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The downward slide has been as spectacular, with the current crisis being described as the most destructive since Spain became a democracy after the death of dictator Francisco Franco in 1975.

 

While the international crisis is affecting other EU countries as well, hardly any have been hit as hard as Spain, where half of the layoffs within the EU occurred between February 2008 and February 2009.

 

Nearly 90,000 mainly small and medium-sized Spanish companies went bankrupt in the first three months of this year, and the Bank of Spain expects the economy to shrink about 3 per cent in 2009.

 

The 17 per cent unemployment - twice the EU average - will soar to 20 per cent before the economy will slowly start recovering in 2011, the European Commission forecasts.

 

The number of unemployed - more than 4 million - is the highest on record.

 

While labour law guarantees good severance pay to some of those who lose their jobs, a larger part of them have access to few benefits.

 

More than a million households have all their potential wage earners out of work, with many of them facing ruin.

 

Tens of thousands have entered the informal economy which employs an estimated one million people.

 

Conscious of the danger of social unrest, Zapatero has resisted demands to make it cheaper to hire and fire workers, despite the restrictive labour regulations having pushed temporary work contracts to double the eurozone average.

 

After having lost a big part of its credibility by issuing overly optimistic economic forecasts, the government has now tried to stop the downward spiral by earmarking tens of billions of euros for public works and other stimulus measures.

 

The lavish spending is expected to raise the budget deficit above 8 percent - far above the European Union limit - this year, according to a Bank of Spain forecast.

 

Much of the spending does not, however, address the deep causes of the crisis.

 

The roots of Spain's steep economic decline are in the previous boom, which was based largely on the overheated construction sector, and during which Spanish companies and consumers got accustomed to living on credit, analysts say.

 

The construction and sales of homes and secondary residences has contributed more than 15 percent of Spain's gross domestic product (GDP).

 

After that bubble burst, housing prices collapsed and Spain now has more than a million unsold new homes.

 

Analysts have long stressed the need to restructure the economy by increasing productivity, competitiveness, educational level and research.

 

During a parliamentary debate on the state of the nation, Zapatero acknowledged the flaws in Spain's economic structure, announcing moves towards reorienting the economy.

 

In one of the main measures, tax breaks for wealthier home buyers will end in 2011, in an attempt to stabilize the property market by then and to reduce its relative economic importance at medium term.

 

Zapatero also announced free laptop computers for half a million schoolchildren, in an attempt to demonstrate the government's drive to increase technological know-how.

 

The pro-government daily El Pais saw Zapatero as moving towards an "ambitious reform," but El Mundo shared the skepticism of most opposition parties.

 

The government's new measures amounted to "a bunch of plasters rather than a real plan," the daily complained in an editorial.(dpa)

 

 

 

Spain seeks way out of its economic quagmire

   Spain struggles to rise out of its worst economic slump in 60 years, the government is beginning to seek alternatives to the growth model the country had followed for decades.

 

Spain can no longer rely on the property sector as one of the main drivers of the economy, Prime Minister Jose Luis Rodriguez Zapatero said recently , announcing measures aimed at diversifying and modernizing the economy.

 

For over a decade, Spain's growth and job creation figures were among the highest in the European Union, with the economy growing steadily at over 3 per cent.

By: Mohit Joshi

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