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Spanish economic data and investor sentiment on bank restructuring point to imminent Spanish recovery, claims Simon Nixon in the WSJ



    The economically illiterate Simon Nixon

    We are carrying this “hooray crisis over” article from yesterday’s WSJ because it highlights the naïve supply side view that has unfortunately many adherent especially in conservative political parties in Europe (and the US of course as well). Simon Nixon calls Spain an unprecedented experiment in using austerity and reform to get out of a debt crisis, and argues economic data released over the past few weeks point to an imminent economic recovery. Because, Nixon says, the construction sector has hit bottom and unit labour costs have dropped, the stage is set for a business-investment led recovery despite future fiscal consolidation by the public sector presumably remaining a drag on the economy in the near future. Furthermore, he argues that market sentiment the credibility of Spain's bank restructuring is improving and funding conditions for banks, government and firms could improve soon.

    Nixon seems to have no idea of the scales involved. The Spanish export sector has been recovering, albeit from a low base, but the sector is small relative to the rest of the economy. As the IMF pointed out, unemployment will remain at over 25% for the next five years –something hardly consistent with a broad-based economic recovery. The Nixons of this world will, however, try to beat the drum that austerity is working, and that the economy is recovering.
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