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Job dilemma

January 27, 2012

Spain's jobless rate soared to a 17-year record high in the final quarter of last year. It had the greatest percentage of unemployed people in the entire industrialized world. And the outlook remains bleak.

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Spaniards lining up in front of employment office
A new reality for many Spaniards - lining up for jobsImage: AP

The unemployment rate in Spain jumped to 22.85 percent at the end of 2011, the National Statistics Institute announced on Friday. It's the highest level reached in the country since 1995.

No other nation in the OECD currently has a jobless rate as high. The figures showed that 5.27 million Spaniards were out of a job, which pushed another 295,300 people onto welfare benefit during the final quarter of last year.

"The rising unemployment rate was partly the result of a slower economy," said Javier Velazquez, a professor at Madrid's Complutense University. "It's also somewhat the consequence of rapid fiscal adjustment measures, which are obviously generating a contraction in demand and with it a rise in unemployment," Velazquez told AFP news agency.

The future doesn't look bright either. Spain faces the prospect of recession in 2012, with jobless numbers likely to rise further as national and regional authorities are in the process of cutting spending.

Austerity measures

Spain's government said on Friday it had approved a new budget law that bans the 17 regions from sliding into deficit from 2020 onward.

Portrait of Spanish Prime Minister Mariano Rajoy
Spain's prime minister looks set to curtail sendingImage: AP

"All autonomous regions must present balanced or surplus budgets," Finance Minister Cristobal Montoro told a news conference in Madrid.

But the Spanish authorities' endeavor to get on top of the situation comes close to a vicious circle. Higher jobless numbers make it extremely difficult to curb the current deficit as the state has to pay more in unemployment benefits.

Nonetheless, Spanish Prime Minister Mariano Rajoy's government has announced 8.9 billion euros ($11.7 billion) in new budget cuts and tax hikes that may wash over 6 million euros into state coffers.

"Spain's situation is complicated," the chief economist at market researcher M&G Valores, Nicolas Lopez, told Reuters.

"The country must not lose sight of its deficit, and at the same time it has to improve conditions on the labor market," Lopez added.

Current unemployment figures mark a stark contrast to the heady days of Spain's property boom, with the jobless rate falling to just 7.95 percent back in 2007. But one year later, the property bubble burst and the global financial crisis started destroying millions of jobs.

Author: Hardy Graupner (Reuters, AFP)
Editor: Nancy Isenson