seated problem.

I believe most of Spain's welfare state is on pensions.  By European standards their welfare state is pretty threadbare.

[Iormlund]

Hmm ... I would not mix employment security and productivity if I were you Alatriste. That is not my experience. Many older employees spend their lives scratching their bellies when they know they cannot be fired. While you see junior engineers or lawyers working their asses off for peanuts.

[MadImmortalMan]

Hmm ... I would not mix employment security and productivity if I were you Alatriste. That is not my experience. Many older employees spend their lives scratching their bellies when they know they cannot be fired. While you see junior engineers or lawyers working their asses off for peanuts.

True. It's the "other" side of that dual economy that tends to be flexible, innovative and able to adapt well to market conditions. Those constitute the productive and competitive core while the parts that have no flexibility in the labor market turn into wealth-destroying zombie dinosaurs like General Motors.

[citizen k]

Austerity plan is failing, IMF tells Osborne

IMF's Olivier Blanchard suggests UK needs reassessment of fiscal policy including changes to tax and public spending



The message to George Osborne from the International Monetary Fund could scarcely have been clearer. It's time to think about a plan B.

Coming as it did on the eve of the fourth quarter growth figures, the intervention of the fund's chief economist Olivier Blanchard, was particularly ill-timed for the chancellor, but it was hardly a surprise.

The IMF has never been wildly enthusiastic about Osborne's tough austerity plan for the British economy and has been saying for at least a year that the Treasury should ease off if recovery falters. But up until now it has tended to avoid telling Osborne that his policy is failing.

No longer, it appears. "We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy", Blanchard said.

Fiscal policy involves changes to tax and public spending, and Blanchard noted that the chancellor has the perfect opportunity "to take stock and make adjustments" in the March budget, due in less than two months.

Three factors probably lie behind Blanchard's decision to go public with his concerns. The first is that the IMF, while supporting the need for budget deficits to be reduced, believes action should not be so aggressive as to derail growth. The second reason is that it has done some recent work on fiscal multipliers – the knock-on effects of tax and spending changes on the wider economy – and found them more powerful than it previously thought. The third reason, obviously, is that Osborne's forecasts of a recovery lurking just around the corner have proved totally wrong. The economy has flat-lined for the past two years and if the City is right about the fourth quarter 2012 growth figures there will be fears of a triple dip recession this winter.

The interesting question is whether Osborne will heed the IMF's advice. If he does, any loosening of policy in the budget is likely to be modest, and not just because of the political damage caused by the U-turn.

Osborne believes that any backsliding will come at a price. Looser fiscal policy will mean tighter monetary policy – perhaps not from the Bank of England but from the financial markets in terms of higher long-term interest rates. His advisers have pointed out that the IMF believes the fiscal multipliers are weaker in open economies such as Britain than they are in more closed economies such as the US or Germany.

The chancellor's problem, though, is that long-term interest rates may go up anyway. It is not just the IMF but the credit rating agencies who are worried about the absence of growth in the UK. A credit downgrade looks likely and, given the dire state of the economy, would be merited. Britain does not feel like a country that deserves its AAA status.

As for the fiscal multipliers, it might be the case that their impact is less powerful in the UK than in the US. But austerity is still having a dampening effect on the economy, and is making it harder for the chancellor to hit his deficit reduction targets. The IMF is right. It is time to take stock. It would be a risk for the chancellor to announce tax cuts and a slower pace of spending cuts in the budget. But it will be a risk – and probably a bigger one – if he does nothing.

[Richard Hakluyt]

Yet Britain is still borrowing 7.9% of its GDP to fund government expenditure, it is so strange that this is defined as "austere"; it's a bit like calling Berlusconi an eminence grise