New data shows Spain is back in recession. The country's economy shrank 0.3 percent in the first quarter compared with the previous three months. The contraction follows a similar decline in the last three months of 2011.
This is also Spain's second recession in three years.
But that's not stopping massive crowds from taking to the streets to protest conservative Spanish Prime Minister Mariano Rajoy's budget cuts and emergency "austerity" measures.
Thousands demonstrate against education and health care spending cuts in Madrid, Sunday, April 29, 2012 (Photo: Daniel Ochoa De Olza/AP)
The contraction in Spain's economy is dimming hopes that the government will be able to cut its budget deficit as predicted and raises the specter that the country might be locked into a downward financial spiral.
Spain now has 24.4 percent unemployment and a deficit of 8.5 percent as of the end of 2011, which it must reduce to 3 percent in 2013. Furthermore, “[g]ross domestic product contracted 0.3 percent,” according to Bloomberg.
Investors are worried that Spain will not be able to support its banks, which are burdened with massive amounts of bad loans from an imploded property market. But rescuing Spain, the fourth-largest economy in the 17-country eurozone, might prove too expensive for the continent's bailout funds.
Simply put, the Spanish crisis may actually have some people longing for the days of the Greek crisis.
Ratings agency Standard & Poor's downgraded Spain's government debt to just three notches above junk Friday. On Monday S&P lowered its rating for 11 Spanish banks, which are loaded with bad debt from a collapsed housing market.
And rather than embrace what some consider to be the only option out of economic ruin (i.e. austerity), thousands of Spaniards poured out into the street to protest Germany’s proposed emergency reforms.
“With Spain’s largest unions leading marches involving thousands of protesters in 55 cities yesterday, Prime Minister Mariano Rajoy’s government battled to prevent Spain from becoming the next country to seek a bailout,” Bloomberg reports.
A woman leaves a banner after a demonstration against education and health care spending cuts in Madrid, Sunday, April 29, 2012 (Photo: Daniel Ochoa De Olza/AP)
“Watching Spain now is exactly like watching Ireland around October 2010 before Ireland was forced into its bailout,” Megan Greene, a senior economist at Roubini Global Economics LLC, told Bloomberg Television’s “Street Smart” on April 27.
“The government can’t win no matter what it does,” she adds.
Still, despite the union-led backlash against austerity, German Chancellor Angela Merkel is not backing down from EU's "fiscal pact." You know, that thing billionaire philanthropist George Soros has been vociferously railing against for the last two months.
“There will be no new negotiations on the fiscal pact,” Merkel told the Leipziger Volkszeitung in an interview published on April 28. Merkel has long maintained that the eurozone financial crisis can't be solved without cutting debt.
However, despite the German chancellor’s resolve, pressure is mounting against deep-cutting austerity measures.
“Protesters in Madrid yesterday filled the city’s Puerta del Sol square despite the rain, with placards reading ‘No bread, no peace,’” Bloomberg reports.
Many analysts expect the EU's anti-austerity protests to grow much larger in the coming months.
The Associated Press contributed to this report.