Europe’s frail economic outlook further dimmed Monday when Spain officially sank into its second recession in three years.
The Spanish government reports that country’s economy shrank 0.3 percent in the first quarter of the year, completing two consecutive quarters of contraction. Spain is the fourth-largest economy among the 17 countries that use the euro.
Friday, the government reported that Spain's unemployment rate hit a record high of 24.4%.
There is a growing concern that Europe’s bailout funds won’t be sufficient to rescue Spain should it need help, due to the ongoing costs of bailing out Greece after that country’s heavily-subsidized economy virtually collapsed.
For its part, the International Monetary Fund has proposed 18 billion ($23.6 billion) in fresh funds in a second aid package for Greece, representing a significant scaling back of IMF funding to the nation that triggered Europe's debt crisis.
The planned IMF distribution of funds to Greece represents 14% of the 130 billion second rescue arranged for the euro area. The IMF accounted for 27%, or 30 billion, of an initial 110 billion bailout in May 2010.
Adding to global concerns of a potential cataclysmic European economic meltdown is the notion of France electing a Socialist president who campaigned on raising taxes and increasing government spending.
Major polls in France suggest Socialist Francois Hollande may be cruising for a victory over conservative incumbent President Nicolas Sarkozy, which many analysts suggest would dash hopes for an economic recovery in that country where unemployment stands at 10 percent. France's budget is approaching 90 % of GDP.
As President, Hollande would levy a 75 percent tax on anyone who makes more than €1 million ($1.33 million) a year, which analysts say includes many small business owners who would in turn cut back on growth to stay afloat.
France's stock market plunged into the red Monday and the euro fell sharply following the Socialist candidate’s first round victory in the ongoing French presidential election that will culminate in a May 6 runoff.
As of 2010, France is the world's 5th and Europe's 2nd largest national economy by nominal GDP.
Meanwhile, the Office for National Statistics (ONS) said the UK economy contracted by 0.2% in the first quarter of 2012 on the heels of a 0.3% decline in Gross Domestic Product (GDP) in the final three months of 2011, signaling a double-dip recession in that major European economy.
Denmark and the Czech Republic, like the UK, use their own currency, and are also in recession.
Other Europeon counties experiencing consecutive quarters of negative growth include Ireland; Portugal; Belgium; the Netherlands; Cyprus and Slovenia.
Monday’s news of Spain’s sputtering economy renewed worries about the fragility of Europe’s finances and nudged stocks lower in the U.S.
In the U.S., a sharp drop in an index of Midwestern manufacturing and a slowdown in U.S. consumer spending are evidence that country’s economy is slowing down. Weaker earnings reports from health insurer Humana and the owner of the New York Stock Exchange, NYSE Euronext, also weighed on stock indexes.
Stocks were off 1.9 percent in Spain, 1.6 percent in France and 1.3 percent in Italy earlier Monday.
Friday, ratings agency Standard & Poor’s downgraded Spain’s government debt to just three notches above junk; Monday, S&P lowered its rating for 11 Spanish banks loaded with bad debt from a collapsed housing market.