Spain’s National Statistics Institute said the nation’s unemployment rate last quarter was 24.4%, a staggering number. That came less than one day after S&P downgraded Spain’s debt to BBB+/A2 from A/A-1 based on the nation’s deficit plans and budget problems. Spain may be able to keep from taking a bailout from the European Union, as Economy Minister Luis de Guindos remarked. The unemployment problem will not be solved for year. That, more than any other factor, will be Spain’s undoing.
Spain’s jobless number immediately begs the austerity question. The government may be able to temporarily keep borrowing costs low if it can convince capital markets that its bank system is not on the brink of collapse, in part due to of a cratered real estate market and also because the central government can successfully slash costs. Unemployment eventually will undermine both the banks and a drop in the size of the government. Housing remains dependent on jobs, just as is the case in the United States and any other national economy. Austerity only works if government finances are not taken under by a collapse in tax receipts due to high unemployment.
The new jobs reports is even worse than it seems at first. Unemployment was 22.9% in the last quarter of 2011. So, the jump between the two quarters was particularly big. The number will get even worse, because Spain has no set of programs to improve it. Unemployment among those under 24 years old is closer to 45%. These people may not be taxpayers for close to a decade. This is a generation of potential workers who might, but will not, provide the government with receipts as path toward a future recovery.
Nobel Prize-winning economist Joseph Stiglitz yesterday said, “There has never been any successful austerity program in any large country. The European approach definitely is the least promising. I think Europe is headed to a suicide,” according to Bloomberg. No one need look beyond Spain for proof.
Douglas A. McIntyre