Spanish Debt Downgraded; Romanian Government Collapses

Spain’s sickly economy faces a “crisis of huge proportions”, a minister said on Friday, as unemployment hit its highest level in two decades and Standard and Poor’s weighed in with a two-notch downgrade of the government’s debt.

Spain’s unemployment rate shot up to 24 percent in the first quarter, the highest level since the early 1990s and one of the worst jobless figures in the world. Retail sales slumped for the twenty-first consecutive month.

“The figures are terrible for everyone and terrible for the government … Spain is in a crisis of huge proportions,” Foreign Minister Jose Manuel Garcia-Margallo said in a radio interview.

Standard and Poor’s cited risks of an increase in bad loans at Spanish banks and called on Europe to take action to encourage growth.

Bank shares dropped 3.38 percent and Spain’s country risk, as measured by the spread on yields between Spanish and German benchmark government bonds, spiked by 10 basis points to 434 basis points.

Spain has slipped into its second recession in three years putting it back in the centre of the euro zone debt crisis storm.

The government has already rescued a number of banks that were too exposed to a decade-long construction boom that crashed in 2008, and investors fear vulnerable lenders will be hit by another wave of loan defaults due to the slowing economy.

With the economy shrinking, Spain has little hope of meeting tough public deficit targets this year even as the government makes tough cuts.

Read More Here: http://www.reuters.com/article/2012/04/27/us-spain-economy-idUSBRE83Q0BQ20120427

Romania’s opposition torpedoed the centre-right cabinet in a confidence vote on Friday, raising the prospect of months of political turmoil and questions over a belt-tightening campaign that has caused a wave of protests against IMF-backed reforms.

Prime Minister Mihai Razvan Ungureanu’s two-month-old government is the latest in a string of austerity-minded ruling coalitions that have fallen across the European Union in disputes over spending cuts and tax hikes.

The defeat came ahead of another confidence vote, in the Czech Republic, whose budget-cutting cabinet is expected to survive but may find itself hamstrung by infighting among its scandal-plagued parties and widespread public anger over its policies.

Having replaced his predecessor Emil Boc, who resigned in January after anti-government protests in Romania turned violent, Ungureanu was defeated by the votes of 235 deputies, four more than required to topple his government.

“Today justice was done,” said Victor Ponta, head of the opposition Social Liberal Union (USL). “USL is willing to take responsibility to govern until elections.”

The European Union’s second-poorest member slashed public sector salaries and raised sales taxes to put its economy on a more solid footing, but the measures have hit the poorest in the country of 22 million, which is only now emerging from a two-year crisis-induced recession.

President Traian Basescu, a close ally of Ungureanu, now has to nominate a new prime minister, which could take months.

Read More Here:  http://www.reuters.com/article/2012/04/27/us-centraleurope-politics-idUSBRE83Q0QG20120427