EU austerity: No quick fix for Spain

 

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It is the one set of figures that European officials fear: the quarterly statistics on unemployment.

For amidst all the sightings of green shoots, the lines of those without work serve as a reminder that the crisis in Europe is far from over.

In Spain, the general unemployment level has risen to 27.16%. It means there are six million without work.

The government in Madrid has tried to draw some comfort from the fact that the rate at which jobs are being shed is slower than in previous quarters. The Prime Minister, Mariano Rajoy, says: "Next year we will have growth and jobs will be created in our country."

It is, perhaps, the fate of leaders that they are destined to live in hope. So far, the government has misjudged the severity of the recession. The economy is expected to decline this year by 1.6%.

Spanish nightmare

In the southern Spanish city of Jerez, unemployment is close to 40%. It is not difficult to find couples like Lorenzo Barba and his wife Yolanda. He lost his job - driving trucks - two years ago. His wife was laid off from the hotel sector.

They are under threat of being evicted from their apartment. They scrape by. The fridge is almost empty. For five months, they have not been able to afford fish or meat for themselves in order to give their seven-year-old son a balanced diet.

"There is no future in Spain,' says Lorenzo Barba.

Lorenzo Barba with his wife and son at home in Jerez Lorenzo Barba and his family are going without food and could be evicted from their flat.

"Three generations are being destroyed - mine, my parents' generation because they are supporting us. And the worst part is what will happen to my son."

And herein lies the Spanish nightmare. For the country to see unemployment decline, it needs growth of more than 2%. No one is predicting that at the moment.

So as Daniel Fernandez Kranz, from the IE business school, points out, it is likely that unemployment will continue rising for three or four more years. That will test the resilience of Spanish democracy.

There is some good news from Spain. Its borrowing costs have fallen to levels not seen since 2010. The country is judged as less risky by investors. The current account is moving towards balance and exports are up.

Daniel Fernandez Kranz says it is a story of two economies. The large companies are benefitting from the lower wage costs but the smaller companies, which are the lifeblood of the economy, are still shedding staff.

And perhaps the most important fact to remember: economic activity is still declining. Tough times still lie ahead for Spain.

French slide?

France is waiting for its unemployment figures, which are also due. They, too, are expected to increase and that will be acutely embarrassing for President Francois Hollande who promised, during his election campaign, to bring unemployment down.

Although some steps have been taken to free up the labour market, it remains a daunting task to set up a new business in France and take on staff.

Start Quote

I call it balancing the budget. Everyone else... austerity”

End Quote Angela Merkel German Chancellor

The fear, in Europe, is that France is sliding into the camp of southern European countries, with little or no growth, rising unemployment and declining consumer and business confidence.

In terms of its influence, no one can remember when France counted for so little in Europe.

Today's figures will only reinforce what I wrote about earlier in the week - the retreat from austerity. Spain will miss the target for cutting its deficit but will discover that Brussels is more relaxed and, most likely, will give Madrid more time.

Growth has replaced reducing debt as the priority. You can sense Angela Merkel's unease about the resistance to austerity when she said: "I call it balancing the budget. Everyone else is using the term austerity. That makes it sound like something truly evil."

Today's figures may persuade the European Central Bank to cut its interest rate and the markets will cheer that.

But today also underlined what the President of the Bundesbank, Jens Weidmann, said this week - that it might take a decade to exit this crisis and that will test democracy, social cohesion and support for the European project.

Information published by the European Council on Foreign Relations found that 72% of people in Spain said they did not trust the EU.

 
Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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