The various structural reforms that Mariano Rajoy's government has introduced during the past three months are part of Spain's enormous effort to end the year with a 5.3% deficit/GDP ratio. So far they have saved 27.3 billion euros, and shortly another 10 billion will come from cuts to Health and Education ministries.
The titanic effort surpasses what Italy and other peripheral countries have done, and it has led to a general labor strike, opposition from the Spanish Socialist Workers' Party and significant social wear and tear on the middle class. But despite having executed its obligations in record time, the populist Government has not received the least amount of applause from the European Central bank (ECB), which decided to stop buying Spanish debt in order to control the country's rising risk premium.
At Moncloa leaders are deeply disappointed by the ECB's decisions. Among other things, the institution has allowed the Spanish risk premium to go as high as Italy's. The big problem is that the government now has little recourse for undertaking new structural reforms that help it meet the insatiable demands of Germany and the financial markets.
Faced with this mounting pressure, the Spanish government has two possible moves: accept a minor bailout or abandon the euro.
The first option would be lethal for the country's main interests, and the seconds send a major shock throughout the foundation of the EU. The ECB believes it knows the solution: that it should resolve once and for all Europe's financial imbalances.
