Spain's Economic Crisis Shows the Eurozone Can't Escape its Debt Trap

[hvactec]

David Zeiler writes: Fresh evidence of Spain's deepening economic crisis has revived fears about that nation's ability to dig out of its sovereign debt problems, and illustrates why the Eurozone debt crisis is likely to drag on for years.

Spain's gross domestic product (GDP) was flat in the third quarter, the country's central bank said yesterday (Monday). That follows anemic growth of 0.4% in the first quarter and 0.2% in the second quarter.


Even more troubling is the nation's unemployment rate, which rose to 22.6% in September - the highest in the Eurozone.

As one of the PIIGS (Portugal, Ireland, Italy, Greece and Spain), Spain has been trying to wrestle down its high sovereign debt with austerity measures. Unfortunately, those measures are driving the Spanish economy toward recession, which is making it impossible for the government to hit its budget deficit reduction targets.

"It will be very difficult to meet the deficit goals without additional austerity, which might push the economy back into recession," Ben May, a European economist atCapital EconomicsinLondon, told Bloomberg News. May thinks Spanish unemployment could go as high as 25%.

Each of the PIIGS faces the same cycle of futility - economy-killing austerity measures that erode the nations' ability to cope with their debt issues, necessitating even deeper austerity measures.

But without the economic growth to create the wealth to cope with the budget deficits, the Eurozone debt crisis will gobble the PIIGS up one by one.

Like Greece
In Greece's case, its faltering economy led to a series of bailouts from the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB), to avoid default.

But the Greek economy is among the Eurozone's smallest. If the other PIIGS, particularly Italy and Spain, descend to where Greece has fallen, there won't be enough money to rescue them.

"Unless European economies outgrow their deficits, the chance of rolling bailouts working is slim to none," said Money Morning Capital Wave Strategist Shah Gilani.

Just last week European Union (EU) leaders developed a rescue plan to contain the Greek debt crisis and prevent similar problems in Spain and the other PIIGS. They agreed to increase the EU bailout fund to $1.4 trillion (1 trillion euros), step up efforts to recapitalize banks and write down Greek debt by 50%.

But not only will the plan fail to help the economies of any of the PIIGS, it's little more than a Band-Aid fix.

"The chance of the plan to save Europe actually working is exactly zero," said Gilani, pointing out that the bailout money simply isn't there and will need to be borrowed. Even then it will only be enough to "save Greece from defaulting for about three minutes, and enough to recapitalize all Europe's teetering banks for about four minutes, and enough to prop up Italy's bond market, for about six minutes. Oh, and when the seventh minute starts, they'll need more money all over again."

Spain's Conundrum
Spain had set a target of 1.3% GDP growth for 2011, which after yesterday's news is expected to fall to about 0.8%. That will push the debt to 67% of GDP, which is less than half of that of Greece but still double 2007 levels.

Hitting that growth target was supposed to reduce Spain's budget deficit from 9.2% of GDP last year to 6% of GDP in 2011. The target for 2012 is 4.4%, which looks increasingly unlikely.

read more http://www.marketoracle.co.uk/Article31292.html

 

[waltky]

Granny says, "Dat's right - things is tough all over...

Euro area unemployment at record 12 percent
Apr 2,`13 -- The eurozone economy has passed another bleak milestone. Official figures Tuesday showed that unemployment across the 17 European Union countries that use the euro has struck 12 percent for the first time since the currency was launched in 1999.

Eurostat, the EU's statistics office, said the rate in February was unchanged at the record high after January's figure was revised up to 12 percent from 11.9 percent. Spain and Greece have mass unemployment and many other countries are seeing their numbers swell to uncomfortably high levels as governments across the region enact tough austerity measures to get a handle on their debts. The eurozone, which is made up of a little more than 330 million people, is one of the world's major economic pillars and the turmoil surrounding it has been one of the main reasons why the global recovery has been muted.

A total of 19.07 million people were officially out of work in the eurozone in February, nearly two million more than the same month the year before. For the 27-country European Union, of which the eurozone is a large part, the unemployment rate was 10.9 percent. "Such unacceptably high levels of unemployment are a tragedy for Europe and a signal of how serious a crisis some eurozone countries are now in," said EU Employment Commissioner Laszlo Andor. Even though the eurozone has achieved another disappointing record, for the positively-inclined there was some comfort to be found. The 33,000 increase in the number of unemployed in February was the smallest monthly rise since April 2011 and way down on the 222,000 recorded in January. And Germany, Europe's biggest economy, has an unemployment rate of only 5.4 percent. That's even better than the U.S. rate of 7.7 percent.

However, the February figures came before the recent Cyprus crisis. The worry in the markets is that the chaos surrounding the country's bailout has reignited concerns over the euro and may have further dented confidence across the eurozone - a backdrop that's hardly conducive to job creation, economic recovery and stability across the eurozone. "The economic and social consequences of high unemployment continue to represent one of the most significant threats to the future of the eurozone," said Marie Diron, senior economic adviser at Ernst & Young. It's certainly a real threat to the immediate future of Cyprus. Unemployment on the east Mediterranean island nation of barely a million people is expected to ratchet higher over the months ahead as the economy contracts sharply.

Many economists are forecasting that the Cypriot economy will shrink 10 percent this year alone and see unemployment rise up to Greek and Spanish levels. In February, Cyprus' unemployment stood at 14 percent, compared to Spain's 26.3 percent. Greece, which is in its sixth year of a savage recession, had an unemployment rate of 26.4 percent in December. Its figures are compiled on a different timeframe and the actual rate in February will probably be even higher. Prior to the Cypriot crisis, there were signs that Europe's debt crisis had calmed. Stock and bond markets had risen for nearly six months, boosting confidence in countries' ability to finance themselves.

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[LogikAndReazon]

Its a pleasure watching those socialist regessives states failing...........a shame really