Spain’s Crisis May Change EU to Rethink Austerity Policies

“Spain is the crucial front in Europe’s battle to contain its economic crisis, and the fight is going badly.

Spain’s economy is in a tailspin. Some forecasters say the unemployment rate, already a punishingly high 24.4 percent, could reach 30 percent. The government’s credit rating has just been downgraded, and its cost of borrowing — close to 6 percent — is putting its solvency in question. Investors are watching the country’s banks with mounting concern.

Europe’s leaders cannot blame Madrid. Mariano Rajoy’s center-right government is making progress on reforms aimed at improving the country’s competitiveness and has tried — to a fault — to meet the European Union’s austerity demands. The resulting budget cuts are strangling the economy, squeezing the government’s revenue and increasing the likelihood that Spain will need still more austerity to meet the EU’s fiscal targets. The policy has become self-defeating….”

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