The situation in Spain is so servious that the government is attempting to enact a stiff cutback plan that, if it had been implemented six months ago would have avoided a lot of suffering and avoiding undermining the economy. Rajoy is hiding behind the crown in a vain attempt to water down his responsibility in measures that,España entra en la UCI (Intensive Care Unit) dispuesta a quemar el último cartucho
The option is a dangerous dodge at a time at which Spain's head of state is going through his toughest popularity test. The Prime Minister's attitude suggests that he has played his political cards during the past seven months since being elected. El Econonomista has criticized his major strategic and communication mistakes, which have thrown wrenches in the gears of Spanish government when it needed clear and decisive short and near-term decisions. Euro group and ecofin meetings during the past two days have underscored the failures of Spain's strategy.
Ultimately, the EU, ECB and IMF (the troika) will control what happens as they impose their plan on the Spanish government after people have been asking it to take action for the past several months. The Spanish government knew what the EU though and how much Germany wanted us to cut back. Still, political and electoral interests have collided, and in the aftermath we entered a period of corrections and finding out about political scandals that restored full confidence. Spain stands alone, without allies, and has lost a lot of its influence in making decisions in the EU.
The banks will get their funding and the government will get one more year to meet its deficit objective, and very strict conditions will be imposed on struggling banks, the financial sector and public accounts. We must remember that the Memorandum offers a serious plan with a schedule of actions that get to the heart of the financial problem. Banks will no longer interfere with political process.
For example, politicians who are pressured by election results can't decide about how to perpetuate or end political issues. What's more, the EU might shut down unviable nationalized savings banks in October, and election politics won't interfere with its decision. The process will be monitored by the troika, which will control decisons quarterly and publish weekly reports. It wants the Bank of Spain to exist independently and to control the financial sector and require greater transparency in order to protect investors. The control of public accounts comprise part of the conditions that Brussels is imposing on Spain which, naturally, the EU thinks that the advice and reforms given to Spain at the end of may were important.
Yesterday's market behavior (treasury bonds and the risk premium both dropped) indicated a good initial response to the Memorandum, although we'll have to wait and see what happens in the next few days. The EU, and Merkel's behind-the-scenes moves, is calling the shots. Spain has entered a period of intensive care, call it a soft bailout or some other euphemism if you want, and the government has just one more chance to revive the national economy. Rajoy and Congress will announce their plan today, and the ECB is waiting to find out whether the ECB will, with Merkel's permission, to make a move or carry out a full bore bailout for Spain.
