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Bloomberg April 30 (Bloomberg) -- Spain’s unemployment rate rose above 20 percent for the first time in more than a decade, undermining Prime Minister Jose Luis Rodriguez Zapatero’s fight to cut the euro region’s third-largest budget deficit.
Spanish borrowing costs have surged in the past two weeks on concern the country will struggle to push the deficit below the EU limit of 3 percent of economic output. Standard & Poor’s cut Spain’s credit rating on April 28, saying the government was underestimating its fiscal problems and overestimating growth prospects. Adding to public spending, Zapatero has extended benefits for the long-term unemployed.
“The government’s scenario is a bit more optimistic than what we’re seeing, so the welfare costs for the unemployed are going to be higher,” said Jesus Castillo, an economist at Natixis in Paris. “If they don’t take new measures the 3 percent deficit target is not going to be met.”
The extra yield investors demand to hold Spanish debt rather than German equivalents fell to 97 basis points today from 99 basis points yesterday. The premium reached the highest in more than a year this week.
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http://www.businessweek.com/news/2010-04-30/spanish-unemployment-tops-20-hurting-deficit-fight-update1-.html