The European Central Bank’s recent purchases of Spanish government bonds have
taken some of the sting out of the country’s borrowing costs, but its
intervention cannot continue indefinitely. Nor can the ECB on its own
restore investors’ confidence in Spain. That task falls primarily to Madrid.
It has taken the cue, approving finance minister Elena Salgado’s latest round
of crisis measures to rake in an additional €5bn this year. But the outgoing
government of José Luis Rodríguez Zapatero has run out of time. An election
looms on November 20.
Labour market
The latest measures include a cash advance from large companies, which will
bring forward tax payments. In addition, there will be greater use of
generic drugs to ease the healthcare spending burden of the regional
governments and a temporary halving of value added tax on new homes to help
clear Spain’s unsold property backlog.
But Madrid has still done little to address Spain’s biggest problem: the
labour market. One Spaniard in five is jobless.
Deficit cutting
The measures are unlikely to remove Spain from the financial market’s
crosshairs. Although the yield on 10-year bonds has retreated to 5 per cent
from its mid-July peak of 6.3 per cent, it is still 288 basis points above
that of German Bunds and almost six times higher than two years ago.
Madrid has made progress in cutting its deficit from 11 per cent of gross
domestic product to 9 per cent last year. The Organisation for Economic
Co-operation and Development predicts 6.3 per cent for this year.
Run harder
But Madrid still struggles to herd its regional governments and enforce cuts.
Overall public debt, which the OECD expects to rise to a still manageable 74
per cent this year, is a lesser concern, however.
Spain’s problem is not its debt but its budget deficit. Ms Salgado’s measures
smack of a government that appears to have given up already. Her successor
will have to pick up the baton and run harder.
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