Spain's 24% jobless rate is worst in Europe

SPAIN’S FINANCIAL woes are deepening as new figures show the country is losing about 30,000 jobs a week and its credit rating has been cut. These developments will make it more difficult to meet tough budget targets.

Although ratings agency Standard Poor’s says its downgrade does not mean Madrid will need a bailout, the move reflects a drastic seepage of confidence from Spanish debt as the country battles a renewed recession.

At the same time, SP took a swipe at EU leaders and said their strategy in the debt crisis lacked effectiveness.

“We think credit conditions, and hence the economic outlook for Spain, could now deteriorate further than we anticipated earlier this year unless off-setting euro zone policy measures are implemented to support investor confidence and stabilise capital flows with the rest of the world,” SP said.

The EU authorities insist Spain will not need external aid, although some senior figures say the unyielding force of the pressures on the country mean it is increasingly likely that some form of assistance will be needed.

Euro zone finance ministers are not due to hold their next scheduled meeting for a fortnight, but they and their non-euro counterparts will gather in Brussels next Wednesday to discuss new capital requirements for the banking sector.

The pressure on Spain was underscored by new figures which revealed almost one in four Spaniards are jobless, with half of the country’s young people out of work.

Spain lost 365,900 jobs in the first three months of the year, to bring the number unemployed to 5.64 million.

The unemployment rate in March was 24.4 per cent, Europe’s worst.

The job losses in the three-month period are likely to erode tax revenue by some €953 million, presenting a further challenge to the centre-right government as it tries to reduce the budget deficit.

“The figures are terrible for everyone and terrible for the government,” said foreign minister José Manuel Garcia-Margallo. “Spain is in a crisis of huge proportions.”

In power since December, the government is saddled with a mounting bank crisis and a sharp spike in its borrowing costs.

Prime minister Mariano Rajoy warned this week that the country was at risk of meeting the same fate as Ireland, Greece and Portugal, Europe’s bailout recipients.

In Brussels, however, a European Commission spokeswoman said the EU’s executive branch was persuaded that the combination of labour and economic reforms and budget consolidation would restore confidence in the Spanish economy.

“We are confident as to the commitment and determination shown by the Spanish government with regard to complying with its obligations in order meet the targets set for 2012 and 2013.”

Cutting its assessment of the credit-worthiness of Spanish debt by two levels, SP said the country’s budget trajectory “will likely deteriorate” due to the shrinkage of the Spanish economy.

“At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector,” the agency added.

“As a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further.”