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Unemployment in Spain Exceeds 25%, Taking Economic Misery to New Levels | |
(about 5 hours later) | |
MADRID — Though hardly a surprise, Friday’s report that Spain’s unemployment rate had surpassed 25 percent was bad news for a government that recently trumpeted a streamlining of its labor market rules. | |
The ranks of the unemployed swelled to 5.78 million people at the end of the third quarter, compared with 5.69 million a quarter earlier and 2.6 million four years ago, when Spain’s property bubble burst, the report said. | |
The jobs data signaled a deepening recession and raised the likelihood that Spain would again miss budget targets agreed to with other euro zone countries. | |
There was, however, one perversely positive element to the report: the labor picture is so bleak that it could help Prime Minister Mariano Rajoy make the case that Germany and other lenders cannot risk imposing further austerity measures on Spain’s economy in return for providing more European rescue funding. | |
The dire jobs report “gives Rajoy more leverage in his European negotiations and is good ammunition to ask for more time to adapt,” said Federico Steinberg, an economist at the Elcano Royal Institute, a research organization in Madrid. | |
Mr. Rajoy, however, is also fighting the crisis at home. Unions have called a general strike for Nov. 14, and elections in Catalonia on Nov. 25 could accelerate that region’s drive toward independence. | Mr. Rajoy, however, is also fighting the crisis at home. Unions have called a general strike for Nov. 14, and elections in Catalonia on Nov. 25 could accelerate that region’s drive toward independence. |
Luis Garicano, a professor at the London School of Economics, said the government’s cost of paying unemployment benefits, now almost 4 percent of gross domestic product, was unsustainable. After 20 consecutive quarters of job destruction, he said, “people see very little light at the end of the tunnel, and Spaniards are losing hope.” | |
The separatist push in Catalonia “is partly a reaction to this lack of hope,” Dr. Garicano said. “It worries me for what it says about what can happen in the next two years, in which we will have a sharp fiscal contraction, low external demand, continuing deleveraging by households and restricted credit to companies.” | |
On Friday, the International Monetary Fund and a team of European officials wrapped up a visit to Spain to assess its efforts to shore up its banking sector. The so-called troika of the I.M.F., the European Commission and the European Central Bank issued positive statements but urged Mr. Rajoy’s government to maintain momentum on reform. | |
The assessment is part of the process that would enable Spain to receive up to 100 billion euros, or $130 billion, of banking aid that euro zone finance ministers pledged in June to provide. Lengthy wrangling over how to disburse the money underscores the extent to which Spain is losing the sovereignty argument Mr. Rajoy has long employed. | |
Instead, Mr. Rajoy was forced at a recent summit meeting of European Union leaders in Brussels to accept that conditions for Spain to receive European funding essentially need the approval of Germany, where Chancellor Angela Merkel is increasingly wary of supporting any additional euro zone bailout program ahead of next year’s elections. | |
Spain’s banking crisis came to the fore in early May, when Madrid nationalized one of the country’s largest lenders, Bankia, and then requested the banking bailout a month later. On Friday, Bankia reported a loss of 2.6 billion euros for the third quarter. | |
One of the immediate challenges for Madrid is how to value assets that Bankia and other troubled banks are set to transfer to a so-called bad bank, which is meant to sequester tens of billions of euros of property loans and repossessed assets that carry the risk of never being repaid or sold. | |
In setting up the bad bank, Madrid must perform a balancing act, one that proved Ireland’s undoing earlier in the European debt crisis. The challenge is to make such assets cheap enough to attract private investors without forcing the entire banking sector to make steep and immediate reductions in the value of their whole property portfolios. | |
One possible investor in the bad bank is the investment firm Kohlberg Kravis Roberts, which is also in talks to invest in the Spanish hotel chain NH Hoteles, the lodging company said Friday. | |
In Spain, “we are starting to see some positive indicators,” said Alexandre Perez Casares, a private equity associate at K.K.R.’s London office. “Of course, the key requirement is to make private investors feel confident to commit long-term capital to Spain and to finalize the stabilization of the financial sector, for which a successful implementation of the bad bank is critical.” | |
While the latest jobs report makes for grim reading, Spain is showing resilience in some crucial sectors of its economy. Exports have risen, as they did in neighboring Portugal, which has swung to a trade surplus. | |
Tourism, which accounts for one-tenth of Spain’s economy, has also remained relatively buoyant, with Spain welcoming a record number of foreign visitors this summer — 7.7 million in July alone. | Tourism, which accounts for one-tenth of Spain’s economy, has also remained relatively buoyant, with Spain welcoming a record number of foreign visitors this summer — 7.7 million in July alone. |
An announcement this week by Ford that it would shut three factories elsewhere in Europe, eliminating 5,700 jobs, elicited a sigh of relief in Spain. The decision essentially protects Ford’s factory in Valencia, which will take over production from Genk, the Belgian factory Ford plans to close. | |
Javier Díaz-Giménez, an economics professor at IESE Business School, said he had “a change of mind” around July about whether Spain’s adjustment efforts were working. “I believe Spain is coming out of recession, but very slowly,” he said. | |
Solving the costly unemployment problem, however, is a real challenge. Drastic measures like lowering the minimum wage or cutting unemployment benefits, Mr. Díaz-Giménez warned, would probably mean “fire on the streets.” | Solving the costly unemployment problem, however, is a real challenge. Drastic measures like lowering the minimum wage or cutting unemployment benefits, Mr. Díaz-Giménez warned, would probably mean “fire on the streets.” |
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