The coronavirus pandemic has caused the largest decline in the Spanish economy in 85 years. According to the estimates of the academic Leandro Prados de la Escosura, only the Civil War and the crisis of 1868 have caused greater collapses of the gross domestic product in the last 170 years.
We review some of the main hits suffered in modern history with the help of the book Economic Crisis in Spain 1300-2012. Lessons in History , by Francisco Comín and Mauro Hernández.
The Spanish economy suffered a drop of 11% in 2020 . It is the biggest drop in activity in peacetime due to restrictions imposed by the authorities to try to contain the spread of the coronavirus. The recovery in the second half of the year has been insufficient to offset the damage of the pandemic after the harsh confinement between March and June and the subsequent restrictions.
The services and hospitality sectors were the branches of activity most damaged during the past year, to which is added the deterioration of the foreign sector, the slowdown in domestic demand and the collapse of investment. Only public spending managed to stop the bump somewhat and offset a significant part of the fall in household income thanks to ECB financing.
The financial crisis that erupted in 2008 after the housing bubble burst in the United States had its iconic image in the fall of Lehman Brothers back in September 2008. The credit bubble burst around the world and financial markets closed access to the liquidity. In Spain, the brick bubble that the national economy had ridden in previous years burst.
Also the budgetary balance of public accounts. And the financial and economic crisis of 2008 was followed by a sovereign debt crisis in 2012. Panicked markets then fled the countries with the most imbalances. The Spanish economy had accumulated problems of competitiveness within the euro and a great dependence on external financing.
With a soaring unemployment and public deficit, the country was in an extreme situation, almost without being able to finance itself until the president of the ECB, at the time Mario Draghi, pronounced the magic words in July 2012: “I will do whatever is necessary”.
Mariano Rajoy had to ask the EU for funds that same summer to finance the bank rescue. Then came the adjustments and austerity policies that marked an era and caused political fragmentation since 2015 with minority governments and situations not seen since the Second Republic.
The 1993 crisis is also characterized by problems of competitiveness when trying to form a single European currency. As a preliminary to a common scroll, European countries linked their currencies to the German mark.
But West Germany had just absorbed the GDR by accepting a very high value of the communist currency. That caused inflation there and the need to raise rates, drowning out the rest of the countries, which could only keep their currencies tied to the mark by raising rates above what their economies could endure.
The government of Felipe González had allowed the peseta to appreciate a lot to curb inflation. However, this ended up damaging competitiveness and four devaluations of the peseta had to be carried outbetween 1992 and 1995 and a stabilization plan.
The Spanish economy had overcome the ups and downs of the world economy at the beginning of the 1990s, thanks to the investment commitment to organize the Barcelona Games and the Seville Expo. But when the party ended, the country found itself with highly indebted public administrations and companies.
From the second quarter of 1992 to the autumn of 1993, the Spanish economy had negative growth rates. GDP contracted 1.1% in that period.
The oil crisis began in 1973 with the decision of the Arab countries not to sell crude to those who supported Israel in the Yom Kippur war. Dependence on black gold was then very high and the price soared. Furthermore, the Bretton Woods system is unraveling and countries let their currencies fluctuate, further fueling the problems.
In Spain, the Franco government tries not to pass on the rise in prices at the cost of borrowing abroad. Until it couldn’t hold out any longer and ultimately caused rampant inflation, high unemployment rates amid the incorporation of women and rural emigration, and an industrial and energy crisis. In addition, imbalances with the exterior and the budget increased.
The decline of the dictatorship, the delay in reacting, Franco’s industrial heritage and the outbreak of a serious banking crisis that affected half of the entities aggravated the difficulties. With the Moncloa Pacts, an attempt was made in 1977 to give an answer by adopting measures to tame inflation and the public deficit.
In 1945, the Spanish gross domestic product suffered a hit of 8.1% due to World War II, the weakness of the German partner that lost the contest and the establishment of an Autarchyunder the fascist dream of protecting national production. The Francoist state that emerged from the Civil War arbitrarily intervened the economy, nationalized multinationals and closed itself off to foreign investment.
At a time when Europe began to liberalize the economy and create a welfare system, the Franco regime launched into extreme and anachronistic mercantilist policies. In addition, food exports were allowed in exchange for imported machinery instead of wheat, which further exacerbated the famines. And the high interventionism generalized the black market and rationing.
Professor Francisco Comín explains that in reality there was only one crisis from 1929 to 1955 and that this was the true great depression of the Spanish economy, fueled by war, autarky and the erroneous policies of the regime.
The destruction sown by the Civil War was reflected in the greatest economic contraction in modern Spanish history. In 1936, the activity sank by 26.8% according to the estimates of Padros de la Escosura. On top of that tremendous drop, the following year another 7.4% crash was added.
And in 1938 there was a decline of 0.4%. In total, the war conflict meant the loss of about a third of production. But it does not stop there. As a result of the Falangist ideology of producing everything in the country, the Autarchy aggravated the hardship and prolonged the economic catastrophe for two decades until the 1959 Stabilization Plan, which liberalized the economy and opened it up to foreign capital, firing GDP.
The first great global crisis happens at the end of the 19th century. This was unleashed by the fall in agricultural prices due to cheaper transport and arrived in Spain between 1882 and 1897. In 1895 the Cuban War of Independence also began, which ended with the entry of the United States into the conflict in 1898 The spending generated by the military escalation in Cuba and the Philippines initially helps to counteract the decline in activity.
But then it exacerbated the crisis by creating added fiscal problems. A phylloxera plague and bank difficulties also contributed. The issuance of securities to finance the colonial wars left public debt at 123% of GDP in 1902, the year from which it began to decline thanks to a restructuring and a fiscal reform orchestrated by Fernández-Villaverde. To get out of that crisis, Spain depreciated the peseta and introduced trade protectionism. And it was favored by the return of capital from Cuba once the colony was lost.
The origin of the serious crisis suffered between 1866 and 1868 was in railway investments. These fueled a bubble, also in construction and the stock market, and exploded dragging with them the banks, which had multiplied credit by three and triggered the number of entities after the liberalization of the sector motivated by the need to finance investments in the sector. railway.
Two Catalan entities were the first to fall causing a panic. The number of banks was reduced from almost sixty to the fortnight that existed before the crisis. And this financial crisis was combined in an explosive cocktail with a series of bad harvests that caused a subsistence crisis, with riots in cities like Seville or Granada.
Further, the Catalan textile industry had suffered serious difficulties shortly before due to the lack of cotton due to the Civil War in the United States. And all this led to the Glorious Revolution, which dethroned Queen Elizabeth II.