MADRID THOUGH hardly a surprise, Friday’s report that Spain’s unemployment rate had surpassed 25 percent was bad news for a government that recently trumpeted a streamlining of its labour market rules.
The ranks of the unemployed swelled to 5.78 million people at the end of the third quarter, compared with 5.69 million a quarter earlier and 2.6 million four years ago, when Spain’s property bubble burst, the report said.
The jobs data signaled a deepening recession and raised the likelihood that Spain would again miss budget targets agreed to with other eurozone countries.
There was, however, one perversely positive element to the report: The labour picture is so bleak that it could help Prime Minister Mariano Rajoy make the case that Germany and other lenders cannot risk imposing further austerity measures on Spain’s economy in return for providing more European rescue funding.
The dire jobs report “gives Rajoy more leverage in his European negotiations and is good ammunition to ask for more time to adapt,” said Federico Steinberg, an economist at the Elcano Royal Institute, a Madrid research organisation.
Rajoy, however, is also fighting the crisis at home.
Unions have called a general strike for November 14, and elections in Catalonia on November 25 could accelerate that region’s drive toward independence.
Luis Garicano, a professor at the London School of Economics, said the government’s cost of paying unemployment benefits, now almost 4 percent of gross domestic product, was unsustainable. After 20 consecutive quarters of job destruction, he said, “people see very little light at the end of the tunnel, and Spaniards are losing hope.” The separatist push in Catalonia “is partly a reaction to this lack of hope,” Garicano said. “It worries me for what it says about what can happen in the next two years, in which we will have a sharp fiscal contraction, low external demand, continuing deleveraging by households, and restricted credit to companies.” On Friday, the International Monetary Fund and a team of European officials wrapped up a visit to Spain to assess its efforts to shore up its banking sector.
The so-called troika of the IMF, the European Commission and the European Central Bank issued positive statements but urged the Rajoy government to maintain momentum on reform.
The assessment is part of the process that would enable Spain to receive up to €100 billion, or $130 billion, of banking aid that eurozone finance ministers pledged in June to provide.
Lengthy wrangling over how to disburse the money underscores the extent to which Spain is losing the sovereignty argument Rajoy has long employed.
Instead, Rajoy was forced at a recent summit meeting of EU leaders in Brussels to accept that conditions for Spain to receive European funding essentially need the approval of Germany, where Chancellor Angela Merkel is increasingly wary of supporting any additional eurozone bailout programme ahead of next year’s elections.
Spain’s banking crisis came to the fore in early May, when Madrid nationalized one of the country’s largest lenders, Bankia, and then requested the banking bailout a month later.
On Friday, Bankia reported a loss of €2.6 billion euros for the third quarter.