Spanish Economy in Huge Crisis After Credit Downgrade
Spain’s sickly economy faces a “crisis of huge proportions”, a minister said on Friday, as unemployment hit its highest level in two decades and Standard and Poor’s weighed in with a two-notch downgrade of the government’s debt.
Spain’s unemployment rate shot up to 24 percent in the first quarter, the highest level since the early 1990s and one of the worst jobless figures in the world. Retail sales slumped for the twenty-first consecutive month.
“The figures are terrible for everyone and terrible for the government … Spain is in a crisis of huge proportions,” Foreign Minister Jose Manuel Garcia-Margallo said in a radio interview.
Standard and Poor’s cited risks of an increase in bad loans at Spanish banks and called on Europe to take action to encourage growth.
Bank shares dropped 3.38 percent and Spain’s country risk, as measured by the spread on yields between Spanish and German benchmark government bonds, spiked by 10 basis points to 434 basis points.
Spain has slipped into its second recession in three years putting it back in the centre of the euro zone debt crisis storm.
The government has already rescued a number of banks that were too exposed to a decade-long construction boom that crashed in 2008, and investors fear vulnerable lenders will be hit by another wave of loan defaults due to the slowing economy.
With the economy shrinking, Spain has little hope of meeting tough public deficit targets this year even as the government makes tough cuts.