Zapatero: Prolonged Period of Austerity Ahead
September 14th, 2009
Spain’s prime minister warned Wednesday of a prolonged period of economic difficulty even after the country eventually recovers from its deep recession.
Jose Luis Rodriguez Zapatero said despite signs that the worst of Spain’s economic downturn is over, high unemployment and a business slowdown will likely drag on. The jobless rate now stands at 17.9 percent, the highest in the European Union, while Spanish property sales are down a third on the year.
On the bright side, Zapatero noted that although the economy contracted 1.1 percent in the second quarter – the fourth straight quarterly fall – the drop was not nearly as bad as that of the first quarter. He also pointed out that automobile sales are stabilizing after months of decline.
Also, a rise in claims for joblessness benefits in August was smaller than a year earlier, he said.
But Spain remains mired in an intense crisis that will be overcome only when the economy once again creates jobs in a stable fashion, the prime minister said.
The rise in August jobless claims, for example, all but wiped out progress achieved over the previous three months, when billions in government spending created public-works jobs.
“The damage is such that we are going to take a considerable amount of time to digest the consequences of the crisis,” Zapatero said.
Indeed, the Labor Ministry said this week that the jobless rate could hit 20 percent over the next few months. And even as Zapatero addressed the legislature, the government reported that housing sales in the first six months of the year are down 31 percent from the same period of 2008.
These numbers illustrate how Spain, once one of Europe’s great economic success stories, remains mired in recession even as other EU countries like France and Germany start to recover from the economic downturn. Both of those countries reported unexpected growth for the second quarter, technically lifting them out of their worst recession in decades.
Spain’s economy had posted more than a decade of solid and sometimes strong growth – and expanded 3.6 percent as recently as 2007 – but has imploded over the past two years as a housing boom and torrid, credit-fueled consumer spending collapsed.
Zapatero told Parliament his government will enact an austerity program next year and raise taxes to ease a deficit that is ballooning with spending on stimulus measures and unemployment benefits.
He did not say which taxes might be increased, but said the revenue they bring in will be equivalent to 1.5 percent of Spain’s gross domestic product.
Conservative opposition leader Mariano Rajoy said that is a huge amount of money – estimating it at euro15 billion ($22 billion) – and demanded to know where it would come from.
Zapatero has ruled out income tax hikes, and news reports say his government is considering higher levees on capital income – such as interest earned by bank deposits, windfall profits and stock dividends.
Rajoy accused Zapatero of misleading Spaniards about the gravity of their economic woes.
“To confuse a deceleration of the pace of decline with an improvement is just plain wrong,” he said.
Story from Forbes
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