Spain Bringing Stormy Economic Weather This Summer

The European Central Bank is expected to help Spain address its economic woes.

As Europe tries to enjoy its summer amid ever changing weather and bond yield rates, one of its most popular destination is still in the midst of a potentially crippling recession.

According to Spain’s national statistics institute this week, the nation’s economy has contracted for the third straight quarter, shrinking another .4 percent off. Spain’s stubbournly high unemployment rate is not being helped by this, topping the table in terms of those without a job coming close to a quarter of the able working population.

The government have already outlined a forthcoming 3 percent sales tax increase to put it at 21 percent, on a par with Belgium and its potential bailout brother Italy. This move has been dismissed by most economists as a stumbling block to helping kickstart consumer demand which has been especially weak given the poor perfomance of the country’s economy on a domestic level.

Further adding to the fire is the spending cuts. An American style debt ceiling has been put in place at an average of just over 15 percent of gross domestic product across Spanish regions to save the central government in Madrid from bailing them out for an unprecedented fifth time. This in part has led to Spain having limited and almost unsustainable collateral which should sound alarm bells in Brussels and Frankfurt.

However, it may prove to be worse on a domestic front as some of the regions have suspended talks in protest of the continuing cuts across the country.

Despite the largely negative response to austerity measures at home, Spain has showed signs of improvement, albeit a moving slightly along. Spain’s ten year bond yield rate has falling .8 percent in the last week to 6.7 percent but will need a sizable injection of investment from the European Central Bank in order to keep the rates in a sustainable manner.

The head of the Spanish treasury Iñigo Fernandez de Mesa has rejected calls for the central bank to buy up sovereign debt from his country, signaling that it was not currently in the Spanish plans to instigate such a move. The ECB is nevertheless expected to step up in its efforts to prevent Spain from going into the direction that Greece and other bailout nations have found themselves in which would cause additional contagion for the single currency’s woes.