Debt-hit Spain fears youth brain-drain

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4 October 2011 Last updated at 20:21 GMT By Matthew Price BBC News, Madrid Matthew Price spoke to some Spanish students about their job options

Spain's "Lost Generation" can be found studying literature in classroom 007 at Madrid's Complutense University.

Some 28 students sit alert, behind the rows of desks waiting for a series of questions.

How many of them are confident they'll get a job when they graduate next year? No-one raises a hand.

"What sort of job?" asks one young woman.

"Any," I venture. A few hands go up.

How many believe they will get a good job? No-one.

Who thinks they will have to leave the country to find the work they want? Almost everyone immediately raises a hand, and a glum look spreads across the faces.

A class with hands held aloft - a grim symbol of the mess Spain finds itself in.

The university dining hall - a concrete walled relic from the '80s - is a buzz of chatter. Students struggle through canteen meals.

Among them is Jesus Poveda. He is 20 years old, and without much hope of a future here.

"I think we will do well at work," he says, gesturing towards his fellow diners, "but not in Spain. We should leave the country."

Opposite him sits Guillermo Lerma, also 20 years old.

"Nowadays … [a] boss prefers someone who is studying because they don't have to pay too much." he says.

"You have temporary work here, but not a salary."

'Big advantage'

Spanish unemployment is the highest in Europe - and it's still rising. The number of people looking for work in September rose by 100,000 - the largest increase in that month for 15 years.

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I don't see it as a negative... Youngsters see it as normal to move, to study, to work part of their lives in other countries”

End Quote Valeriano Gomez Labour and immigration minister Overall some 21% of people are unemployed. Among the young it's far, far worse. Almost half of all 16 to 24 year olds are without jobs.

It's an astonishing and devastating statistic for a country that desperately needs a dynamic, thriving and young workforce to help it recover from the housing crisis that plunged this economy into recession.

"It's a problem not just for them, but for all of us," believes economics professor Gayle Allard from the Instituto de Empresa in Madrid. She is an American who has lived in Spain for 27 years.

"This is the generation that will be paying for the welfare state and pensions in the future. If they can't get started with relatively secure, well-paying jobs, start to put away some savings, start to accumulate assets, start paying into the welfare system, where does that leave the rest of us?" she asks.

"It's going to be backwards. We're going to be paying for these kids for years and years. It really puts at risk the whole [economic] model."

The latest recruit to the brain-drain of Spain is Irene Roibas - an economics graduate who's leaving for the Netherlands. It's partly for personal reasons, but also because she feels her future will be better secured outside her own country.

Budget cuts have brought many students out on to the streets to protest

"I don't think that universities are preparing people [here]," she argues. Nor "that students are taking all the opportunities they have".

Does Spain need to change? "Yes, I think so, definitely."

Not everyone though is worried about people like Ms Roibas. In the offices of the labour and immigration department, the minister, Valeriano Gomez, believes that youth migration is not a problem.

"I don't see it as a negative. Spain has changed a lot. Youngsters see it as normal to move, to study, to work part of their lives in other countries.

"I don't see it as a problem. I see it as a big advantage."

Escape valve

The European Union of course makes it possible, indeed easy, for the unemployed to head elsewhere to work - although it's not the totally free labour market many champion, thanks to the language barriers that exist across the continent.

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For the country to lose this group of people who could help raise the productivity of Spain, which is quite low, is a tragedy”

End Quote Prof Gayle Allard Instituto de Empresa So Europe provides some sort of escape valve for unemployed Spanish youth. Many head for the UK, for France, but also to the US and Latin America.

Venezuela's need for engineers is said to be attractive to many Spanish.

In time the hope will be that they return to Spain, with the experience and desire to help rebuild the economy.

But much of Europe will not attract them. Youth unemployment across the EU is - on average - high at one in five.

Spain is caught up in the debt crisis that's hitting Europe. The government insists things will improve, but some fear that, without the young, it will take longer.

"For the country to lose this group of people who could help raise the productivity of Spain, which is quite low, is a tragedy," says Prof Allard.

In the university canteen many agree with that.

Across Europe, youth unemployment is rising. And just like the continent's economic crisis, there is no end in sight.

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King fears crisis is 'worst ever'

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7 October 2011 Last updated at 04:13 GMT Mervyn King: 'Quantitative easing will work'

Bank of England governor Mervyn King has said this financial crisis could be the worst the UK has ever seen.

His comments came after the Bank authorised the injection of a further ￡75bn into the economy through quantitative easing (QE).

Explaining the move Sir Mervyn told Sky News: "This is the most serious financial crisis we've seen at least since the 1930s, if not ever."

The Bank has already pumped ￡200bn into the economy.

It has done this by buying assets such as government bonds, in an attempt to boost lending by commercial banks.

Sir Mervyn said: "We're having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy."

The Bank's Monetary Policy Committee has been split for months over whether the UK needs a boost to the economy through QE, an increase in interest rates to stave off inflation - which at 4.5% is well over double its target - or to leave things as they are.

Only one member, Adam Posen, has consistently pushed for more QE.

Slow money

Sir Mervyn said the economic landscape was unfamiliar and the world had changed in the past three months and so had the policy response necessary.

He said the amount of money in the economy was not growing quickly enough.

Sir Mervyn also said he could not rule out a further bout of QE.

On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.

"The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term.

Continue reading the main story Use the dropdown for easy-to-understand explanations of key financial terms:AAA-rating GO The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule.The CBI and the British Chambers of Commerce (BCC) business groups welcomed the Bank's move to expand the QE programme to ￡275bn, but said that on its own, its impact would be limited.

"This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest," said Ian McCafferty, the CBI's chief economic adviser.

"Only once the turmoil in the eurozone is resolved will confidence be fully restored."

'Radical'

David Kern, chief economist at the BCC, said: "Higher QE on its own is not enough and we urge the MPC [Monetary Policy Committee] to look at other radical methods.

"There is a strong case for the MPC to help boost bank lending to businesses by immediately raising its purchases of private sector assets."

However, the National Association of Pension Funds (NAPF) is calling for an urgent meeting with the pensions regulator to discuss ways of protecting UK pension funds from the negative effects of QE.

QE tends to push down long-term bond yields, therefore reducing the return on the investments made by pension schemes.

"Quantitative easing makes it more expensive for employers to provide pensions and will weaken the funding of schemes as their deficits increase," said Joanne Segars, chief executive of the NAPF.

Complementary actions Continue reading the main story

If you're not sure of the quality of your ammunition, it's best to fire first. Some will see that as the explanation for the slightly early launch of QE2 from the Bank of England”

End Quote Stephanie Flanders Economics editor, BBC News Mervyn King wrote to the chancellor earlier on Thursday, setting out the MPC's case for expanding the asset purchasing programme.

In his letter of response, in which he authorised the move, Chancellor George Osborne said: "I agree that an increase in the ceiling would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target."

In his speech to the Conservative Party conference earlier in the week, Mr Osborne said that the Treasury would look into "credit easing" - a way to underwrite loans to small businesses who are struggling to get credit now.

He confirmed this in his letter to Mr King: "Given evidence of continued impairment in the flow of credit to some parts of the real economy, notably small and medium-sized businesses, the Treasury is exploring further policy actions. Such interventions should complement the MPC's asset purchases."

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