Thursday, July 2, 2009

Unemployment getting out of hand: Spain is the big loser

Figures just released by statistical agencies both in the USA and the EU are showing that unemployment is hitting multiple-year records. We are following the path of the first years of the Great Depression. Readers are certainly encouraged to read Martin Wolf´s "The recession tracks the Great Depression", published in the Financial Times on 16 June 2009.

On the one hand, in the United States 467.000 jobs were lost in June and the unemployment rate hit a 26-year high of 9.5%; forecasters were expecting a loss of 363.000 jobs; almost 15 million people are now unemployed at the end of June in this country. This could be an indication that the Obama Fiscal Stimulus Package might not be working as previously expected.

On the other hand, the Euro area unemployment rate reached 9.5% at the end of May while it was 7.4% a year earlier. The May figure is the worst in a decade and meant that 15 million people were also unemployed in this region at the end of this month.

The worst performance was registered by Spain -18.7%-, whilst the lowest rate was recorded in the Netherlands -3.2%-. The highest rate of youth unemployment was also observed in Spain -36.9%-. And the highest female unemployment rate was also recorded in the same country -19%-. This is clearly part of the cost of past abuses. And what a huge social and economic cost it is.

Spaniards should start realizing that they will be facing longer years of serious economic stagnation and adjustment, as a result of irresponsible governments and bad economic and social policies developed over the last 15 years -when the economy was fundamentally growing on the basis of an oversize construction industry allowed and encouraged by the governments in those years-.

Spaniards lost a golden opportunity as their economy was not widely and effectively diversified when billions of Euros in subsidies came in from the EU. They failed badly to sustainably grow and diversify their industrial and export sectors and strengthen their education and R&D. Instead they behaved like if they could afford living on credit forever. It is clear that Spain could not live just on beaches and over-construction for ever.

Spain now lags most industrialised countries in all key economic and social areas and will be unable to reach their living standards easily. They went through a similar situation when they lost their Empire over 300 years ago, as a result of high debt and inflation, poor Economic Policy, worse social strategies and overall, lack of vision for the future.

Paul Kennedy, the brilliant Historian from Yale, recently stated that Spain will be one of the big losers of the current crisis and will remain a big loser.

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