Debt crisis and fiscal consolidation in Spain

Abstract

This paper analyses the start of the debt crisis in Europe and in Spain, which increased inflation, unemployment and public debt. Although Spanish banking system was considered one of the best, the growing debt brought Spain into one of the worst affected countries in financial crisis. Because of this, Spain was faced to the fiscal consolidation as the imperative for further development. The strength of the crisis in Spain can be seen from main economic indicators. Budget deficit in Spain was almost 12% just two years after it went into surplus for the first time in 30 year period. Public debt has started to rise from 2007 and in 2013 it overcomes 90% of GDP. The rate of unemployment also started to rise from 2007 and in 2013 it is higher than 25%. This paper analyses also Phillips curve in Spain using the actual data after the start of fiscal consolidation.