Spain’s Unemployment Rate Soars

Spain’s Unemployment Reaches Record as Bailout Looms – Bloomberg.

Spanish Bonds Post Worst Week Since August on Bailout Delays – Bloomberg.

The eurozone has deep structural problems that require more than just the topical balm of monetary policy.

There are two main reasons for Spain’s ridiculous 25.4% unemployment rate. Austerity has pushed the country into a depression, and this high rate is a direct result of this action.

The other reason for persistently high unemployment in Spain is the structure of the labor market. The unintended consequence of well-meaning labor protection laws is that it is very difficult for companies to sack workers for any reason, including incompetence or declining output slackening the need for them.

Since it is so difficult to fire workers, companies rationally respond by hiring as few of them as possible. In today’s economic client, output drops have become the norm, and companies are refusing to hire. This choice results in less consumer spending reinforcing the entire downward spiral.

While the ECB’s monetary policy and the alphabet soup of bailout regimes can maintain the status quo, in the long-term drastic changes are necessary for the crisis to abate. So far, the political will for these changes has been lacking.

In the meantime, the eurozone periphery remains trapped in a stable disequilibrium that is slowly strangling the economies of the affected states. One shock is all that is needed to topple the entire house of cards.

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