By: Dr. Mike Campbell
The total Spanish debt is estimated to be equivalent to 53.2% of the nation’s GDP and the cost of borrowing to service the debt (through the issue of government bonds) has risen in the wake of the sovereign debt crisis and fears that Portugal and/or Spain may be next in line for an EU/IMF bailout package. Moody’s downgraded the country’s credit rating from its top AAA rating to Aa1 in September and has suggested that a further downgrade is on the cards. The country has yet to emerge from recession, but is expected to do so in the course of the New Year.
Spain has the worst unemployment level of any Eurozone country with one in five of the workforce looking for employment. The Spanish have been attempting to make the employment market more dynamic by making it easier for workers to be taken on and by reducing the costs associated with making employees redundant.
It is against this background that the government has announced that the minimum wage will be increased by 1.3% taking the minimum monthly wage to €641.50. The Spanish Prime Minister, José Luis Rodríguez Zapatero, also announced a similar rise in state pensions and said that pensions for the poorest would rise even more. Since inflation in Spain is running at 2.3%, the increases will not do much to improve the lives of pensioners or the low paid, but will be nevertheless welcome in the current climate of austerity.
Zapatero has predicted that Spain will return to growth in 2011 and the OECD are projecting a growth figure of 0.9% for the year. They are also predicting that the public deficit will shrink to 9.2% this year – still three times the level permitted under the Euro convergence condtions.