Europe goes on summer break leaving Spain stranded

Mariano Rajoy 014

Mariano RajoyMADRID | Irritation is high in Madrid for partners’ lack of support in enforcing a curfew, let alone a truce, in the raging battle it holds against overwhelming market forces. As leaders go on holiday they leave Spanish assets exposed to utter onslaught. The massive sell-out of sovereigns, securities and shares cannot continue for long without throttling any chance of survival by the time Brussels returns to normal business.

Desperate attempts often lead to clumsy initiatives, alienating potential allies’ backing. Yesterday’s Foreign Affairs Council witnessed an unbelievable blunder as Spain tried to table a call to stop dragging the foot on last Summit decisions, purportedly backed by France and Italy. These countries readily dismissed such a claim, disengaging from a reckless move meant to openly criticising Germany. This incident will undoubtedly erode relations with Berlin in the very same day the Spanish economy minister is due to fly to that capital asking for help.

Acid comments by the Spanish Foreign minister on the European Central Bank, depicted as following an underground policy, will fail to affect Draghi’s resolute stance to resist pressures on monetising public deficit. Such bullish comments can only backfire as the ECB will never cave in to anyone openly challenging the way it manages monetary policy. Berlin stands as the exception, but indications are channelled by phone, never resorting to public statements relayed by the media.

Spain is awfully managing its crisis. The current government inherited a rotten situation it has turned into a nightmare. Instead of tackling Bankia’s disarray in a subtle way, it heralded the existence of huge banking shortcomings thus leading to overall mistrust on the financial system. At the brink of sheer collapse it reluctantly asked for a too-late rescue package, to be fully implemented not before October. A desperately long delay if you consider the emergency situation.

In trying to defuse public finances plight, it has engaged in far reaching austerity measures most likely to depress still further a badly-battered economy. Yet, it has failed to implement any serious structural measures on regional expenditure pilfering, accepting to take on board almost for free its debt-servicing. The Finance minister has even fuelled a doomsday scenario by openly recognising to have no cash for salaries of essential services. Bond-holders can only derive much discomfort at the likelihood a default might be in the pipeline.

At a time when recovering ailing confidence is vital, the Spanish government seems to provide a perfect excuse for the markets to take a run. With no ECB intervention at bay, the only way out seems to convince Brussels and Berlin to enlarge the rescue fund, currently shrunk to a trifle €150 billion amount. Should it be transformed into an insurance mechanism, it might entice the ECB buying Spanish sovereigns at no foreseeable loss. Who cares about further conditioning when the whole building is collapsing?

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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