Long hard road for Spain in recession: OECD






MADRID: Spain is engulfed in a long recession with little hope of a quick recovery and its towering unemployment rate will soar further, the OECD club of industrialised nations said Thursday.

Spain must quickly fix its banks to avert the "substantial risk" of being cut off from external financing and plunging into an even deeper recession, the body warned in a report.

"The economy is undergoing a prolonged recession," the Organisation for Economic Cooperation and Development said in a report, citing the 2008 global financial crisis and the bust of a Spanish housing boom.

"The prospect of an immediate recovery remains remote," the OECD said, noting that people and businesses were struggling to repay loans and the nation was stuck in a debt crisis.

OECD secretary-general Angel Gurria called for Spain's European partners to make a declaration that they would support Madrid in any bailout request, though it has staunchly resisted making such a call over recent months.

Addressing Spain's 25-percent unemployment rate, the OECD urged drastic labour market changes, on top of much-protested reforms already taken by conservative Prime Minister Mariano Rajoy that make it cheaper to fire staff.

It called for cutting compensation for unfair dismissal, considering abolishing an extension of industry-wide collective bargaining, and more training and job-search help for the young.

Gurria highlighted the level of youth unemployment -- more than 52 percent among 16 to 24-year-olds. The OECD forecast the overall jobless rate would reach 26.9 percent in 2013.

Spain's economy has been shrinking for 15 months, with output slumping 0.3 percent in the third quarter, according to official data, and the recession is expected to last right through 2013.

Spain's "immediate policy priority" is to restore trust in banks by fixing weak balance sheets, making orderly resolution of non-viable banks, and shifting bad assets into a new bad bank, the body said.

"In the short-term, there is a substantial risk that the economy, notably the banks, will remain cut off from external funding," it said.

"This would deepen the recession, especially if measures taken at the European level provide ineffective in easing tensions in interbank and sovereign markets."

Spain's banks are struggling with loans turned sour after the property crash.

Eurozone powers agreed in June to extend to Madrid an emergency rescue loan of up to 100 billion euros ($129 billion) to fix their balance sheets and reform the sector.

Now, Spain also is pondering whether to apply to the eurozone's bailout fund for a sovereign rescue, which would open the way for the European Central Bank to buy Spanish bonds and curb Madrid's borrowing costs.

"The thing we need now is to ask that Spain's European partners, given its performance, make an unequivocal declaration that in case Spain asks for support, that this support will be given," Gurria told a news conference.

The ECB's offer to make unlimited purchases of stricken states' bonds if they accept strict conditions has brought down Spain's interest rates even before Madrid decides whether to seek the help.

On another sensitive reform that has fuelled mass street protests, the OECD urged the Spanish government to broaden a hike in sales tax to more goods and services and increase tax on fuel.

The Madrid stock exchange strengthened Thursday, with the IBEX-35 index closing 1.74 higher as tensions eased over Greek debt. Banks' shares picked up after sharp losses Wednesday linked to their restructuring.

-AFP/ac



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