Spain is in a complete economic crisis. Its unemployment rate of 24.4 percent is higher than the U.S. unemployment rate during the worst of the Great Depression. And there’s no Spanish New Deal waiting around the corner to turn things around. The prolonged spell of mass unemployment is going to degrade workers’ abilities and prevent young people from gaining skills. The most capable and daring Spaniards will emigrate abroad, and Spanish firms will (rationally) fail to invest in improving the productivity of their workers. This bleak outlook will make investors more reluctant to loan euros to the Spanish government, which will then force more rounds of tax hikes and budget cuts, which will further crush the Spanish economy. A country that was booming a few years ago now looks doomed. But perhaps there is a way out, one suggested by the recent experience of Argentina, a nation that’s currently enjoying full employment. Spain and Argentina faced essentially similar problems. Both emerged from dictatorship with reputations for pleasant climate, good food, fun people, bad macroeconomic management, and low productivity. And after floundering a bit, both hit upon a similar solution: outsourcing macroeconomic management. Advertisement Argentina’s strategy was a currency peg, a firm commitment enshrined in law that Argentine pesos would always be exchangeable at a fixed rate with American dollars. Spain’s strategy was to join the euro, technically a joint project of all member countries but universally understood as a way for countries like Spain and Italy and Portugal to sign up for German-style macroeconomic management. To underscore the point, the European Central Bank was located in Frankfurt, home of the German Bundesbank, rather than in the European Union capital of Brussels.
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