In Spain neither economic policy nor business responded with the flexibility to the new economic parameters following the rise in the price of oil and raw materials, in addition to the changes in world demand, which came about in 1973 and 1974. The reasons were twofold; on the one hand, the economy was protective and characterized by state intervention, and thus was not accustomed to respond to market forces. On the other hand, the economic crisis coincided with the end of one political regime and the transition towards another very different one. As the adjustment to new parameters would have a high cost with respect to unemploument, the political weakness of the Government towards these changes meant that it could not oppose the strong labour claims that flourished after a long period of imposed silence.

As a consequence, the dramatic rise in the price of oil did not translate into a price increase of oil products, nor did industry adapt to the new market conditions, and was maintained by state subsidy. Furthermore, workers did not accept the wage moderation that had to be applied to confront the fall in workers productivity, as a result of the rise in price of such an essential production factor as petroleum. In addition, Spanish industry was especially sensitive to the new economic situation, since it consumed a great deal of oil, was very affected by the fall in world demand for steel and ship building, and was less competitive than the new industrialized countries in South East Asia in the industries of textiles and footwear. This was responsible for the following results: a notable increase in the public deficit, due to the artificial maintenance of domestic prices for petroleum byproducts as well as to subsidies compensating companies for their losses; and a steep fall in commercial surpluses, a result of the growth in nominal wages, much higher than the increase in the marginal productivity value of labour. The fall in business margins, linked to the deterioration in their expectations, had an immediate effect on productive ivestment, and mortgaged the possibilities for economic growth and job creation.

Furthermore, since the deficit was not financed in an orthodox way, by restoring to the capital market, but by appealing to the Bank of Spain, a strong inflationary process was encouraged. In short, in response to the loss of real income, which was a consequence of the energy crisis, the economic authorities tried to make amends instead of adjusting domestic prices of petroleum by-products to the increase in the price of crude and applying an expansive financial policy (monetary and fiscal). These policies of expansive demand, together with the appreciation of the work factor, fed an inflationary spiral that had been instigated by the increase in the price of oil.

At the same time, the actions of both the economic authorities and assorted social agents increased the deterioration of the balance of payments on current account, brought about by the rising imports which the economy continued to support. This deterioration was not corrected by the devaluation of 1976. Since the economy was highly indexed, the increase in competitiveness in exports derived from the devaluation were quickly balanced out by the increase in prices due to the same. Moreover, as the external imbalance was not a result of an excess of domestic spending, the devaluation was not able to adjust domestic demand to a level similar to domestic production. The progressive deterioration of the current account balance had negative repercussions on foreign investors' expectations, and the consequent reduction in foreign investment was unable to finance the deficit. As a result, it had to be financed by recurring to the currency reserves, creating a heavy indebtedness and leading to a situation that could not be prolonged much longer. The authorities were thus obliged to recognize the inevitable need to adopt adjustment measures to the new relationship of factor prices.

The first severe measures of macroeconomic adjustment were adopted in 1977, with the so-called "Moncloa Pacts". These included the devaluation of the peseta, accompained by a moderately restrictive monetary policy, and an income policy together with a commitment to begin structural reform. All this was adopted by the consensus of Spain's major political forces. However, Spanish industry failed to adapt itself to the new parameters of prices and demand, and the problem remained even after the second oil crisis of 1979. At this time, a further increase of inflationary imbalances and unemployment was produced accompained by the deterioration of State accounts and the balance of payments, thus generating a situation of economic uncertainty which discouraged investment and perpetuated stagnation. In short, the imbalances increased and no consensus was achieved to correct them. During the period from 1975 to 1982, the Gross Domestic Product (GDP) grew by an average rate of 1.5% annually in real terms and the gross formation of capital decreased by an average rate of 2.5% in real terms.