Spain is facing a “crisis of huge proportions,” according to its foreign minister.
Unemployment hit 24% in the first quarter – the highest level since the early 1990s – and retail sales slumped for the 21st consecutive month.
Adding to the pain, Standard and Poor’s downgraded the government’s debt rating by two notches. The yield on 10-year Spanish debt rose to over 6% on the news.
Spain is now in its second recession in three years and Alpesh Patel of Praefinium Partners says the Spanish government has to get the economy growing again:
“The key thing they need to do is have an internal devaluation. By which, I mean cut the salaries of the public sector. Not just hold salaries, but cut them, say by about 5%. That will at least keep tax revenues coming in, reduce, or at least maintain employment levels and help cut that budget deficit.”
If Spain’s economy isn’t stabilized, many fear that the eurozone is in for a repeat of the Greek debt crisis – and that the financial firewalls aren’t thick enough to a handle an attack on two fronts.