21) «Spain is out of recession, but not out of the crisis»

by Javier Carro

Topics: Economy, Frontpage

September 24, 2013.

«Spain is out of recession but not out of the crisis,» Spain’s Prime Minister, Mariano Rajoy, said in an interview with The Wall Street Journal (September 23, 2013) touting the effects of budgetary and structural overhauls that have been among the deepest in the euro zone. Mr. Rajoy said the economy would improve ‘little by little.’

Spain faces a long period of more austerity and painful adjustments before it can regain its footing and put most of its 6 million unemployed back to work, Prime Minister Mariano Rajoy said on Monday.

Spain’s economy, the fourth-largest in the bloc after Germany, France and Italy, crashed in 2008 when a real-estate boom went bust, taking down much of its banking system and raising doubts about the country’s solvency. The gross domestic product, which briefly rebounded in 2010 and 2011, has shrunk 7.5% in the past five years.

Labor costs have been cut, exports are on the rise, and the current-account deficit, once 10% of GDP as cheap money poured in to fuel the building boom, has turned to surplus. Main worries are unemployment, and a shortage of credit to boost spending by households and small business.

But he said his cabinet would approve two new adjustments Friday: Starting next year, increases in pension payments will no longer be automatically indexed to annual inflation; nor will many government-controlled prices, including electricity rates and highway tolls. The pension overhaul will dig into the income of Spain’s 9 million retirees.

With Mr. Rajoy’s Popular Party and the main opposition Socialists (PSOE) both snared in corruption scandals and deeply unpopular, business leaders and bankers here have begun to speak of a political risk to the Spanish economic recovery. ∎

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