Wednesday, August 31, 2011

What about Spain and Italy ?

We recently made a reference to the social unrest in the UK stating that the low economic activity and unemployment were the basic reasons for the riots in August 2011. There are other causes from sociological and cultural perspectives, of course.
Having said that, we should conclude that a similar pattern could be followed by countries hit by unemployment (Spain 21% and Italy 8,4%) and low economic activity.
In the case of Spain, it is needed a GDP increase higher than 2% in order for the economy to create employment. In the case of Italy that increase is in the area of 1,6%.
Clearly the adjustment measures required by the European Central Bank is creating certain “social” unrest. Both in Spain and Italy, unions and minority political parties are creating an atmosphere which may end up in serious social unrest.
Spain will have presidential elections on November 20th 2011. The pools show that the Popular Party (center- right) will win.
According to the recent history, we can expect strikes early next year since the strict  austerity measures requested by the EU will ignite the left wing political parties and unions.
Italy´s eroded image of its Prime Minster, plus its debt ratio close to 120% of GDP and low growth expectations of 0,6 – 0,8% for this year make a dangerous combination regarding social stability.
On top of these worrisome scenario for both countries, the major rating agencies are constantly issuing warnings of quality raising decreases.

Not a very encouraging scenario for both peninsulas in the short term.  

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