This is an excellent, must-read article from the Economist. Check it out!
As a result of structural reforms to Spain’s labour market, Spain is now growing strongly ahead of the Eurozone’s norm. Had the reformed labor market been in place earlier, some authorities claim that Spain’s unemployment levels would not have been so severe.
However, Spain’s pain fell mainly upon the young with temporary employment contracts, whilst older workers with traditional jobs have been more protected. Spain’s economic pain was triggered by a property crash, as result of dodgy banks and widespread corruption, countenanced by a socialist government that turned a blind eye and squandered a fortune on pet political causes.
Spain has taken her austerity medicine undiluted, which was prescribed by her creditors, especially Germany. For another insight into Germany’s own labor market reforms open this link.
In comparison to Spain, many other South European countries, most notably Italy and France, have not yet reformed their labor markets.
Personally, I believe that the protected status of some of Europe’s workers is not sustainable. If economic levelers don’t work, watch out for the political reaction, with polarization towards both the hard-left and the hard-right. In this context, I believe that the labor market reforms implicit in the German model are probably the least painful.