Spain: Millions protest education cuts

Most schools and universities are closed today. Both teachers and students are in the streets protesting cuts to educational funding as part of the countries' austerity measures. The government has slashed billions of Euros from the education budget.

The strike spans the whole system from elementary schools to universities. Both teachers and students are taking part in demonstrations today May 22.

­ The austerity measures if passed will reduced government funding to schools by more than 20 per cent. Unions say this will result in poorer educational conditions, mass teacher layoffs, and also higher tuition costs. The Spanish government is adding more austerity measures in addition to the 30 billion Euros in cuts already planned for this year. Overall unemployment is running at 25 per cent already and 50 per cent among young people. There have been numerous mass protests already in 2012 most not much covered by the media. I include a video of the celebration of the 15M or indignados movement. For more including video and photos see this site.

Spain falls back in recession

Official statistics show that the Spanish economy shrank by .3 per cent during the first quarter of 2012. While this is not a large decline it is enough for Spain to be technically in a recession after two consecutive quarters in decline.

The new figures confirm the precarious state of the Spanish economy. Spain has a record 24.4 per cent unemployment rate the highest in the Euro zone. The contraction was caused by weaker demand with lower public and household spending as austerity measures take their toll.

Weaker growth in other parts of Europe have slowed exports and also tourism. However, exports did rise by 2.2 per cent while imports fell 7.2 per cent.

. Luis de Guindos Economy Minister predicted GDP would shrink by 1.7 per cent in 2012 but grow slightly by .2 per cent in 2013. Other forecasters were less optimistic with Commerzbank analysts predicting that Spain would still be in recession next year with a decrease in GDP of .3 per cent.

Spain's deficit last year was 8.5 per cent of GDP far off the 6.0 per cent agreed to with the EU. Austerity measures are supposed to bring the amount down to 5.3 per cent this year and to the EU ceiling of 3.0 per cent next year. This may be difficult to achieve if not impossible. For more see this article.

Spain: Economic troubles continue but no bailout requested

In spite of the fact that Standard and Poor had just downgraded Spain's credit rating the Minister of the Economy Luis de Guindo in an interview said that Spain was not seeking a bailout. He said:“Nobody has asked Spain, either officially or unofficially” to seek a bailout.

However the Spanish economic situation seems to be going from bad to worse. The unemployment rate is already the highest in Europe but reached a new high of 24.4 just short of the all time record of 24.55 set in 1994. The increase in joblessness for the first quarter will decrease tax revenues by about 1.3 billion dollars exacerbating the debt crisis.

The risk has increased for Spanish debt as bond yields rose above six per cent. This has fueled speculation that Spain may seek rescue. One minister called for the European Central Bank to buy Spanish bonds. However de Guindos stood firm:“This is not the real cure for the problems and the volatility of the market,”“I don’t think that we need any further liquidity injections after the two LTROs that the ECB has implemented over the last three or four months.”
No sooner had de Guindos expressed his views then Standard and Poor cut Spain's credit rating two levels to BBB+ reasoning that Spain will need to provide more money for its banks. This is the second downgrade by S and P this year.

The International Monetary Fund (IMF) predicts that budget deficits will remain in Spain until at least 2017. A 1.8 per cent contraction of GDP is forecast for this year and growth of only .1 per cent next year. For more see this article.

Spain's banks may need more capital if economy deteriorates

Miguel Ordonez head of Spain's central bank warned that if the economy deteriorates Spanish banks might need more capital. Spain's economy is shrinking with unemployment near 24 per cent worse than even Greece.

There has been a surge in loan defaults and the cost of borrowing has increased for the country. Some analysts think that Spain may eventually require a bailout as did Greece but the central bank chief claims there is no talk of that.

Orddonez said:"If the Spanish economy finally recovers, what has been done will be enough, but if the economy worsens more than expected, it will be necessary to continue increasing and improving capital as necessary in order to have solid entities,"

Already the economy is predicted to shrink by 1.7 per cent this year but that prediction was before the government slashed another 27 billion euros from spending. Billions more are to be cut to spending in the 17 different regions.

The crisis is a field day for large banks who are gobbling up smaller ones at a fast rate.From around 40 banks the consolidation is expected to end up with less than 12. For more see this article.