How the ECB Helped Spain “Recover” Faster than Italy from the Crisis

A nation of savers v. a nation of debtors.

In April 2017, the IMF predicted that by the end of the year the Spanish economy would overtake Italy’s in per-capita GDP. It didn’t happen, but Spain does continue to close the gap on Italy.

In 2017, Spain maintained its per-capita GDP at 92% of the EU average while Italy’s slipped another point to 96%. During the darkest depths of the Great Recession, back in 2011 and 2012, Spain’s per capita GDP sank 11 points below that of Italy’s. But now the gap has narrowed to just four points, the smallest since 2007, when, on the back of one of the world’s most mind-watering property bubbles, Spain’s economy very briefly overtook Italy’s.

In recent years, Spain has undertaken painful economic reforms while also benefiting from three tailwinds: the rise of geopolitical risks affecting rival tourist destinations, the ECB’s expansionary monetary policy, and low oil prices. As a result, the economy has grown at a fair clip since late 2013, to the point that it’s often held up as a poster child for Eurozone economic policy, despite 16% unemployment, a surge of low-paid, highly precarious jobs, and a general feeling (in this survey, by 80% of the respondents) that the country still hasn’t emerged from the crisis.

By contrast, Italy’s economy is still roughly 10% smaller than it was before the crisis. Rome’s chronic political instability and policy inertia hardly help matters. But there’s also a far less-cited reason why Spain’s economy has fared comparatively better than Italy’s in recent years: the ECB’s extreme brand of monetary repression, which has massively favored Spanish households over their Italian counterparts…

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