The Organization for Economic Cooperation and Development (OECD) has stated that it believed that Spain, but that further spending cuts and reforms will be needed to safeguard the recovery.
Spain has the unenviable reputation as having the highest level of unemployment of any Eurozone country with one in five Spaniards out of work. The OECD predicts that it will fall marginally next year to 19.1% and to 17.4% by the end of 2012. The country has a deficit which is currently about 9.2% of its gross domestic product; this is three times the permissible level agreed under the convergence criteria for Eurozone membership.
The OECD thinks that the deficit will fall to 6.3% in 2011 and 4.7% in 2012 with corresponding growth figures of 0.9 and 1.8% respectively. Even so, the OECD is calling for further spending cuts, particularly in the social security budget, and reforms of the labour and retirement laws. This would be intended to make it easier and cheaper for employers to reduce the workforce and to cut the social security burden of retirees.
The government is looking into extending the period needed to qualify for a full pension to include more years from the earlier part of an employee’s career where they earned less (thereby reducing the average) and extending the retirement age to 67 from is current 65 years.
Spanish authorities remain adamant that the country will not need an EU/IMF bailout and that it remains able to meet its obligations despite the fact that yields on Spanish bonds have been rising. Rating agency Moody’s is keeping an eye on the Spanish situation and suggests that it may need to down-rate the country’s credit rating – a move likely to drive yields still higher.