Spain’s new government, due to be Officially Sworn in Mid-December, will have to add new austerity measures beyond those established by the previous cabinet if it wants to regain sustainability of public finance.
Who would have thought just a few years back that countries in the mighty eurozone would fall like a pack of cards. But that is what is happening. First Ireland, then Greece and recently Portugal, all have been victims of the devastating sovereign debt crisis. The reason is simple. Markets have lost faith in policymakers’ ability to do what it takes to carry out serious structural reform, bring down debt, and stimulate growth in their respective countries. And it is evident. After claiming two of Europe’s most popular leaders – George Papandreou, the third member of the Papandreou family to serve as the country’s prime minister, and Silvio Berlusconi, the famous Bunga Bunga organiser who played the first fiddle in Italian politics for nearly two decades – it’s the Spanish Prime Minister Jose Luis Rodriguez Zapatero who is the latest victim of sovereign debt crisis (Zapatero led Socialist Party lost to conservative Popular Party in an election dominated by agendas revolving around sovereign debt crisis on November 20, 2011).
After all, Spain is the 1,000-pound gorilla in the room right now. The monetary union can absorb the shock if Greece and Portugal collapse. But Spain is too large; if it defaults on its debt, the monetary union would likely collapse and all of Europe would descend into a deep recession. However, elections that brought Mariano Rajoy led Popular Party to power in Spain have not been able to restore markets’ faith in the country’s fiscal situation. On the contrary, at an auction of Spanish government debt worth €2.978 billion held after the election, yields reached euro-era highs. Bidders set an average rate of 5.1% for three-month debt, more than double the rate set at the previous month’s auction, while the six-month yield reached 5.2%, up from 3.3%.
No doubt, Spain, the last of the four PIGS (an acronym used by international bond analysts that refers to the faltering economies of Portugal, Ireland, Greece and Spain; the other three have already faltered), has avoided the need for external aid due to a slew of spending cuts and reforms by the socialist government so far, but then how long? Spain’s recovery has been really rough so far. In fact, the eurozone’s fourth-largest economy is among the area’s laggards. While the entire monetary union saw GDP grow by 1.4% last quarter (Q3 2011), Spain’s economy crawled at 0.8% in Q3 2011. At 21.52% (a 15-year high in Q3 2011), Spain’s unemployment rate too is the highest in the area, and almost double of Portugal’s 12.4%, the last victim of the debt crisis.
Who would have thought just a few years back that countries in the mighty eurozone would fall like a pack of cards. But that is what is happening. First Ireland, then Greece and recently Portugal, all have been victims of the devastating sovereign debt crisis. The reason is simple. Markets have lost faith in policymakers’ ability to do what it takes to carry out serious structural reform, bring down debt, and stimulate growth in their respective countries. And it is evident. After claiming two of Europe’s most popular leaders – George Papandreou, the third member of the Papandreou family to serve as the country’s prime minister, and Silvio Berlusconi, the famous Bunga Bunga organiser who played the first fiddle in Italian politics for nearly two decades – it’s the Spanish Prime Minister Jose Luis Rodriguez Zapatero who is the latest victim of sovereign debt crisis (Zapatero led Socialist Party lost to conservative Popular Party in an election dominated by agendas revolving around sovereign debt crisis on November 20, 2011).
After all, Spain is the 1,000-pound gorilla in the room right now. The monetary union can absorb the shock if Greece and Portugal collapse. But Spain is too large; if it defaults on its debt, the monetary union would likely collapse and all of Europe would descend into a deep recession. However, elections that brought Mariano Rajoy led Popular Party to power in Spain have not been able to restore markets’ faith in the country’s fiscal situation. On the contrary, at an auction of Spanish government debt worth €2.978 billion held after the election, yields reached euro-era highs. Bidders set an average rate of 5.1% for three-month debt, more than double the rate set at the previous month’s auction, while the six-month yield reached 5.2%, up from 3.3%.
No doubt, Spain, the last of the four PIGS (an acronym used by international bond analysts that refers to the faltering economies of Portugal, Ireland, Greece and Spain; the other three have already faltered), has avoided the need for external aid due to a slew of spending cuts and reforms by the socialist government so far, but then how long? Spain’s recovery has been really rough so far. In fact, the eurozone’s fourth-largest economy is among the area’s laggards. While the entire monetary union saw GDP grow by 1.4% last quarter (Q3 2011), Spain’s economy crawled at 0.8% in Q3 2011. At 21.52% (a 15-year high in Q3 2011), Spain’s unemployment rate too is the highest in the area, and almost double of Portugal’s 12.4%, the last victim of the debt crisis.
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