After Wall Street’s initial euphoria at news of the euro support package, there has been a sudden reality check. Investors’ scepticism over whether the plan will work has led to turbulent trading.
President Obama spoke to Spanish Prime Minister Jose Luis Zapatero and called for resolute action to strengthen the economy. The Spanish government will present its austerity plan to parliament today, aiming to cut the budget deficit by a further 15 billion euros.
“I have the feeling that plans and adjustments are being made a little hastily, to see what happens, because there is no clear idea of what should be done,” said economist Santiago Niño-Becerra. “Spain can cut the deficit but the basic problem, the fundamental problem, namely productivity, the economic system, is not going to be resolved.”
The government will not pass labour market reforms without agreement but unions have resisted plans to make it easier for firms to hire and fire workers.
The country also has the euro zone’s highest level of unemployment at 20 percent, and is still stuck in recession. The government faces tricky regional elections later this year. It is not the best climate for introducing tough reforms.