What Southern Europe needs is not Austerity but Economic Reform

What each Southern European country needs now is not to spend less. Spending less alone will only exacerbate the recessions and make the countries insolvent. Even if the cuts in spending are made in areas in which today there is corruption and waste. Austerity, if it's used as the only medicine, could have the opposite effect and lead to an economic depression. What Southern European countries need to do is "selective austerity" in areas where there is clear waste complemented with increased spending in areas that have a strong multiplier effect for the economy. What these countries need more than austerity is economic reform. The following is a list of random ideas for Spain that will accelerate economic growth. Portugal, Italy and Greece should make their own lists many of which will be similar.

Measures to promote economic growth:

-allow companies not to pay social charges for increased payrolls during 2012, then normalize the situation of these workers gradually over 4 years. Make 2012 "el año del trabajo" the year of employment creation and move 1 million unemployed into the labor force. This is the proposal that I presented to both Rubalcaba and Mariano Rajoy via Luis de Guindos. It was well received and so far publicly endorsed by the PSOE.

-until unemployment falls below 12% have the government should guarantee forced severance pay (indemnización) so entrepreneurs and businesses risk hiring them. This measure should be applied only for increased payrolls or new employees additional to 2011 payroll.

-have credit available for new companies. The government has to make Spanish bank create a category of lending at high interest rates for new companies, it is acceptable that loans be offered at 18% for say half the funds necessary to start a new business if the entrepreneurs and investors are willing to risk the other half. If Spain said that from now on any business that raises say 1 million euros in equity gets another million at 18% default rate would still be reasonable as people don't want to blow up their equity and at 18% winners could pay for losers. High interest rates for risky businesses makes sense and since the Spanish government has saved so many banks it can also force them to do this type of lending. Soon the banks may discover that it is a good line of business.

-make it much easier to open a pharmacy, now pharmacies in Spain make absurd profit margins and underserve the population.

-make it easier to become a notary another profession with absurd profit margins, allow lawyers to do a lot of the work that notaries do. Believe it or not in Spain I have to leave my office and go and see a notary to go ahead with most transactions in business. The notary system is archaic.

-create a new company employment regime that allows new companies of up to 10 employees not to pay social charges nor pay forced severance pay in case of failure during the first 5 years of its life. Recognize that you cannot have the same labor laws for start ups than for established profitable companies.

-make it easier to get a driver's license, currently absurdly hard compared to other countries and car sales are at an all time low.

-make it easier to get a sailing license currently absurdly hard compared to other countries and boat sales are at an all time low.

-eliminate the 12% matriculación tax on yachts and planes that make both Spaniards and foreigners keep yachts and planes in other countries like Portugal, Italy and France destroying Spanish employment.

-allow companies and workers negotiate the right retirement age, not everyone ages the same way, companies may want to keep workers beyond retirement or negotiate early retirement for some.

-allow tenants and landlords on all NEW rental contracts to freely pact conditions of rent and make courts work fast on vacating apartments of those who don't pay. Currently Spain has more vacant apartments in proportion to all apartments than any other country. People are still afraid of renting.

-allow anyone who has a work contract with a salary of over 50K euros a year to get immigration papers to come to Spain in 30 days. Right now it is very hard for companies to bring high paid employees from outside the EU. If a company wants to do so it's because it can't find the same talent in Spain. Bringing talented foreign workers will increase employment in Spain.

-as employment in the private sector grows reduce employment in the public sector. Reform the whole funcionario (public servant) system that is perverse in which state workers have benefits that are unheard of in the private sector. Make it much easier to fire funcionarios who underperform. Allow citizens to dodge complains on funcionarios and after a certain number of complains have funcionarios lose their jobs. Promote good funcionarios, fire bad ones.

-drastically reduce military spending. In general I think it's absurd that each European country retains an army. Europe should have one great European army and not many national armies. There would be a great economy of scale in one European army. But other than that I think that other than firing military personnel something that should be done with incentives but not actual reductions that Southern European countries should stop buying weapons for 5 years. Military spending is the spending with least social consequences for the rest of the nation. Military spending is in great part what brought Greece down.

-charge 10 euros for any visit to any medical facility in Spain. 10 euros is a symbolic amount but it will deter some people from going to seek medical care when they truly don't need it. Allow all the unemployed to continue going for free.

-raise property taxes in Spain accross the board on all properties by 20% but eliminate the controversial wealth tax that is so much harder to collect. Property taxes are fair as they are paid in relation to the value of the property and are easy to collect. This is the strategy of the state of Florida and has worked very well over the years.

-raise taxes on all cars with engines bigger than 2000cc or a certain amount of HP by 20%.

-raise taxes on tobacco and all liquor except wine and bear by 20%.

-liberalize opening hours of all shops in Spain, allow shop owners to decide when they open and close.

-allow the construction of one homes of up to 1000m2 per every 10 hectares or 100,000 square meters in the countryside of Spain. Right now no homes can be build in the countryside but one home every 10 hectares is an ultralow density and it may still create a lot of new jobs both in construction and in home maintenance. Spain has traditionally forced clustering of new homes not being able to enter the "estate home" market which is ecologically sound and creates a lot of employment. Moreover many foreigners do not like to buy clustered homes. Allow countryside hotels of no more than 15 rooms every 20 hectares of land.

-create a category of summer employment in Spain for jobs no longer than 90 days a year and people under 27 years old that is completely unregulated that would allow students to earn extra income in the summer without employers having to pay social charges or students having to report their income. It is important that jobs would last a maximum of 90 days in order to prevent abuse of the system. Also jobs like this can only be had in June, July and August and cater to Spanish largest industry, tourism.

-copy the tax resident non dom system of UK and make it applicable to all of those who do not have a Spanish nationality. This system is perfect for Spain because many want to retire or live in Spain and now do but illegally. The law is never enforced but I can see why many law abiding foreigners would not want to move permanently to Spain for fear of being taxed. Spain already has the Beckham law but a non dom tax resident system such as the one of the UK may make it easier for more foreigners of means to move here.

-reduce tax evasion in general, increase controls on how people collect unemployment insurance, have 1000 euros fines that are easily collectible for people who work and are not part of the social security system.







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