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| Unemployment (Photo credit: born1945) |
Unemployment, the second highest in the European Union after Greece, rose to 25.02 percent from 24.6 percent in the previous quarter, the National Statistics Institute said in Madrid today. That is the highest since at least 1976, the year after dictator Francisco Franco’s death led Spain to democracy. Nearly three months after the European Central Bank offered bond buys to lower its borrowing costs, Spain is still playing for time. Rajoy is ignoring pressure to seek more European aid even as the country’s recession worsens and banks report decreasing third-quarter earnings following an increase in provisions for souring real-estate assets. Spain’s Ibex 35 stock index has dropped 10 percent this year, the only decline among major European equity markets.
“The situation is serious,” said Ricardo Santos, an economist at BNP Paribas SA in London. “There is still room for a deterioration in unemployment. Activity is weak and the government will reduce jobs as there are strict targets to adjust the number of public-sector temporary workers, especially in health and education.”
Stocks Down
The Stoxx Europe 600 Index dropped 0.6 percent at 10:56 a.m. in Paris, with the Ibex down as much as 1.5 percent. The euro traded at $1.2937, little changed on the day. Spain’s government bonds declined, with 10-year yields heading for their biggest weekly increase since August. The yield pared its gains after today’s unemployment data before climbing as much as seven basis points, or 0.07 percentage point, to 5.69 percent.
The yield on Spain’s 10-year benchmark bond has dropped more than 200 basis points from a July 25 euro-era high of 7.75 percent since the ECB announced its bond plan. The spread with similar German maturities was 412 basis points today, compared with a 650 basis-point record in July. Still, ECB Executive Board member Joerg Asmussen said in a speech in Kronberg, Germany, today that tapping Europe’s bailout fund won’t automatically trigger the bond program. A government’s application for aid is “a necessary, but not a sufficient condition for us to become active,” he said. “The ECB council independently decides in each case to what extent and for how long an intervention on monetary policy grounds is necessary.”
Spanish Contraction
In line with a 25 percent median forecast in a Bloomberg News survey of 7 economists, Spanish joblessness has nearly tripled since 2007, before a real estate-fueled boom ended. The euro-area average is 11.4 percent, a record high. The Bank of Spain forecast earlier this week that the euro region’s fourth-largest economy will continue to slump following a fifth straight quarter of contraction in the three months through September.
“Unemployment is one part of a multifaceted problem in Spain,” said Justin Knight, a European rate strategist at UBS AG in London. “Problems are very deep and wide ranging in the banking system and haven’t been sorted out in a timely fashion,” Knight said. CaixaBank (CABK) SA, Spain’s third-largest lender, said today third-quarter profit dropped 42 percent to 7 million euros ($9 million) from a year ago as it provisioned for real estate losses. Its bad loans ratio climbed to 8.42 percent from 5.58 percent in June. Banco Popular Espanol SA (POP) said profit fell 23 percent to 75.6 million euros in that period.
In the coming days, the government is expected to unveil details about the creation of a bad bank, a condition included in the memorandum of understand Spain signed in July to obtain a 100 billion-euro credit line to recapitalize the sector. ... Continue to read.
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