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Spanish Economic Crisis Threatens to Sink Euro Currency

  • Henry Ridgwell

Unemployment line in Spain

Unemployment line in Spain

Spain is among the latest European countries to introduce tough austerity measures that may not be popular at home, but are deemed necessary to keep the country afloat. Spain, alongside Greece, is among those European countries with massive public debts and economies widely deemed vulnerable to a crash that could drag the euro with it.

It is 7:30 in the morning in the north of Madrid, and the queue for the job center is already stretching around the block.
Among those in line is Patricia Martinez. She used to be a nurse, but seven months ago she was laid off. Now each morning she arrives here to try to find new work. She is not having much luck.

"The reality is that economically it is fatal, but emotionally for people too it can also be terrible. I do not know what is happening, not just in Spain, but in Europe and the world," she said.

Patricia's story is all too familiar. Spain has the highest unemployment rate in Europe at 20 percent, and it is likely to get worse.

Europe is haunted by the fear of huge public debt. Spain's debt totals more than 11 percent of its GDP. Although its economy is far larger, investors fear that Spain, like Greece, might soon be unable to pay its creditors. So the government is slashing public spending by $18 billion over two years.

Economist Javier Ortega at London's City University says Spain's debt has been rising sharply in recent years. "The reason is essentially this increase in unemployment, because there are more unemployment benefits to be paid. So now there is a problem of credibility of what the government is going to do, and of course the situation is different to situations in other periods because now there is a common currency," he said.

Debt collection is now big business in Spain and it has got a highly visible face. One company called 'El Cobrador del Frac' specializes in shaming their targets into paying up, by dispatching debt collectors dressed in top hats and tuxedos to shadow their targets. he company's commercial director Juan Carlos Rodriguez says business is booming.

"The construction industry is among the worst hit. It all began three or four years ago when there was construction boom. Then with the crash, nobody would finish the work. Nobody got paid. In Andalusia in the south of Spain especially you can see the results of this," he said,

On the southern coast - known as the Costa del Sol - block after block of apartments lie empty or half finished, many of them designed for foreign buyers who have long since abandoned the idea of investing in Spain.

Inez Rix of Direct Property Auctions specializes in helping owners who are now struggling to sell their place in the sun. "It was absolutely crazy here in the boom times. It was really in the late 1990s or 2000s. Prices were just going up and up, people were asking for anything they could get away with. Now there are hundreds of places like this across the Costa Del Sol because developers have run out of money, and of course the banks have pulled out," he said.

The debt crisis is threatening to sink the euro currency, so the European Union has pledged to guarantee loans totaling around a trillion dollars. But in return, governments must slash public spending.

The prospect of wage cuts and pension freezes has prompted street demonstrations. Unions have called for a nationwide strike in September, against plans to make it easier for companies to hire and fire workers.

Economist Javier Ortega says Europe must become more competitive."For our European welfare state to be maintained there have to be changes. Essentially we have to adapt more quickly to competition from other countries. It is not like in the past," he said.

Europe may have emerged from recession, but its effects are only now becoming clear. With the euro currency under threat, the pain of government cuts will be felt for many years to come.

For job-hunter Patricia Martinez, this day brought no change of luck. And like millions of people across Spain, she will be back again in the morning looking for a new job and wondering how the situation can improve.