What will it involve the rescue for the Spanish economy ? ~ Manage Your Loan

Wednesday, September 25, 2013

What will it involve the rescue for the Spanish economy ?

 It is now an open secret : the risk premium close to 500 points , access to funding by the Spanish state is impossible and Spain bailout is inevitable. For many euphemisms being used by the government ( financial, line of credit , etc) what will occur is a monetization of debt, ie a massive bond-buying by the European Central Bank .

But why now called rescue when there have been more times when the ECB has monetized debt ? What differentiate this eventual rescue with other massive purchases of bonds that have already been produced is conditionality , ie the obligation by the Kingdom of Spain to sign the famous memorandum of understanding that would set a series of conditions to be met by the Executive order to meet the deficit targets agreed with the European Union .
The MOU reads as follows:

    At the same time , Spain will have to fulfill their commitments and obligations under the Excessive Deficit Procedure ( EDP acronym ) and recommendations to address macroeconomic imbalances within the framework of the European Semester . Progress in meeting these obligations under the relevant procedures of the EU will be closely monitored in parallel with the regular review of the implementation of the program .

Which means that Spain will have to undertake even deeper structural reforms to achieve the desired setting . Also, will be supervised by a number of staff members responsible for ensuring strict compliance with the program (the famous black men ) . And what are the settings? Reducing costs and increasing revenues . That is, further public spending cuts and tax increases . And is likely to cut expenses are those relating to pensions and unemployment benefits , being those of a higher amount .

For the income, the tax increase will cause many businesses are forced to close down and many families have less disposable income , so consumption will continue to fall , which will slow even further growth our country and make it very difficult to tackle the significant debt maturities coming this October and November .

Mario Draghi said that the bailout will not be a " soft recovery " , but it is subject to strong conditionality , or as he defines " full economic conditionality " , unlike the last rescue FROB channeled through the banking, had no conditionality as such. Yes, the unlimited bond buying will reduce borrowing costs of countries with financial problems.

But: there is no other solution? Not really. The only viable option today to restore fiscal stability in Spain is the direct intervention of the ECB. So far, the massive purchases of bonds by the ECB have served to ease market tensions momentarily. But so far have not served absolutely for any other purpose that has not been to gain time, because the costs have not been reduced by the amount desired . Accordingly , adjustments have not finished but it is going to keep happening .


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