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Kootenai Brown

‘catch 22’ Wages Threaten As Spain Joblessness Soars

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By Emma Ross-Thomas

June 3 (Bloomberg) -- Spanish workers are finding that the cure for a decade-long borrowing binge may just make things worse.

As Spain sinks deeper into recession and the jobless rate heads for 20 percent, the highest in Europe, employers are telling workers to accept wage cuts if they want to stay competitive. That’s making it harder for households to tackle a debt load built up during the country’s economic boom and equivalent to 18,000 euros ($25,700) per person.

“There’s a Catch 22 problem for Spain,†said Dominic Bryant, an economist at BNP Paribas SA in London. “The solution for the competitiveness problem makes their debt problem worse. By squeezing wages you weaken the domestic economy further.â€

Annual growth of almost 4 percent over a decade turned Spain into an engine of Europe’s economy, boosting pay and prices as a building boom encouraged households to rack up 800 billion euros in debt. More than a year into a housing slump that helped spark the worst recession in six decades, the challenge is to trim labor costs and pay back loans without hobbling the country’s route to recovery.

For Patricio Zuniga, a 40 year-old builder in Madrid, that’s looking difficult after a 50 percent wage cut since the peak of the boom in 2007.

“We only just make it to the end of the month and we’ve already run through our savings,†said Zuniga, whose mortgage burden is now 80 percent of his family’s income. “They say: ‘If you like it you can take it and if not, well, that’s it.’†...

Spain's buggered.

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