Spain crisis deepens with jobless rise

Spain’s economic woes deepened on Friday as the government revealed that unemployment rose to nearly 25 per cent, a day after a credit ratings agency downgraded the country’s debt and warned it faces an uphill battle to get a grip on its finances at a time of recession. Official figures showed that unemployment has jumped to 24.4 per cent in the first quarter of 2012 -the highest rate in the 17-country eurozone -from 22.9 per cent in the fourth quarter of 2011. The data showed that another 365,900 people lost their jobs in the first three months of the year, taking the total unemployed to 5.6 million. The current rate is the highest since 1994, when it reached 24.55 per cent. The rate for people under 25 year is now 52 per cent, up from 48.5 per cent in the previous quarter. “The figures are terrible for everyone and terrible for the government,” Foreign Minister Jose Manuel Garcia-Margallo told Spanish National Radio. “Spain is in a crisis of enormous magnitude.” The total number of unemployed increased by 729,400 compared with the first quarter of 2011. The National Statistics Institute said Spain now has 1.7 million households in which no one has work. The figures were another blow to the conservative government of Mariano Rajoy after Standard & Poor’s late on Thursday became the first of the three leading credit rating agencies to strip Spain of an A rating. It cited a worsening budget deficit, worries over the banking system and poor economic prospects for its decision to reduce the rating by two notches from A to BBB”. S&P even warned that a further downgrade is possible as it left its outlook assessment on Spain at “negative.” Spain, the eurozone’s fourth-largest economy, is just now just three notches above so-called junk status. Earlier this week, the Bank of Spain confirmed that the country had entered a technical recession -two consecutive quarters of negative growth. The country’s economic problems have become the epicenter Europe’s debt crisis in recent weeks as investors worry over Spain’s ability to push through austerity measures and reforms at a time of recession and mass unemployment. The cuts are aimed principally at slashing the government’s deficit from 8.5 per cent of economic output to the maximum level set by the European Union of 3 per cent by 2013. For this year the goal is 5.3 per cent. With the economy shrinking and the population restless, there are concerns that the government will not meet its targets and will be forced into seeking a financial rescue as Greece, Ireland and Portugal have done before. The difference is that Spain’s economy is double the size of the combined economies of the three countries that have already been bailed out. The other eurozone countries would struggle to muster enough money to rescue it. Even if the eurozone finds the financial capacity to bail out Spain, economists warn the crisis could then envelop Italy, the eurozone’s third-largest economy, which owes around €1.9 trillion ($2.5 trillion), more than double Spain’s €734 billion. The Spanish government acknowledges that labor reforms enacted to loosen up rigid laws on hiring and firing will not make a dent in the jobless rate until next year. To prepare for such a steep economic downturn, businesses have been laying people off at a faster rate than expected, said IESE Business School economics professor Antonio Argandona. Argandona said Spain is not now at risk of needing a bailout because its government is still solvent, but it and other countries are indirectly being helped over the short term by cheap loans from the European Central Bank. Spanish banks have been taking the money and using it to buy the government’s high-yield bonds.