The Spanish Prime Minister, Mariano Rajoy, has broken a campaign pledge and announced cuts and tax hikes in a bid to cut sixty five billion euros over two and a half years from the public budget. The bailout for Spanish banks that was finalized yesterday is conditional on a reduction of public spending. While EU officials have welcomed the move, Spanish workers are protesting in Madrid.
Although Spain did not get into its current situation by overspending, it is facing problems that are in many ways worse than Greece’s. Unemployment in Spain is at close to twenty five percent, while youth unemployment is over fifty one percent. These numbers are broadly comparable to Greece’s unemployment numbers. However, unlike Greece, Spain is Europe’s fourth largest economy. If the latest bailout, spending cuts, and tax increases cannot reassure the markets quickly the euro may collapse sooner than many expected.
Daniel Hannan, a Member of the European Parliament for Southeast England, laid out how crucial Spain is in the euro-crisis:
Spain was always likely to be where the issue would be settled for good or ill.
Remember that, of the 17 eurozone members, only five are net budget contributors: Austria, Finland, Germany, Luxembourg and the Netherlands. Of these, Finland and the Netherlands are strongly objecting to funding bailouts unconditionally, and you can see their point. It's not just the robbing-Pieter-to-pay-Paulo objection. It's that every previous bailout has failed. If the problem was artificially cheap credit, argue politicians in these countries, surely the solution can't be more cheap credit.
There are still those that warn against cuts in spending, arguing that such measures will increase unemployment. The International Labour Organization, an agency run out of the UN, has warned that ‘austerity’ could see as many as 4.5 million more jobs being lost. ILO director-general Juan Somavia warned that:
Unless targeted measures are taken to increase real economy investments, the economic crisis will deepen and the employment recovery will never take off.
In other words, more cash is needed, and quickly.
Unfortunately it seems that the voices of those like Hannan are a minority, while the sentiments of Somavia and others seems to be in a loud majority, especially if the protests in Madrid are anything to go by.