MercoPress. South Atlantic News Agency

Spain’s high unemployment a threat for financial system, warns top banker

Central bank president Miguel Angel Fernandez Ordoñez

Spain’s high unemployment is the biggest threat facing the country’s banks, the governor of the Spanish central bank said this week. With the jobless rate approaching 19%, Miguel Angel Fernandez Ordoñez said Spanish politicians need to approve labour reform “soon and with the broadest possible consensus”.

If “millions of workers” remain idled, Spain’s banking system could go from “having been a prop for the economy during the crisis to becoming an obstacle to achieving economic recovery,” the head of the Banco del España told a forum in Madrid on restructuring the financial sector.

Delay in reforming Spain’s labour laws would spur a rise in mortgage delinquency, increase the public debt and make wholesale credit more expensive, warned Fernandez Ordoñez.

Predicting that Spanish banks will be reluctant to lend to business ventures perceived as risky, he said policymakers need to consider how to promote economic growth within what is sure to be a more restrictive regulatory framework for finance.

The new financial system that emerges should include non-bank sources of financing for start-ups and small-to-middling companies, the central bank chief said.

Spanish Prime Minister Jose Luis Rodriguez Zapatero told Britain’s Financial Times this week that his country would fulfil its commitment to reduce the budget deficit “whatever the cost”.

“We have a plan, a credible quantified plan which we have already begun to implement, a plan to reduce the public deficit” the Socialist premier said in an interview published Monday.

The measures already implemented include cutting public spending at the national, regional and municipal levels, a virtual freeze on government hiring and some tax hikes.
Rodriguez Zapatero told the FT, however, that while working to reduce the deficit, Spain – the No. 4 economy in the Euro zone – must also protect the unemployed and promote economic growth as the country tries to emerge from recession.

Regarding unemployment, which currently affects more than 4 million people, or nearly 19% of the Spanish workforce, Rodriguez Zapatero said he supported an agreement businesses and unions that includes more flexibility in hiring, but “preserving guarantees and rights of employees”.