Neither the financial sector bailout nor the major spending cutbacks approved by the government on Friday have eased the pressure that markets have been putting on the Spanish economy during the past several months.
The risk premium went back up to 559 points and the stock market lost 1.99% after the IMF published a negative economic forecast yesterday. The IMF predicts that even more regions will not meet their financial goals for 2012 and 2013, leading to a substantial increase in the national debt.
Not yet revised to consider the Cabinet's latest round of cutbacks and reform measures, the IMF's Fiscal Monitor forecasts a 1.5% contraction in GDP for this year as compared to 1.8% predictions in April. At that time, the government was predicting 1.7% GDP contraction. These are the worst figures among major European nations.
If nothing changes the day after the Spanish government imposed major sacrifices on its citizens, it makes sense to question the efficacy of the drastic measures that were adopted. Why tighten our belts to the smallest hole if markets don't move either way? The ECB alone knows the answer to this question. And only it can provide a solution, which will almost certainly involve buying Spanish treasuries.
Spain has followed the EU's strict guidelines, but the country needs the ECB's backing before it can stay afloat and keep angry protesters out of the streets.
