Someone was shocked by the 10% unemployment figure. Here, try 20%. Things go dark down there:
Bullrings, Theme Park Can’t Stop 20% Spanish Jobless (Update1)
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By Emma Ross-Thomas
Nov. 27 (Bloomberg) -- Bullrings and fake Eiffel Towers may not be enough to hold back the tide of surging unemployment in Spain, Europe’s one-time engine of job growth.
As an 8 billion-euro ($12 billion) stimulus program runs out, that will help destroy 250,000 jobs at the start of next year, according to the AGETT association of employment agencies, and push the jobless rate above 20 percent.
Prime Minister Jose Luis Rodriguez Zapatero’s package, designed to fight Spain’s worst recession in 60 years, has kept people in work by funding a wave of building projects from a theme park of European monuments to sports complexes and bullrings. The risk is that a further jump in joblessness will delay the return to growth, boosting the budget deficit and borrowing costs.
“What they’ve done is just put the unemployed on ice,” said Fernando Fernandez, a professor at IE business school in Madrid and former International Monetary Fund economist. “There’s been a series of transitory measures based on the idea the crisis would be short, and now we have to deal with the consequences.”
Under the Plan E program, which created 422,298 jobs, builders in Torrejon de Ardoz, near Madrid, are erecting the collection of monuments among 5,000 trees. On the Mediterranean island of Ibiza, 3 million euros is being spent to build a swimming pool, while a bullring near the capital has a new roof.
Christopher Columbus
Across the euro area, unemployment has risen by 3.2 million people in the last year. As a larger share of temporary contracts than anywhere else in the region made it easier to cut payrolls, Spain accounted for half of the increase.
Spain has the highest unemployment rate in the euro area, at 19.3 percent in September, as companies including Banco Bilbao Vizcaya Argentaria SA and Iberia Lineas Aereas de Espana SA cut jobs. The 16-nation region’s average was 9.7 percent.
Victor Castellanos, 22, may be among those who join Spain’s 3.8 million unemployed in January. He’s been working for seven months on a 3.6 million-euro project to move a statue of Christopher Columbus in central Madrid. It ends next month and he has no plans. Only 11.5 percent of all projects have been completed, according to government data, signaling most of those hired will lose their jobs between now and year-end.
“It’s bread today and hunger tomorrow,” Castellanos said in an interview on Paseo de la Castellana, one of the city’s main avenues, where the road works hold up traffic.
Workers traditionally receive unemployment benefits for a maximum of two years. The government this year extended that with a 420 euro-a-month payment it pledged to maintain as long as unemployment remains above 17 percent. It may be paying that until at least 2011, according to Fernandez, putting further pressure on the budget.
Debt Costs
Spain lost its top AAA credit rating at Standard & Poor’s in January on concerns about public finances that pushed the extra interest investors charge to hold Spanish debt instead of German equivalents to 128 basis points, the most in the euro’s lifetime. While that spread has narrowed to 62 basis points, that’s still five times what it was at the start of 2008.
“The Spanish deficit outlook is not very rosy,” said Michiel de Bruin, head of European government bonds in Amsterdam at F&C Asset Management Plc, which manages assets worth $145 billion and holds Spanish debt. “We are maybe a bit concerned on the Spanish spread, it might widen a bit from here.”
Spain’s debt may rise to 74 percent of gross domestic product in 2011 from 36 percent before the crisis, European Commission forecasts show.
‘Problem’
“Rising unemployment is a significant factor and does suggest that Spain has a long-term competitiveness problem,” said Harvinder Sian, senior bond strategist at Royal Bank of Scotland Plc in London. He sees Spanish bond yields rising closer to levels on Italian debt.
While the economy will continue to shrink next year, the government is raising taxes as well as trimming stimulus spending. It aims to reduce the budget deficit to the EU limit of 3 percent of GDP by 2013 from 11 percent this year.
AGETT, which represents companies including Adecco SA, and Madrid-based Analistas Financieros Internacionales see payrolls falling by 1 million to 18.3 million in the year to January 2010. The unemployment rate will reach 20.5 percent next year, according to a Bloomberg survey.
‘Crazy’ Economics
“At one point it seemed the world was coming to an end, jobs were being lost a frightening rate. Plan E stopped the bleeding a bit,” said Juan Rubio, a professor at Duke University and a visiting scholar at the Federal Reserve Bank of Atlanta. “But from the point of view of economics, it was crazy. It was almost throwing money away.”
Employment expectations in Spain’s service industry, which accounts for about 60 percent of the economy, deteriorated in November, a survey from the European Commission showed today. Expectations in the euro area improved.
Even as the job crisis escalates, the mounting fiscal problems mean a new stimulus fund for 2010 is half the size of this year’s. The Ministry for Territorial Policy, which manages the plan, estimates it will still create 200,000 jobs.
“Some people who were employed to dig holes in the morning and cover them up in the afternoon will be out of a job,” said Javier Diaz-Gimenez, a professor at business school IESE and former government adviser. “Is this a good thing or a bad thing? I think it’s a good thing in the long-run.”
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
Last Updated: November 27, 2009 05:32 EST |
