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EU Integration Essay

Spain was, at one point, held up as a model of the benefits of regional integration. Its economy, and construction sector in particular, was booming, and the government was running a surplus. However, the underlying lack of balance in the Spanish economy was a problem that derived from regional integration and would soon leave Spain with a massive long-term economic problem, perhaps evidenced most dramatically by the 57.7% youth unemployment rate that threatens to wipe out the economic productivity of an entire generation of Spanish youth (Silvera, 2014). The benefits of regional integration -- found in the form of the European Union and the Eurozone are that it is supposed to promote easier flow of capital and labor, so that the region's economy functions more efficiently. While this is true on paper, in the real world economic efficiency is not necessarily an optimal outcome. For example, there is no system by which those areas that benefit strongly from integration will assist those regions that do not benefit as strongly. Hernandez, Novell and Fabregat (2000) showed that pre-euro there was no evidence...

This is contrast to the predictions of the economic doctrine that underlies integration.
After the creation of the euro, there was some evidence of specialization, in particular in the real estate sector. Spain was deemed to have comparative advantage in nice weather, a benefit for the retiring class from northern countries. Spain experienced a real estate boom and then bust, but became so dependent on that construction economy fuelled by ease of capital movements that the country is still in denial that the bubble has burst (Smyth, Callanan, Doyle, 2012).

The problem with regional integration is that while it promotes easier capital flows, there remain limits on labor flows. Capital flows led to the housing boom, which distorted the Spanish economy and removed incentive for diversified investment. The problem is that when the focus of European economic development shifts to another region, labor movement still faces barriers. While technically…

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References

Silvera, I. (2014). Spain's youth unemployment rate hits 57.7% as Europe faces a lost generation. International Business Times. Retrieved March 7, 2014 from http://www.ibtimes.co.uk/spains-youth-unemployment-rate-hits-57-7-europe-faces-lost-generation-1431480

Hernandez, E., Novell, J. & Fabregat, D. (2000). Regional integration and specialization patterns in Spain. Universitat de Barcelona. Working Paper No. 62.

Smyth, S., Callanan, N. & Doyle, D. (2012). Spain real estate madness continues despite burst housing bubble. Financial Post. Retrieved March 7, 2014 from http://business.financialpost.com/2012/05/02/spain-real-estate-madness-continues-despite-burst-housing-bubble/
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