ces, an economic crisis broke out in the mid-1970’s. A dramatic rise in the price of oil had an unfortunate affect on Spain’s economic situation, and because of its reliance on oil and the fall in world demand for steel and shipbuilding, Spain became less competitive with the new industrialized countries in South East Asia. As a result, the public deficit increased and there was a steep fall in commercial surpluses. Inflation soon followed when the authorities tried to make amends instead of adjusting domestic prices and applying an expansive financial policy. The government financed these losses by recurring to the currency reserves, putting Spain knee-deep into debt. Finally in 1977, the “Moncloa Pacts” were adopted, which included the devaluation of the peseta, a moderately restrictive monetary policy, and an income policy with a commitment to begin structural reform. This was unsuccessful as the industry failed to adapt itself to the new parameters of prices and demand, continuing to throw Spain deeper and deeper into debt until 1982. To plainly state the economic situation for Spain from 1975 to 1982, the Gross Domestic Product grew by an average rate of 1.5%, while the gross formation of capital decreased by an average rate of 2.5%.Spain political situation was revolutionized when the first socialist government took over in 1982. These unfortunate new leaders were handed down high inflation rates (14%), low growth rates, a deficit in the balance of payments on current account of an eye-popping four billions dollars, as well as a public deficit of almost 6% of the GDP, and all the while housing a high and growing rate of unemployment. In response to this, a gradual adjustment policy was created to reduce inflation, the foreign debt, the public debt, and unemployment. In this three-year period of adjustment, authorities established the basis for sustained growth and prepared the Spanish economy for ...
