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Spanish unemployment nears 25%

Katell Abiven
People wait in line at a government employment office in the center of Madrid in June. Spain's jobless rate neared 25 percent in June, officials said, darkening the recession outlook despite relief on financial markets at a vow of support by the European Central Bank.

Spanish unemployment is now near one quarter of the workforce, fuelling fears the country might need a costly bailout as the IMF issued its latest report on the eurozone's fourth biggest economy.

The unemployment rate rose in the second quarter to 24.63 percent of the workforce and to a huge 53 percent among the young, despite the start of the tourist season, figures from the national statistic office showed on Friday.

The increase in the overall jobless numbers was smaller than in the first quarter however, with the number of eligible people out of work rising to nearly 5.7 million people.

Between April and June, 53,500 people lost their jobs in Spain, compared with 365,900 in the first quarter, the national statistics office said.

The unemployment rate rose from 24.4 percent in the first quarter -- already the highest in the industrial world -- as Spain entered its third straight quarter of economic contraction.

And the International Monetary Fund warned Friday that the Spanish recession would be worse than initially expected, with a forecast contraction of 1.7 percent this year and of 1.2 percent in 2013.

Official Spanish economic growth figures for the second quarter are expected on Monday.

Spain's economy is reeling in the aftermath of a decade long real estate boom that crashed with the debt crisis, bringing the Spanish financial sector to the brink of insolvency.

Under pressure from European authorities who have agreed to bail out Spanish banks, Spain's conservative government has approved tens of billions of euros' worth of spending cuts, tax hikes and other measures.

Madrid must still pay high interest rates to borrow money on public debt markets, though the rate, or yield on benchmark 10-year bonds fell on Thursday and Friday following comments by European Central Bank chief Mario Draghi.

He declared on Thursday that the ECB was "ready to do whatever it takes to preserve the euro.

"And believe me it will be enough," Draghi added in comments that pushed yields on Italian and Spanish bonds lower because investors now expect the bank to buy debt issued by those countries, possibly in cooperation with their eurozone partners.

The stock exchange in Madrid has also leapt higher in the past two days, gaining 6.0 percent on Thursday and another 3.91 percent on Friday.

But the IMF, which wrote its report before Draghi's remarks had been made, said that heightened market tension could disrupt Spain's ability to finance itself despite a eurozone bailout worth up to 100 billion euros ($123 billion) agreed for Spanish banks and emergency financial reforms for the 17-nation bloc.

"Market tensions could intensify further, threatening market access, particularly if policies fail to stem capital outflows or due to further stress elsewhere in the euro area," the IMF said in a report.

Spanish Prime Minister Mariano Rajoy has scrambled to regain market confidence and unveiled his latest set of measures on July 11 aimed at saving 65 billion euros over three years.

Rajoy says the steps will help cut the public deficit in line with targets agreed with the European Union, and strengthen the economy in the long term.

Critics say the measures will make the poor suffer unfairly from moves such as a public sector bonus cut and a rise in sales tax that together will hit consumption.

"All the spending cut policies they are taking are restrictive and run counter to growth," said Alberto Roldan, an analyst at Spanish brokerage Inverseguros.

"Raising the fiscal pressure in a country with 25 percent unemployment is absolutely regressive."

Hundreds of thousands of Spaniards have marched across the country in recent weeks to protest against the measures.

The Spanish region hardest hit by rising unemployment was Catalonia in the northeast with a rate of 33.92 percent, Friday's figures showed. The lowest rate was 14.56 percent in the affluent Basque Country.

Concern that Spain might need a full bailout has grown since Spanish regions including Catalonia, the second biggest, said they too might need help from the federal government.

On Friday however, the government dismissed the prospect of an international rescue.

"A bailout is not an option," government spokeswoman Soraya Saenz de Santamaria said.