MADRID: Vows of support for the euro zone calmed financial worries about Spain this week but could not polish its economy, whose recession is set to deepen as unemployment nears 25 percent.
European Central Bank chief Mario Draghi delighted investors Thursday when he vowed "to do whatever it takes to preserve the euro," which implied the bank may ease credit conditions by buying bonds or making cheap loans.
"We hope Draghi's words will last and will serve as an oxygen tank for the financial markets in the coming weeks," said analysts at brokerage Link Securities in a report.
But they added: "This does not mean the problems of the economies of southern Europe are over."
After Draghi's comments, Spain's sovereign interest rates eased back from danger levels and Madrid's stock market shot up on Thursday and Friday, recovering some of the huge falls of previous days.
The government Friday dismissed warnings that Spain might need a full international bailout as economists have warned.
But Spain's economic and financial problems run deep, the legacy of a decade-long real estate boom that went bust in 2008 with the debt crisis.
The International Monetary Fund warned Friday that the Spanish recession would be worse than previously thought, forecasting a contraction of 1.7 percent this year and of 1.2 percent in 2013.
Spain's economic growth figures for the second quarter were due to be released today by the national statistics office.
The Bank of Spain last week estimated the contraction in growth has accelerated in the second quarter to 0.4 percent, after falls of 0.3 percent in each of the previous two quarters.
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 to cut the deficit and restructure the economy.
Critics say the the poor will 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."
