Credit markets still dry in Spain

Among the various conditions laid out in the financial sector bailout agreement that Spain signed with the EU, one of them is that the bailout funding should go toward increasing credit availability. But that hasn't happened yet. In all likelihood, credit will flow less than before because of limits on cash deposits, accounts and bonds following the Bank of Spain's sector-wide "recommendation" to keep these rates low.

Nouriel Roubini said several days ago that the Spanish financial sector reform is not solving the nation's credit problems and, therefore, growth will continue to stagnate as any surpluses that the banks can raise won't be enough. These capital needs caused Linde, pressured by the big banks, to limit interest rates on deposits to 1.75%, which will only benefit bank balance sheets -- not account holders.

But to what extent? Historically, we can see that interest rate regulation usually hurts bank balance sheets and middle-class purchasing power. With low rates of return, average savers will flock to investment funds outside of what Spanish banks offer because these funds are not subject to rate caps.

As citizens move toward other investments, the middle class will bristle even more at their loss of purchasing power caused by measly 1.75% interest rates and simultaneous 3% rates of fixation. Under these circumstances, growth will continue to stagnate. Linde's decision, besides being an intervention and discriminatory against the average bank customer, is yet another hurdle for Spain's much-needed economic recovery.