Spain

Spain's debts to hit 20-year high

Spanish government bonds suffer as admission debt-to-GDP ratio will reach 79.8% fans fears Spain will need bailout

the Guardian,

2 April, 2012

Spain has set off further alarm bells among bond investors and its crisis-hit eurozone neighbours by conceding that its debts will balloon this year to their highest level for two decades.

The admission fanned fears that the recession-bound country will lose its battle to stay on top of its debts without reaching for outside bailout funds and knocked Spanish government bond prices.

Despite announcing its most austere budget for more than 30 years last week, Spain's government admitted on Tuesday that the debt-to-GDP ratio will jump to 79.8% in 2012 from 68.5% last year.

Ministers put the rising ratio, which will still be below the European average, down to high interest payments, Spain's contribution to the Greek bailout and the cost of support for its own banks and regional authorities.

Nerves around Spain's creditworthiness – whose economy is twice the size of that of Greece, Ireland and Portugal combined – had settled somewhat since the depths of the eurozone debt crisis last year. But recent days have brought renewed fears in financial markets and among fellow eurozone members that Spain could be the biggest threat to their future.

The latest downbeat news from the government sent shares falling and bond yields climbing. Spain's main IBEX share index ended 2.7% lower while the spread between Spanish bonds and their German equivalents widened as investor confidence slipped.

The market moves undid much of the brief gains made last week in the wake of a budget from Mariano Rajoy's conservative government announcing €27bn (£22.5bn) in spending cuts and tax rises.

Economists and many Spaniards, a million of whom took to the streets in a general strike last week, fear the tough budget will accelerate the country's renewed slide into recession. The economy is already under pressure from tumbling house prices, a troubled banking system and the highest youth unemployment in the eurozone.

Economists at Citigroup predict Spain will end up being pushed into "some form of a Troika programme" this year, meaning terms set by the International Monetary Fund, the European Central Bank and the European Union. Such a move would probably be a condition of further ECB support for Spanish banks, which are currently the main buyers of newly issued Spanish sovereign debt, they say.

Still, they draw a contrast with other peripheral eurozone economies. "Even if Spain enters a programme, we expect that it would likely continue to fund itself at least partly in the market, unlike Greece, Ireland and Portugal," say Citi's Ebrahim Rahbari and Guillaume Menuet.

Nor do they see the country's sovereign debt problems reaching the same crisis levels as in Greece. "We continue to believe that sovereign debt restructuring in Spain is unlikely. But to ensure fiscal sustainability, more radical structural and in particular fiscal measures are needed, in our view. Despite a substantial increase in the provisions of Spanish banks, more capital is likely needed."

That's more than the population of NZ – youth employment is over 50%.

Spain's jobless level hits record 4.75 million

The number of Spanish jobseekers rose for the eighth month in a row in March to hit a record 4.75 million.

BBC,

3 April, 2012

The Labour Ministry said the number of people filing for unemployment benefits rose by 38,769 with the services sector seeing the most jobs lost.

The jobless rate in Spain stood at 23.6% in February, according to EU figures released on Monday.

Meanwhile, Spain has said its public debt will leap more than 10 percentage points this year to 79.8% of GDP.

'Recovering confidence'

The Finance Ministry said: "Public debt will rise from 68.5% of GDP at the end of 2011 to 79.8%, a level which is still below the eurozone average of 90.4%."

It comes as Budget Minister Cristobal Montoro presented his government's 2012 budget to parliament.

The package, which was approved by the cabinet on Friday, includes 27bn euros' ($36bn; £22.5bn) worth of spending cuts and tax increases.

"We are convinced that this budget will meet the challenge of recovering the confidence of our European partners," Mr Montoro told a news conference held in parliament.

The European Union has set a ceiling for public debt of 60% of gross domestic product.

'Unsatisfactory situation'

The unemployment figures released on Tuesday show that the situation is worse for young Spaniards, as youth unemployment is running at 50%.

Spain has the highest unemployment rate in the European Union and it is expected to rise further this year.

The government hopes that reform to the labour market will help ease the problem.

Its measures include cutting back on severance pay and restricting inflation-linked salary increases.

But those measures have angered unions, who organised a general strike last Thursday.

Secretary of State for Employment Engracia Hidalgo said in a statement: "We continue to face an unsatisfactory situation of an increase in the number of people registered as unemployed.

"This is why it is necessary to reiterate the importance of creating confidence and flexibility for companies, as was done with the labour law reform."