Spanish Unemployment to Swell as Public Jobs Vanish: Euro Credit
Jerez de La Frontera, a Spanish town of 214,000 in southern Andalusia, is negotiating with unions to fire 13 percent of the 2,000 government workers who absorb 80 percent of its budget. “It’s not easy because these are people and families,” said deputy mayor Antonio Saldana.
With a quarter of Spain’s workforce already jobless, Prime Minister Mariano Rajoy’s efforts to retain investor confidence by shaving more than two-thirds off the nation’s budget deficit by 2014 will worsen the highest unemployment rate in the European Union. Ten-year yields at 6.86 percent mean “we can’t finance ourselves,” Rajoy said on Sept. 1.
“There’s going to be less hiring and more firing for the spending cuts to be made,” said Ricardo Santos, an economist at BNP Paribas SA in London who sees unemployment climbing to 27 percent next year from 24.6 percent currently. “The more unemployment persists, the more difficult it’ll be for the government to meet budget goals and implement reforms.”
Television stations, airports, hospitals, schools, fire brigades and social services from Spain’s southernmost tip to the Balearic islands in the east are reducing headcount as Rajoy tasks regions and municipalities with shouldering 60 percent of the cuts needed to reduce the budget shortfall to 2.8 percent of gross domestic product in the next two years.
The euro area’s fourth-largest economy may lose access to markets after shrinking for a fourth quarter, and economists forecast Spain will miss its deficit target this year.
The 10-year borrowing cost was at 6.68 percent as of 11:36 a.m. in Madrid, which compares with a 2012 low of 4.85 percent at the start of February, and a 2011 average of 5.45 percent. Moody’s Investors Service said Aug. 30 it may downgrade the sovereign’s debt to junk should it seek further aid from European rescue funds.
Weeks after clinching as much as 100 billion euros ($126 billion) in loans for the nation’s banks, Rajoy said he may request a second bailout once the European Central Bank details a proposed debt-purchase plan. The budget plan he sent to the European Commission last month shows reducing public wages is key to one-third of cuts worth 151 billion euros, or 15 percent of annual gross domestic product, by 2014.
“Given the levels of deficit we have reached, the government has to dig into current expenditure because reducing public investment and increasing taxes aren’t enough anymore,” said Sara Balina, an analyst with Madrid-based consultant firm Analistas Financieros Internacionales, or AFI, that counts public administrations among its clients.
Registered unemployment rose in August for the first time in five months as the country’s peak tourism season started coming to an end, the Labor Ministry said today.
The number of people registering for jobless benefits rose 38,179 from July to 4.63 million That compares with an increase of 51,185 in the same month last year.
State employment has doubled in 30 years in Spain compared with a 50 percent increase in the private sector, according to a report published in December by the business lobby CEOE. By shedding 200,000 jobs, local governments would be eliminating positions created between 2009 and mid-2010 to counter the recession, AFI’s Balina said.
“It’s obvious the world of public employees in Spain needs to become smaller and that’ll create unemployment, it can’t be helped,” said Javier Diaz-Gimenez, a professor of economics at IESE business school in Madrid. “Obviously the plans aren’t very explicit because the political cost will be very high. The measures are very controversial and will generate a lot of opposition.”
Spain’s jobless rate will rise to 26.1 percent in 2013, according to the median of nine forecasts in a Bloomberg survey. More than half of the country’s under 25-year-olds are out of work. According to data from the Budget ministry and National Statistics Institute, about 700,000 of the public sector’s 3 million employees have a contract that can be terminated. That compares with a current total of 5.7 million jobless in Spain.
The Balearic islands will more than halve the number of companies it controls to 75, said Mabel Cabrer, spokeswoman for the ruling PP party in the regional parliament. Scrapping structures such an institute for culture and a foundation for sustainable development cuts about 800 jobs and saves 200 million euros a year for the region that had created more firms than any other.
“All these companies meant more jobs, more spending,” Cabrer said. “It was completely unsustainable when our tax receipts were falling.”
By not renewing temporary contracts and not replacing civil servants that retire, the islands have reduced public sector jobs by 1,252 since July 2011, after a 26 percent increase between 2007 and 2011 when the private workforce shrank by about the same amount, she said.
“Unemployment is consistent with a dire picture of domestic demand,” said Guillaume Menuet, a senior economist at Citigroup Inc. in London, who sees the public sector accounting for half of a 1.5 percentage point unemployment jump between 2013 and 2014. “There’s just not enough momentum in the economy to generate any employment so Spain needs more financial assistance, that is the bottom line.”
To contact the reporter on this story: Angeline Benoit in Madrid at email@example.com