Opposite news on both sides of the Atlantic. In the United States housing prices have gone up by 10.9% in March; stocks that had been growing throughout the year, have accelerated in May; also, fixed income titles, bonds and obligations have plummeted and thus yields have increased. There is a sustained demand in fixed-income and a less intense demand of variable income. Both are symptoms of an economic confidence recovery.
Should these improvement signs continue, analysts say, the risks that the financial system was facing will be reduced. Experts even point to an eventual acceleration of the real economy in 2014. Employment is growing and unemployment rate is going down. Given these prospects the Federal Reserve suggests it may already be time to practice a correction in its policy of purchasing assets. A parenthesis in the stock markets and a rebound in 10-year-bond prices with the consequent fall in yields.
In the EU, including the euro zone, news are less complacent. There is a combination of fiscal austerity and monetary expansion that has managed to stabilize the debt markets and make the financial sector more wobbly than firm, and this combination has failed to stimulate the progress of the real economy. GDP has been falling in the first quarter of 2013 with a consequent increase in unemployment.
Political and social difficulties are calling for a change of course. Austerity must be corrected. Indeed, Brussels accepts a greater margin of tolerance when it comes to reduce fiscal deficits in four of the six EU countries, Spain and France included. The calendar stretches over two years to comply with the commitment to reduce the budget deficit to 3% of GDP. The ECB will continue with its purchase of assets to support financial markets by providing liquidity to banks. The remedy, however, is not reaching all families and companies. The credit does not get to them because European banks’ balance sheets are less solid than their American counterparts’. In Europe prompt and radical steps were taken and it is not clear yet whether credit institutions capital follows the rules of a healthy financial system.
There are few signs of recovery in the real economy, none in the case of Spain. The GDP is going down, the budget deficit is not corrected and the debt continues to grow. Budget deficit margins approved by Brussels, of 6.5% in 2013 and 7% in 2014, shed many doubts, and even more about the possibility of Spain reaching 3% deficit in 2015.
The Government is trying encourage citizens but to keep us in the race will require new requirements, fiscal adjustment in pensions and current expenses of the Administration, as well as a twist to the labor legislation. In short, an intervention à la carte, piloted from afar and supervised, no doubt, by the troika.
These are the conditions accepted by the Government of Spain, which will now have to explain to the Parliament, with all the political cost that implies while looking for consensus with a maximum of political parties and social partners. Like it or not, we Spaniards are intervened. We should recognize it and get down to work. Brussels has a very demanding tolerance. One must comply with its requirements if we want to get to the promised recovery by 2015 (or, as the US predict, 2014).
*Read the original op-ed here.