Spanish unemployment was higher than estimated in the first quarter which means that its credit crisis may be getting worse more quickly then believed. Information from Spanish newspaper ABC.es and translated by Zerohedge says that “the unemployment rate in the first quarter rose to 20.05%. It is the first time since 1997 that exceeds the benchmark rate of 20%.” Spain’s INE, which provides the data, admitted the mistake.

The news comes just days after Eurostat found that Greek budget numbers were wrong and the southern European county’s finances were deteriorating more rapidly than expected. The Greek and Spanish errors will cause the IMF, Eurozone nations, and bond investors to question the most basic assumptions on which the scope of the Europe sovereign debt crisis are based.

It was not long after the Greek error was discovered that S&P downgraded Greece’s debt to BBB+, a junk level. Spanish debt was downgraded yesterday to AA from AA+. The unemployment figures means that S&P was not able to make a proper decision on  Spain’s ratings. It will also raise questions about the accuracy of Portugal’s numbers, whether the concerns are fair or not. Its debt was downgraded two notches by S&P from A+ to A-.

The IMF/Eurozone bailout of Greece, which will initially cost 40 billion euros but could eventually be three times that, has to have as its foundation an accurate assessment of the scope of the problem. But, Europe’s most economically troubled nations are having trouble keeping their books.

The global capital markets may be willing to invest in Greek debt and continue to put money into sovereign paper issued by Spain, Portugal, and Italy–other countries that may be pulled into the credit crisis. But, the interest rates that investors pay will have to take into account the risk that the countries may not know how badly off they are. That will mean the interest rates that the nations will have to pay could spike up.

The “accuracy” problem compounds the trouble that Europe’s weakest economies have in cutting their deficits. As their borrowing costs move up and debt service rises, the need to cut discretionary spending and entitlement programs will become more acute.

Messy bookkeeping will almost certainly make the problem of “contagion” worse.

Douglas A. McIntyre

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