Spain joblessness rises as reforms loom

The number of registered unemployed in Spain rose for the fifth month in a row in December, increasing by 1,897 to 4.42m, the ministry of employment and social security said as the country awaited the new government’s labour market reforms.

Engracia Hidalgo, secretary of state for employment, said the latest figures on Tuesday “confirm the deterioration of the economy in the second half of the year”.

Another measure of unemployment, based on household surveys, puts seasonally adjusted unemployment in Spain at 5.4m, nearly 23 per cent of the workforce and by far the highest figure among large European Union economies.

The new centre-right government of Mariano Rajoy, prime minister, has pledged aggressive reform of Spain’s labour market as a way of reducing unemployment and restoring growth to the crisis-stricken economy.

“We have to end the haemorrhaging of jobs – it’s unacceptable,” Luis de Guindos, economy and competitiveness minister, said on Monday.

But Spain is also eager to convince sovereign bond market investors, and its EU partners, that it is serious about reducing the country’s deficit.

The PP government has already announced €15bn of emergency public spending cuts and tax rises after announcing that the 2011 budget deficit could exceed 8 per cent of gross domestic product - two percentage points higher than the 6 per cent target agreed by the previous Socialist government with the EU.

Further announcements are expected after a cabinet meeting on Thursday.

“The plan is crystal clear: fiscal austerity and tax increases to be combined with structural reforms,” said Iñigo Vega, bank analyst at CA Cheuvreux, said of the government’s plans on Tuesday.

Mr Vega said the government’s hope was that economic contraction caused by lower public spending could be offset by lower sovereign bond yields, and that the higher income taxes already imposed would have less effect on consumer spending than a general rise in indirect taxes such as value added tax.

The employment ministry statistics show that the jobless total has more than doubled since mid-2007, when it fell below 2m just as Spain’s home construction frenzy reached its peak.