Editor’s note: This article was first published in June 2011. It is a snapshot of the euro crisis that month: the second Greek bailout, the widening spread over the 10-year German bond and the IBEX falling below 10,000 points. Its discussion of a Spanish bailout predates the 2012 eurozone loan to recapitalise Spanish banks.
Spain currently has an image problem. Every investor knows that, after Greece and Portugal, our country is one of the weakest in the European Union and one of the hardest hit by the crisis. The restructuring of Greek debt affects us directly, and the EU as a whole.
The second Greek bailout has made the markets very nervous, and for Spain this has shown up as a fresh rise in the spread between its debt and the 10-year German bond. After 5 months above it, the IBEX has also lost the 10,000-point mark, a fall that has been put down to the situation in Greece.
The labour market reforms and the austerity plans still to come also worry investors. They see them as temporary patches to bring down the public deficit, and consumption could shrink as Spanish consumers lose purchasing power.
The markets also know about the regional deficit, and it is worrying: some of our autonomous communities (Spain’s regional governments) carry so much debt that it will hold back new investment and growth, causing more unemployment.
These factors lead foreign investors to compare us with Greece. Outside Spain, they don’t rule out that sooner or later we’ll need a bailout, even though Spanish financiers and economists rule it out completely.
The only thing we can know for certain is that Spain will have to keep up its cuts and adjustments, dancing to whatever tune the markets call. And once we’ve used up all these measures, the next question may well be: why has consumption fallen? Quite simply, because people have no purchasing power.
Further reading
- Collective agreement reform: profitable companies will pay for their own layoffs
- Crisis solutions that will turn Spain into a country for the rich
- Life is a table. Which side of it do you want to be on?
- How to increase sales when your business is in crisis
Featured image: Luis García, CC BY-SA 3.0, via Wikimedia Commons.
_05.jpg){kind=link}