In just two short years, Spain, the largest creator of jobs in Europe, was the biggest loser in the field of which it used to be a leader. With unemployment approaching four million or 19% of the workforce and still increasing, the country that is in command of the EU Presidency this semester should read a long and painful road to regain lost economic competitiveness within the euro area. If Spain is to become the next Greece depends on whether the Spanish people are willing to tolerate one year of deterioration of living conditions.
Spanish Prime Minister Jose Rodriguez Zapatero Louith enjoys far social peace, resisting pressure from business and Komision to relax the rigid laws that protect jobs and who are raising barriers to hiring and firing workers. Zapatero pledged to labor unions, which threatened a general strike if benefits for workers do not change the labor laws. The cost of protection of workers has cost the failure to create new jobs. The Socialist government hopes that the global recovery will also help revitalize the Spanish economy before the parliamentary elections of 2012, without having to cut spending on social welfare programs or to relax the rules on redundancies; objectives that do not seem to convince economists.
However, despite the downgrading of credit ratings of Spain by Standard & Poor's last month, the 10-year Spanish government bonds are trading only 60 basis points above Germany, compared with the spread of 220 basis points for the Greek equivalent. This is partly because the Spanish government debt still increased to 55% of GDP, half in contrast Greek and well below the average for the Eurozone. Economists are now calling for Spain to regain a 15% to 20% of its competitiveness against Germany. "So far, it has felt the financial crisis, but the next round will have an impact on society and politics, analysts note.