The Spanish economy closes a week that many would consider hopeful. The risk premium dropped below 500 basis points for the first time in a month and a half, this increased confidence drove down interest rates lenders are paying on debt and the stock market has been booming.
The optimism is welcome after living on the edge of the abyss for several months. The question now is whether the worst of the storm has blown over for Spain. The crisis showed its full strength after May of this year with the nationalization of Bankia and was on the verge of collapse when the risk premium hit 638.4 basis points in July.
A calm august and strong week should not lead us to the conclusion that we have already gotten over the most difficult work of the recovery. Problems remain, reforms are pending (especially in the public sector) and it's possible that economically and socially, some tough months lie ahead of us. Some analysts indicate that September and October will be decisive, because the period of time that Spain was given to make a decision about pending reforms will expire and the country will find out whether it will meet its budget objective and in what shape it will enter 2013.
The Peoples' Party should not rule out the possibility of Spain asking for a bailout. Skirting it is in the government's hands, and the government knows what tasks lay ahead. If Rajoy doesn't carry out his reform and cutback program, outsiders will intervene and impose their conditions on Spain, making it clear what Rajoy could not and did not want to do.
