by
5-23-2013
Spain’s pain is likely to continue, despite some promising reforms, unless new sources of growth emerge
THE gloom in Spain is almost palpable. Yet two years on from the protests begun in Madrid by young Spaniards known as los indignados, most accept their lot with resignation. The government of Mariano Rajoy is unpopular, but so is the opposition. And whereas many other stricken euro-zone countries blame the Germans for their woes, Spaniards recognise that they are paying for their own excesses, especially the burst property bubble.
The numbers are grim. The economy is in deep recession. In the first three months of the year GDP shrank for a seventh quarter in a row. The public finances remain stretched, with the budget deficit at 7% of GDP. Bond yields have fallen, but the credit crunch for small firms is worsening. Corporate bankruptcies are running at ten times pre-crisis levels. And unemployment is at a record 27% (see article).
Spain could be the biggest test for the euro. Four countries—Greece, Ireland, Portugal and most recently Cyprus—have been bailed out and are in programmes agreed on with the “troika” of the IMF, the European Union and the European Central Bank. But Spain is the only big euro member that has come close to a bail-out. Instead, it last year took a halfway offer of €100 billion ($129 billion) support from the European bail-out fund for its banks (it drew €41 billion). Unlike France, it has made big structural reforms. Unlike Italy, it has a strong government that expects to last until the next election in late 2015.
THE gloom in Spain is almost palpable. Yet two years on from the protests begun in Madrid by young Spaniards known as los indignados, most accept their lot with resignation. The government of Mariano Rajoy is unpopular, but so is the opposition. And whereas many other stricken euro-zone countries blame the Germans for their woes, Spaniards recognise that they are paying for their own excesses, especially the burst property bubble.
The numbers are grim. The economy is in deep recession. In the first three months of the year GDP shrank for a seventh quarter in a row. The public finances remain stretched, with the budget deficit at 7% of GDP. Bond yields have fallen, but the credit crunch for small firms is worsening. Corporate bankruptcies are running at ten times pre-crisis levels. And unemployment is at a record 27% (see article).Spain could be the biggest test for the euro. Four countries—Greece, Ireland, Portugal and most recently Cyprus—have been bailed out and are in programmes agreed on with the “troika” of the IMF, the European Union and the European Central Bank. But Spain is the only big euro member that has come close to a bail-out. Instead, it last year took a halfway offer of €100 billion ($129 billion) support from the European bail-out fund for its banks (it drew €41 billion). Unlike France, it has made big structural reforms. Unlike Italy, it has a strong government that expects to last until the next election in late 2015.
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