Spanish Public Debt to Rise to 60% GDP
June 1st, 2009
Unemployment will not hit 5 million this year – Rules out making it cheaper to hire and fire – Says no bank rescue fund should be ready before summer
Spanish government spending plans to combat the recession will push up public debt by 15 percentage points of gross domestic product by the end of 2010, Economy Minister Elena Salgado said in an interview with a Sunday newspaper.
But Salgado told La Vanguardia such an increase in the ratio of public debt to GDP to 60 percent would still leave Spain well below the European average and that this was reflected in favourable bond spreads.
“We expect all the programmes we are going to undertake to save Spain from the crisis will push debt to about 60 percent of GDP by the end of next year,” Salgado said, adding the additional debt equated to about 150 billion euros ($210 billion) in public spending.
“Nonetheless, we will still be 23 percentage points under the European average and the markets are showing their appreciation of that.
“Our spread against German bunds, which was 130 (basis) points a short while ago, has fallen to 60 basis points,” she said, pointing to a recent auction of 4 billion euros of Spanish public debt at an interest rate of less than 1 percent.
Salgado said the Spanish economy seemed to have reached its lowest point in the first quarter, when GDP contracted by 3 percent from a year earlier.
Many economists expect Spain to be one of the slowest major economies to recover from the recession, due to its heavy dependence on low productivity construction of Spanish property and cheap private sector credit during its boom decade.
“You can see a small inflection point between the end of April and the beginning of May. They are small but positive signs,” Salgado said. “This indicates the worst point of the crisis was the first quarter.”
She said a rescue fund for Spanish banks requiring capitalisation, mainly believed to be smaller savings banks with close links to local government, should be ready in the coming weeks.
“We would like the details of the law to regulate the recapitalistion fund to be ready before the summer,” she said, adding the law, being negotiated with major political parties in parliament, would allow the fund to take on debt and also to sell stakes it acquires in banks.
Salgado said economists who fear unemployment, which has doubled to about 17 percent or four million workers, could top 5 million this year were wrong.
“I don’t agree with that. For one thing, in our country the number of jobless depends a great deal on growth in the labour force. The labour force is continuing to grow, but much more slowly. So I think I can say that in 2009 we won’t see 5 million unemployed,” she said.
Economists say that if Spain is to return to healthy growth, it needs to introduce reforms to restore competitiveness lost during years of relatively high inflation, especially as euro membership means it cannot allow its currency to depreciate.
But Salgado repeated the promise of Socialist Prime Minister Jose Luis Rodriguez Zapatero not to cede to business demands to make it cheaper to hire and fire, insisting instead that it would be better to reduce Spain’s relatively high proportion of temporary labour contracts.
“Such high rates of temporary contracts do not help the economy because they make training more difficult,” she said.
“Reforming the labour market isn’t the most important task,” she added, “Now the key thing is to avoid the temptations of protectionism.”
Story from The Guardian
