Seven months have past since Rajoy became Prime Minister of Spain. His main commitment was to enact reforms to lay a foundation of anti-crisis programs. Still, from the day he was elected, we have seen the government spin around in circles without going anywhere. One step forward, two steps back. Now the government's main job is to do anything it can to avoid a full intervention.
Yesterday ten-year bonds rose above 7% for the third time as the banking sector recovery was delayed, and the risk premium went above 574 basis points on investor douts. The Ibex lost support at 6,720 points. Once again, it's fitting to ask why Germany and European insitututions are holding out. It seems like they are at once patting us on the back and pushing us down.
After the June summit, Spain and Italy seemed to have reached a slight victory. They even celebrated becuase Merkel gave in to their needs, but as el Economista warned previously, her decision was not a sure thing. Several days ago, Spain was counting on receiving aid in order ot recapitalize its banking sector directly, but now they will have to wait to see if that will happen, and the outcome will determine the volume of the nation's debt load. The national budget, recently passed, ought to be touched up to include even more cutbacks.
In this sense, if more cutbacks can't reinstill investor confidence in Spain and the European Central Bank (ECB) does not do its part to help Spain, then we are most certainly close to an intervention, even though Rajoy will have a tough time accepting that outcome.
