The Spanish situation is rapidly getting worse. Rajoy has stepped up the rhetorics and the blame game will enter a new phase. Investors are losing confidence in Spain. Expect the CDS prices to move further, as Spain (and Italy) now receive the full attention from “confused” investors. From Bloomberg.
“Without a doubt, a good part of Spain’s future is at stake,” Rajoy told senators yesterday, as he urged regional governments to contribute to spending cuts. “The problem is that the markets can lend or decide not to lend.”
Rajoy has stepped up his rhetoric in the past week as he seeks to persuade Spaniards to accept spending reductions and tax increases as a less painful alternative to a bailout. His three-month-old government is struggling to convince investors it can reduce the deficit by a third this year and crack down on overspending by regional administrations.
As Spain’s regions suffer from a slump in tax revenue while most are locked out of capital markets, Esperanza Aguirre, the president of the Madrid region, yesterday proposed handing back responsibilities such as health and education to the central government. Aguirre, once a potential rival to Rajoy for the PP leadership, said the move would save 48 billion euros ($63 billion) by avoiding overlap.
Latest “hmmms” by Grant Williams. Must read on Spain and other subjects.
General awareness of the issues facing Spain is finally rising – the 22% unemployment rate and the 50% youth unemployment rate have become statistics that roll off the tongue of even the most casual observer of the country’s fiscal and societal dynamics. But Spain’s real problems lie in the reality of her published government debt numbers and at the heart of her banking system. It is in these two places that any clues lie as to her chances of upsetting ‘Recovery’ on its dash for the line.
Spain is a big economy – the world’s 12th-larg- est in fact, which puts it just behind Russia and ahead of Australia (13th), Mexico (14th) and South Korea (15th) – and if it were to require a bailout, the size of that bailout would soak up the vast majority of the EFSF/ESM combined firepower.
Recently, focus has trained on the veracity of the deficit numbers being dis- seminated by the Spanish regional governments with many commentators and observers positing that perhaps things aren’t quite as they seem: (NYTimes)
And the bad news probably is not over. Some experts believe that as newly elected members of Mr. Rajoy’s Popular Party take control of some regional administrations, they are sure to unearth even more financial excesses. That is what happened in Cata- lonia, where the “hidden debt” problem
first popped up this year. When elections were held there in 2010, the ratio of debt to regional G.D.P. was believed to be less than 2 percent. But after the vote, the departing government disclosed that its full year defi- cit could be 3.3 percent. The new govern- ment later revised that figure again, to 3.8 percent.