Deleveraging is a dirty word. But still uglier are its consequences. Credit for families and corporations has fallen to low levels not seen since the beginning of the crisis. On the one hand, this is a problem for families, because they still have to reduce their debt, and the solvent demand for loans is squeezed according to unemployment. And salary adjustments and taxes will continue to erode families? capacity to save.
Further, the euribor is maintaining its upward path. For example, the two-point rise in GDP and consequent relief to the Spanish cost of living caused a spike in home buying. Some investors will wait for prices to drop further still. Therefore, it doesn´t look like there will be many loan and mortgage applications.
Even fewer if a law that will protect the person who´s house is embargoed but will increase prices for the ones who want a new mortgages. And companies aren?t likely to get loans for new business.
On the other hand, lenders are still experiencing difficulties finding funding within the market, and they have to make deals according to what deposits, normally at golden prices.
Further, they are honoring a government regulation that requires them to keep more capital on hand at a time when liquidity is low. And for three years they have been making herculean efforts to not default on payments. If they ought to cut back their expansion with very expensive layoffs and pay back public debt, the firms won?t be making anyone happy either.
Still more when IPOs are happening in uncertain times. Doubts about sovereign debt and recent stress tests could bring about more than an unwelcome surprise.
Translated and Edited in English by Brandon Dyches and Jose L. De Haro
