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23 September 2013

WSJ: Spain emerges from recession but sees more austerity ahead

"Spain is out of recession but not out of the crisis", PM Rajoy said in an interview with WSJ, cautiously touting the effects of budgetary and structural overhauls that have been among the deepest in the eurozone.

Mr Rajoy said he hoped the easing of the crisis won't stall the eurozone's movement toward expanded political and financial integration—a process that would help beleaguered countries like Spain by putting the bloc's collective financial strength behind a safety net for the region's banks. Mr Rajoy also said that his medicine was working and "things are on a good path". Labour costs have been cut, exports are on the rise, and the current account deficit, once 10 per cent of GDP as cheap money poured in to fuel the building boom, has turned to surplus.

A real recovery won't come, he acknowledged, until Spaniards start spending more, house prices bottom out, and the country's external debt stabilises. But he said that consumer spending had flattened in the past two months after falling steadily since the start of the crisis. Spain's banking system, he said, is "more transparent, more solvent and better capitalised" since it got a €41.3 billion bailout loan from the European Union last year. Mr Rajoy is awaiting an assessment by the EU and other creditors in November but added: "If you ask me today, I would say that Spain won't need to extend the [bailout programme] into 2014".

The economy will expand by a modest 0.5 per cent to 1 per cent next year, he said, enabling it to start creating jobs on a sustained basis. "I won't dare to speculate”, he added, on how long it will take to whittle down Spain's 26.3 per cent unemployment rate, the highest in the eurozone after Greece. "The improvements will happen little by little."

Mr Rajoy said Spaniards had endured the worst of the budget-slashing and tax hikes he introduced after taking office in December 2011. But he said his cabinet would approve two new adjustments Friday: Starting next year, increases in pension payments will no longer be automatically indexed to annual inflation; nor will many government-controlled prices, including electricity rates and highway tolls. The pension overhaul will dig into the income of Spain's 9 million retirees.

Full article

See also: Mariano Rajoy says debate in Spain today centres around how strong economic recovery will be, 25.9.13 © La Moncloa

© Wall Street Journal

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