Page last updated at 16:11 GMT, Tuesday, 4 May 2010 17:11 UK

Spain feels pain as recession bites

By Bethany Bell
BBC News, Madrid

It is hoped the deal to rescue Greece's embattled economy will prevent other eurozone countries, with large deficits, from facing similar crises. But there are fears that countries like Spain and Portugal could be dragged into the financial turmoil.

Demonstrators shout slogans during a Labour Day march in Madrid
Thousands of protesters took to the streets of Madrid on Labour Day

On May Day in Madrid, several thousand people marched through the centre of the city to mark Labour Day.

Figures from the first quarter of 2010 showed that Spain has 20.05% unemployment - the highest in the eurozone.

With the country still in recession, jobs are a key worry for these marchers.

Martin, who works for an airline, said he was worried about losing his job "like many people in this country". He said the government should be providing help.

"I think we are mature enough that we understand the depth of the problem - to understand that we are getting into deep trouble and that we may have to take steps that not everybody will like but may be necessary.

"I don't think the government is doing the right job right now," he said.

Carla says she has gone back to study because it was hard to find a job.

"I would like to be working right now," she said. "Even before I finished my studies, I was working as a social worker. I studied social work.

"But it is impossible right now, because I think the government is forgetting those people who are not profitable for the economy."

She said she was lucky because her parents help to support her.

"But what about those people who don't have that support? It is the government that must do that," she said.

Economic stagnation

Spain's jobless rate has doubled since 2008 - a dramatic development for a country that was one of Europe's biggest job creators.

And unemployment complicates the government's struggle to reduce the deficit in its finances.

I am afraid that we may see a long period of economic stagnation in Spain, which will provoke a rather difficult social situation
Prof Fernandez
IE Business School

Fernando Fernandez Mendez de Andes, a professor of economics at the IE Business School, says Spain's problems are not nearly as bad as those in Greece.

"That is a very different situation - there is no doubt about the quality of the Spanish fiscal statistics, for instance. However that doesn't mean that Spain hasn't been affected by the Greece developments," he said.

"Certainly Spain has a debt problem and certainly Spain now is under scrutiny by financial markets over its ability to compete within the euro."

But Prof Fernandez says Spain has to "restore its credibility" and "convince the markets that it can grow at a decent rate".

For that to happen, Prof Fernandez says, "significant things have to change in Spanish economic policy".

People in line at a government employment office in Madrid
Nearly half of under 25s are unemployed in Spain

He says: "I am concerned, that I see little movement and speed in this direction, so I am afraid that we may see a long period of economic stagnation in Spain, which will provoke a rather difficult social situation."

And financial markets are worried. Last week, a major credit rating agency downgraded Spain's status, because of the country's weak growth prospects.

But Spain's Socialist government says it won't need to ask for help like Greece.

It has announced a 50bn euro (£43bn; $65bn) austerity package to bring down its deficit.

Spain's Secretary of State for the Economy Jose Manuel Campa told Spanish radio that the country has "an institutional context which also gives us the strength to tackle the crisis with great calm".

"Spain has great strengths in the economy: we have an economy in which of course, in terms of wealth, we are richer than ever," he said.

Call for action

But there is concern in Spain's business community.

Trade at Miguel Angel Galan's sports shop in Madrid has slowed over the past few months.

He says the government's austerity package won't be enough to pull the country through.

"The government has taken measures and policies that won't create jobs or reduce unemployment," he said.

He said the government shouldn't be raising taxes, but trying to lower them to give more money to families.

Mr Galan also said labour reform was important. It should be cheaper, he said, to fire workers.

On May Day, a few protesters began chanting for a general strike, but they were in the minority.

So far the trade unions have gone along with the government austerity plans, and there has been little social unrest.

More people seemed to be interested in hanging out in Madrid's tapas bars than joining the marchers.

But if the cuts get more painful, the calls for action could become louder.

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