A New High in Spain's Unemployment Rate
Youth unemployment in Spain now exceeds 55%. This is an explosive situation and that may be putting it mildly. What are the idle young people that see no future for themselves going to do? Will they just sit still and meekly collect whatever paltry handouts the insolvent Spanish government can still afford to give them? We somehow doubt it. We expect unrest and demonstrations in Spain to escalate further this year.
We wonder what will happen once it turns out that the government will miss its deficit targets by what is likely to be a huge margin. The EU with its 'fiscal pact' rules will have to turn the thumb-screws even further when that happens, and it is actually doubtful that the plan to let the ECB finance Spain's government by starting the OMT program will go as smoothly as the markets apparently expect. After all, Spain will first have to knuckle under and adhere to an IMF and ESM imposed new and presumably even more severe austerity scheme. Meanwhile the government of prime minister Rajoy is already in all sorts of trouble over burgeoning corruption allegations as Mish recently pointed out.
“Spain's unemployment rate soared to its highest level since measurements began in the 1970s as a prolonged recession and deep spending cuts left almost 6 million people out of work at the end of last year.
Spain's unemployment rate rose to 26 percent in the fourth quarter of 2012, or 5.97 million people, the National Statistics Institute said on Thursday, up from 25 percent in the previous quarter and more than double the European Union average.
"We haven't seen the bottom yet and employment will continue falling in the first quarter," said Citigroup strategist Jose Luis Martinez. Spain sank into its second recession since 2009 at the end of 2011 after a burst housing bubble left millions of low-skilled laborers out of work and sliding private and business sentiment gutted consumer spending and imports.
Efforts by Prime Minister Mariano Rajoy's government to control one of the euro zone's largest deficits through billions of euros of spending cuts and tax hikes have fueled general malaise, further hampering demand. When Rajoy took office in late 2011 there were 5.27 million jobless in Spain.
The economic downturn put an average of 1,900 out of work every day through 2012 and with the recession expected to last at least until the end of 2013, net job creation is unlikely this year. Joblessness has been particularly acute for Spain's youth, with 60 percent of people under the age of 25 unemployed in the fourth quarter.
In the fourth quarter, the economy shrank at its fastest pace since the recession began, the Bank of Spain said on Wednesday, dragged down by a steep drop in private consumption due in part to a September VAT hike and public wage cuts.”
Wage cuts would pose no problem if not for the inflationary policy of the ECB, which keeps prices high. It goes without saying that raising taxes in the face of an economic depression is an extremely bad idea. However, this is how 'austerity' generally works in euro-land. The burden of government is not reduced at all, instead it is increased even further. It is apparently fine for the European political class when the private sector shrinks, just as long as Leviathan's size remains unchanged. That this cannot possibly work out seems not to have occurred to anyone yet.
Unemployment in Spain is now at the highest level since records began in the early 1970s and exceeds even the unemployment rate of depression-wracked Greece:
Euro area unemployment rates compared: Spain holds a sad record – click for better resolution.
NPLs Continue to Rise
Non-performing loans at Spain's banks also continue to climb. In November, they were hitting yet another new record high at 11.38% of all outstanding loans. However, recent reports from individual banks suggest that the total will continue to swell when the December data are released. Even the 'better' banks are seeing their delinquent loans jump:
“Rising bad loans at Bankinter (BKT.MC) and Sabadell (SABE.MC) point to more pain for Spanish banks as they near the end of a deep clean of rotten property assets that hammered profits last year. Though Sabadell and Bankinter are among Spain's healthier lenders which did not need rescue funds from Europe, both have been hit by big writedowns on soured real estate assets in the wake of the country's property market crash.
The drive to mark down toxic assets pushed Spain to take around 40 billion euros ($53 billion) in aid from Europe in 2012 for banks in need of capital and unable to cope. Most banks in Spain will take the last hit from property-related write-downs in fourth-quarter 2012 results. But a deep recession is still hurting their loan books.
Mid-sized Bankinter warned on Thursday its bad loans could hit 5 percent of total loans this year, up from 4.28 percent at the end of 2012, given Spain's weak economy and rising unemployment, even though January had been a good month.
"If the employment data continues to be like what we saw (on Thursday), we cannot be optimistic," said Maria Dolores Dancausa, chief executive of Bankinter.
Barcelona-based Sabadell, meanwhile, said its bad loan ratio jumped to 9.33 percent of total loans at the end of December from 8.46 percent in September, largely because of the integration of its 2011 purchase of stricken savings bank CAM. "It's a level implying a fourth-quarter rise … far above our expectations," said Nuria Alvarez, analyst at Madrid broker Renta4. She added the bad loan ratio was an area to watch at Sabadell even though the lender has a state-backed scheme in place to protect it against future losses after it bought CAM.”
As a reminder, here is what the long term chart of Spain's NPLs looks like (data until November 2012):
Spain's NPLs and the unemployment rate as of November. Unemployment is already at a new high, NPLs are set to follow – click for better resolution.
Evidently, Spain is in a severe depression. It seems to us that the financial markets are currently way too sanguine about the risks. Ultimately all they are hanging their hat on is a promise by Mario Draghi that he will print more money. We doubt that will be enough.
Charts by: Eurostat, Reuters
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