Saturday, April 02, 2011

Economic clouds parting for Spain - The Globe and Mail

As the Irish banking crisis turned critical and Portugal moved ever closer to an international bailout, Spanish Prime Minister Jose Luis Rodriguez Zapatero took desperate measures to prove his country is not the next debt disaster.

The Spanish government in 2009 and 2010 rolled out one of the toughest austerity programs on the continent, forcing civil servants to take major pay reductions, and introducing structural reforms to improve its competitiveness, such as slashing employee severance packages.


Despite the deep cuts, Spain’s efforts have long appeared hopeless. Spain’s property collapse was Europe’s worst. Its regional savings banks, known as cajas, were swamped with dud real estate loans. The unemployment rate surpassed 20 per cent. The budget deficit was out of control and bond yields hit dangerous levels as investors feared that Spain would join Greece and Ireland in the euro zone’s palliative-care ward.

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