"Not if, but when" for Spanish bailout, experts believe

Wed Apr 18, 2012 5:41am EDT
 

"I don't think Spain will need any kind of external support," Juncker said. "I would like to invite financial markets to behave in a rational way. Spain is on track."

German Finance Minister Wolfgang Schaeuble also rejected comparisons with countries which are already on bailout programs. "The fundamental data in Spain is not comparable to those in the countries that are under a program," he told Reuters. "Spain needs to work to win confidence, however, if the positive developments are to continue."

SUSTAINABLE SPAIN?

Markets took fright earlier in the year when Rajoy relaxed his government's targets for cutting the budget deficit.

However, not all economists are so pessimistic and some say the four-month-old government is starting to knuckle down to meeting the new targets, which still demand deeply unpopular austerity, and tackling the economy's structural problems.

"We've seen more progress in a few days than in four months," said Gilles Moec, a Deutsche Bank economist. "It's a country that's intrinsically sustainable, but it's a country that needs to make decisions."

Others beg to differ and fear Spain will drag in Italy, which has suffered similar problems with rising borrowing costs.

"As I look at my screen and Spain 10-year yields are up at 6 percent - things are starting to get worrying again," said Peter Westaway, chief economist for Europe at Vanguard, an investment management firm overseeing $1.8 trillion in assets.

"If they go up to 6.5 to 7 percent, that could become very problematic, and if Italy started to go back above Spain again, then that would be really serious."   Continued...

 
Spain's Prime Minister Mariano Rajoy speaks during question time at parliament in Madrid, April 11, 2012. REUTERS/Susana Vera