Saturday, April 27, 2013

Spain Can't Catch A Break!

Today Spain is in even worse shape, then when the interest it was paying to borrow money was soaring. The rate dropped when the ECB stepped in and started buying bonds to push the rates back down, this gave the country more time to get its economy back in order. Now many economists believe that proposals going forward must focus less on austerity and more on stimulus measures and structural reforms. The news coming out of Spain will be watched closely amid a growing debate in Europe about whether austerity plans should be reined back. Prime Minister Mariano Rajoy's government will soon unveil new economic reforms as Spain continues to have violent anti-austerity protests. On Thursday, police reported a number of injuries and the arrest of people suspected of planning to burn down a bank.

Spain is in a great depression that is terrifying, years after its housing boom turned to bust, the 27 percent plus unemployment rate is almost too horrible to comprehend. Protest were again in full swing on Friday, the day official figures showed that unemployment in the eurozone's fourth largest economy rose again in the first quarter of 2013. The young have been hit hardest, unemployment reached 57.2% among people under 25 years old, the National Statistics Institute said. With Spain's housing bubble burst and the economy contracting, Mr Rajoy's conservative Popular Party was swept into power in a landslide general election win in November 2011. Since that time the government has reformed the labor laws to make it easier to hire and fire workers, and imposed tough austerity measures to cut the deficit thus saving the country 150 billion euros or $195 billion by 2014.

Back in July of 2012, the story was about how the summer before police fired rubber bullets into crowds after thousands took to the streets in Madrid to protests against government measures. This occurred as Spain's government announced sweeping new austerity measures. At the time Prime Minister Mariano Rajoy said sales tax would rise from 18% to 21%, and local authorities would have their budgets slashed. This was part of a deal with eurozone leaders to help rescue Spain's banks. The move coincided with a miners' rally in Madrid, a large number of people joined in the rally to support the miners who had been campaigning for weeks against major cuts to industry subsidies. Witnesses said protesters out to support the miners threw fireworks, bottles and stones at riot police as the officers fired rubber bullets and charged at the demonstrators.

The austerity plans included
  • VAT increase from 18% to 21%
  • Rise in reduced VAT rate on public transport, hotels and processed foods from 8% to 10%
  • Basic goods VAT on bread, medicine and books stays at 4%
  • Christmas bonuses suspended for public sector workers
  • Unemployment benefit cut from sixth month out of work
  • 30% cut in councilors in some areas
  • Subsidies to be cut by 20% in 2013 for political parties and unions

The economy contracted by 1.37% in 2012, the second-worst annual decline since 1970. The government forecasts that it will shrink again by between 1% and 1.5% this year. There have been widespread reports that the new measures will focus on structural reforms rather than more spending cuts. These may include changes to the public pension system to speed up a planned rise in the retirement age, and an end to inflation-linked reviews of pension payments. There may also be a review of unemployment benefits and measures to boost small business growth. Going forward the economy is expected to be tough with no easy answers or silver bullets available as an fast fix. Over 19 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years.

This is a 1930s style disaster with little in the way of hope or relief visible down the road. Spain seems to be a country that can't catch a break, add to Spain's woes a massive Catalan separatist march in Barcelona that took place recently, it was the biggest since the 1970s. The country's crushing recession has had a divisive consequence on the nation, fueling a soaring popular sentiment in Catalonia and Spain’s second largest city. Many in the affluent region think they would be better off as separate nation. The Spanish government says that a decision for Catalonia's seven million citizens to decide they want to break away from Spain would be unconstitutional, but even such talk adds heat to the problems burning during these restless times.

Footnote; This article dovetails with another post concerning unrest and problems in Europe that I penned on March 12 of this year,                       

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