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Spain struggles to avoid downward spiral

Spain struggles to avoid downward spiral
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Protesters against the Spanish government’s latest reform moves burned rubbish at the doors of the Madrid stock exchange and spray painted anarchist symbols to show where they feel the country’s economic problems originate.

But even without the financial crisis Spain was already heading for a fall with a massive property bubble.

The bursting of that bubble dealt a body blow to the economy, which is why Prime Minister Mariano Rajoy previewed his government’s budget by calling it “very, very austere”.

That means further spending cuts which some economists have said will deepen the looming recession.

Spain’s economy is already forecast to shrink 1.7 percent this year.

The fall-out from the property bubble is private debt of close to 220 percent – more than twice the country’s GDP and much higher than government debt.

The jobless rate is the highest in Europe at 23 percent with half of under 25-year-olds out of work.

A shrinking economy means reduced tax receipts and increased social spending, threatening a downward economic spiral.

But the government insists that austerity and reform — particularly of the labour market — are the only ways for Spain to become more competitive.

High unemployment, with a fear of losing one’s job, reduces the power of the unions to affect the government’s resolve, meaning it can ignore the anger demonstrated in Thursday’s strike.