By valenciaplaza.com | IG Markets' Daniel Pingarrón said in a conversation with VP for The Corner that the European authorities and the Spanish government should improve their timing if they want investors to believe that they can set up a coordinated, effective plan.
The Spanish market index Ibex spiked after president Mariano Rajoy announced its austerity policy, but it was a short-lived reaction. Why was that? The recovery of the Ibex wasn't huge, just some percentage point over the rest of the European markets. The problem is that the measures, whether one thinks they're going to provoke the right or wrong result, are merely partial solutions to questions that are quite specific. The markets have a maximalist position, seeking to minimise the structural risks of the euro peripheral sovereign debt, and a quick, definitive exit from the crisis. The Ibex will not improve its performance until these two aspects are sorted out, and the Spanish government can do so much about it.
Is there any way to tackle the high volatilit
y on the Ibex, then? Well, of course. There are some decisions to be made that would trigger an upwards trend in the markets, especially in those that now are under pressure. For instance, when the euro zone comes up with positive agreements, the reaction is quite strong, but it doesn't last. That is the key: accords must be solid and their implementation should be swift, leaving no room whatsoever to ambiguities or delays. The European Central Bank could also do a lot more. And the Spanish government should take action instead of behaving like a copy-cat or waiting for events to push it around.
Basically, we need new liquidity injections, stimulus for growth, stabilise the sovereign debt of euro peripheral States, further fiscal and banking integration, and most importantly, we need that to happen in the short term.
Is there the probability that the cost of the credit for Spain goes down, if the risk premium keeps tightening? The risk premium is decreasing at a very slow pace. In all truth, I don't expect it to improve unless we see Brussels and Madrid making the right moves. In the current market climate, the risk premium will be placed at around 500 basic points.