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Spanish bombs have been climbing recently and has everyone up in arms
about the euro zone crisis resurging, but how telling are they of tension and
trouble ahead?
Well I would say certainly stress in the bond market has increased
significantly in the last couple of weeks
and of course you can argue why
it wasn't that high before and I think there is some evidence that
actually the LTRO of the ECB has helped to
really reduce threats but now this effect is picturing out because basically the
liquidity has been provided to the banks the banks have bought some bonds
and now that's where we stand.
Now looking ahead the question is who's going to buy the bonds
and, you know, who's going to finance governments in particular
the spanish government at the moment and
to be honest I don't think that's that's very clear at the moment
international investors certainly have a lot of doubt about the
viability of spanish banks but also the viability
the whole strategy of re balancing in the euro zone as a whole
and all of this adds to stress at the moment.
So in practical terms what's working in Spain's favor?
I think in practical terms the very positive side of the whole Spanish
story in the last couple of years is this really the very good performance on the
export side I think that's really giving quite a bit of comfort that
Spain is not Greece. Greece has
had a collapse in exports and its still miserable in
in terms of export performance.
In Spain, Spain has had one of the best export performances in the euro
zone in the last three four years. Actually only Estonia had a better performance.
So there's some hope that the country will manage to
rebalance its economy and really get growth going from the export side
which is where growth should be coming from for Spain at the moment.
The EU commission has said there won't be a bailout for Spain, does that signal
the ECB coming to the rescue?
When the commission says there's no rescue package in the making
it probably means there is one in the making.
I mean that's the experience of the last three programs. There was
always a long period of denial and that usually was followed by an
actual program. So I think there could actually be a program.
Now the question is how would you design such a program and I think
that's the more fundamental question and my argument would be that
if really the Spanish government has funding problems
they mostly relate to the difficult situation in the banking
system so
I don't think we should
address this primarily as a fiscal problem. This is a banking
problem
and if you think about the whole construction
the whole set up of the euro zone as we have it, what you want is
you want basically
some form of banking union so you want capital to be put into banks and
this capital should come from European resources so I think there's
a case for
an EFSF, a targeted EFSF
program that puts EFSF money into
banks
via the government without having the full-blown programs. So you would continue to
have Spain on the market
but get the credibility to sort out the banks with the EFSF.