DP388 | Spain and the `EEC cum 1992' Shock

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01/03/1990

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Abstract

This paper provides a conceptual framework to analyze the main economic issues raised by Spain's integration into the EEC and by the vast economic reforms associated with the 1992 European Internal Market. The "EEC cum 1992" event can be described as a major anticipated permanent shock with both real and financial consequences. In the case of Spain it is found that the country can enjoy significant potential long-term gains from full integration into the EEC through exploitation of its comparative labor cost advantage and existing scale and scope economies. Nevertheless, for these potential long-term gains to be made effective while minimizing short- and medium-term adjustment costs, it is critical that the functioning of the labor market be improved, that long-term capital markets be further developed and that fiscal policy share with monetary policy the burden of achieving internal and external balance.