Last week saw workers across Spain protest at layoffs from the factories of bathroom manufacturer Roca. 'What next?' read the banners of the angry demonstrators. It's a question most Spaniards are asking as the country continues to wallow in recession.

For while France and Germany have staged quick recoveries, Spain is lagging behind. Spanish daily El Pais reported this summer that the Spanish GDP would shrink 4.2 percent this year, while the Central European Bank has predicted that it will be mid-2010 before the country starts to register growth.

Spain buffeted by economic downturn

Prime Minister Jose Luis Rodriguez Zapatero's government has been forced to admit that unemployment will likely rise to 20 percent this year of the working population and that the deficit is set to reach 10 percent of GDP.

The country has shed 1.3 million jobs in the last year, while employment figures for August show that last month, another 85,000 people joined the ranks of the unemployed - over 18 percent of the active population.

That puts Spain's joblessness at more than double the EU average, a development blamed largely on the collapse of the Spanish housing market and the end of the construction boom.

As a result, government spending has escalated and Zapatero has warned that next year's budget will "be the most austere Spain has seen in the recent years."

Last week, he told parliament that recovery will be slow. "Signs that the deterioration is slowing does not mean that a recovery is here or will be fast. There are signs that the worst of the recession has passed, but we are still suffering an intense crisis," he said.

Wefare and green energy

So what is his government doing to help Spain weather the crisis? With over a million unemployed people without any form of government support, one focus is welfare.

Keen to keep unions on its side in the face of dwindling public support, the government has agreed to pay 420 euros a month to those who have exhausted their social security quotas, backdated to January 2009.

Around 600,000 people will benefit from the scheme, but it will cost the government an extra 100 million euros per month.

Meanwhile, to reactivate the economy, the government has announced a new finance model that has echoes of a Green New Deal.

Spain's debt-fuelled property boom paid scant attention to either environmental concerns or sustainability. Now, the government has announced a 25- illion-euro stimulus package to boost technological innovation, investments in renewables and energy efficiency.

It makes sense for Spain to play to its strengths. After all, the country provided for 35 percent of its energy needs in January 2009 with renewables - making a saving of 90 million euros on gas imports, according to the WWF energy observatory.

Moderate and temporary

As for plugging the 50-billion-euro public deficit, the government has floated a couple of ideas in the last week ahead of 2010 budget announcements, due to be passed on 18 September.

One is to freeze civil servants' salaries, introduce cuts across the ministries, and another, more controversially, to raise taxes. Zapatero announced the move, without enthusiasm, last week:

"We are going to look at capital income, not at wages, to ask for a small - and it's going to be small - increase in the contribution to the public purse. It's going to be moderate and as far as we can manage it, temporary," he said.

No more false hopes

Whatever form they take, tax hikes are likely to be passed through pacting with the left.

The government's socialist approach to the crisis has attracted scorn from the main government opposition, the conservative PP who have also accused them of erratic and improvised policy.

The government has also been accused of failing to admit to the extent of the damage. Until recently, ministers expressed overriding optimism - choosing to focus on improving consumer confidence, the Madrid stockmarket's positive performance and the fact that even though unemployment is increasing, the rate is slowing.

But even before Zapatero finally spelt out the grim truth about Spain's prospects of recovery this week, a more realistic mood had been apparent in Madrid. In July, Deputy Prime Minister and Economics Minister Elena Salgado conceded that the economic outlook was worse than had been acknowledged.

The new honesty might prove constructive. Shows of unity from government, unions and business leaders have kept demonstrations like that at the Roca plant to a minimum so far.

But with fresh economic data emerging that shows Spain is by no means out of the woods, the government cannot afford to raise false hopes.

Hazel Healy (jp)
Editor: Sonia Phalnikar