Congress vetoed yesterday all amendments to the 2013 national budget. Its view of the economy conflicts with analyst opinions, considering that the Spanish economy is going to perform much worse than the negative 0.5% GDP growth that the government predicted.
The question is: what does the government base its optimistic views on? Some results (advance consumer sales in anticipation of the VAT increase, a positive trade deficit and selling 90% of the treasuries that Spain needs to issue this year) that support the view that the economy will improve in the last part of 2012. Still, the late surge doesn't justify the belief that the economy will improve in 2013. What is Rajoy counting on? It is thought that finally creating the bad bank for parking 70 billion euros of toxic real estate assets will empower the real economy by increasing the chances that homes and businesses can access credit in 2013. Further, even though the government has not said it, it is preparing its bailout bid, which if accepted, would slash the risk premium by half. This is the only logic behind the way the government has designed the 2013 budget and their GDP prediction.
The agreement that Greece and the troika arrived at yesterday adds some stability to the euro zone and smoothes out the path for Spain to ask for a bailout. Draghi also took time yesterday to ease the doubts of German parliament. He made it clear to them that the ECB will not directly finance the countries that receive bailout packages and that the aid will be granted under set conditions. Merkel, who has the final say, will only back a conventional bailout. And that is the scenario that Montoro is basing his budget plans on.
