Tourists Fail to Boost Employment in Spain

Rajoy calls for direct bank aid as China prepares for Greek exit

A bull ring in the Spanish capital, Madrid. A bull ring in the Spanish capital, Madrid.

Even the influx of tourists during peak travel season has failed to boost Spanish employment out of the doldrums. While more people were working in May than in April, fewer found employment this year than during last year’s tourist season. At the same time, Prime Minister Mariano Rajoy called for direct aid to banks in need of financial assistance and China sought plans to cope with a Greek exit from the euro zone.

Bloomberg reported Monday that while the number of those registering for unemployment benefits in Spain fell during May by 30,113, a year ago that number was more than twice as large at 79,701. The Labor Ministry data indicated that this May is the worst showing since the beginning of the financial crisis in 2008.

Unemployment still lingers above 24%, and with tourism the country’s biggest economic factor, a lack of relief in that sector will make it even harder on the beleaguered country to make the cuts it has mandated in its deficit reduction plan.

“Even seasonal hiring is becoming difficult for cash-strapped Spanish companies,” Thibault Mercier, an economist at BNP Paribas in Paris, said in the report. Added to the country’s bank woes, it appears increasingly likely that Spain will be the next in line for a bailout.

Rajoy’s government, however, said that it was not under pressure from other eurozone countries to seek a rescue package. An unidentified government spokeswoman also denied a report in the newspaper El Pais that Madrid is negotiating for aid from the European Union for its banks that would not be considered a bailout.

On June 2 Rajoy called for funds to come directly to troubled banks rather than being routed through government channels. That added to the push on Chancellor Angela Merkel of Germany to consider a sturdier “banking union” in Europe.

Rajoy encouraged other eurozone member countries to “cede more sovereignty” to a central fiscal authority, and also voiced support for the European Commission’s (EC) call for a banking union that would include a single regulator and a deposit guarantee fund.

Merkel, however, has been steadfastly opposed to any measures that would lead to such things as joint euro bonds, although she has become increasingly isolated in her position as one after another of the eurozone countries have called for growth rather than austerity and a greater financial interdependence among the countries in the bloc.

Among those pressuring Germany is the billionaire investor George Soros, who was quoted saying on Saturday, “We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.”

On Sunday, Pierre Moscovici, the new French finance minister, added his voice to the chorus, saying that aid for troubled European banks should come through the European Stability Mechanism (ESM) rather than through governments. “We need to go toward a banking union,” he was quoted saying.

Spain’s troubles may be taking temporary center stage, but meanwhile the days are still ticking down toward a second Greek election. Should the results be inconclusive or come down on the side of renegotiating or abandoning its agreement with European officials for its second bailout, it could end up departing the eurozone—and China wants to be ready.

Reuters reported Monday that Chinese sources said the government has asked a number of prominent agencies, including the country’s central bank, its banking regulator and the National Development and Reform Commission, to prepare plans to deal with the fallout from a Greek exit from the eurozone.

"It's very urgent," the report quoted one source as saying. "The government has asked every department to analyze measures to cope with a Greek exit from the eurozone and make their own suggestions as soon as possible."

In comments that appeared last week, Yu Yongding, an influential economist and a former central bank adviser, proposed actions that included capital controls and cash injections to domestic markets to cut volatility.

On Monday the head of the central bank said that China would continue to invest in eurozone government debt and other assets, and also exhorted the eurozone to more quickly implement reforms that would resolve the debt crisis.

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