Spain: sombre times ahead

Spain's new Prime Minister is sworn in today. Mariano Rajoy of the right-wing People's Party was elected last month, although why he would want the job is open to question. Spain's economy is a mess and the austerity solution Rajoy embraces can only make it messier in the short run.

The country, Europe's fourth largest economy, has slipped back into recession. Its regional banks are in difficulties and they have still not provided the data to show just where their losses are. The deficit is in excess of 6.5 percent of GDP.

The unemployment rate now stands at 22.8 percent, youth unemployment is close to 46 percent. Rajoy's plans must make those figures rise. He is committed to cutting 16.5 billion euros ($21.5 billion) of government spending this year. If you take that much money out of the economy it isn't likely to lead to job creation.

Speaking to Parliament yesterday, Rajoy promised tough times ahead. "The panorama could not be more somber," he said. "We cannot be vague when setting out priorities."

The problem for Spain is that its greatest assets – weather and lifestyle –  led it into a Sunbelt style construction bubble. It can't export its way to job-creating growth because you can't export the three-quarters of a million empty houses that were built during the boom for snowbirds from northern Europe. Those snowbirds are cash strapped at the moment and unlikely to be retiring to Spain any time soon.