The slackening risk premium, which looks like it will head straight to 200 basis points above the German bund, is the best thing to happen to the Spanish economy in a long time. The interest on 10-year Spanish debt is 4%. With these financing options, it is going to be a lot cheaper to raise money, because we will pay less interest on the debt.
This news is a boon for Spain and will let it mobilize an enormous amount of resources. A year ago, the Economic Ministry estimated that a risk premium around 200 basis points would save the state around 12 billion euros over two years. Also positive, the deficit objective would be put off for two more years, worsened by the fact that GDP will fall 1.5% in 2013.
This situation, unthinkable until recently, closes the need to make cutbacks and offers a unique opportunity to carry out many of Spain's pending reforms within a more favorable scenario.
The political climate is favorable, because we are still in the second year of Rajoy's term in office and there are enough months left to put his legislative changes into place. Also, the government is counting on some compromises from the opposition, other segments of parliament and social agents in order to secure a national pact.
Facing all the uproar about such pact, Sáenz de Santamaría announced yesterday that Rajoy will meet with employers? groups and labor unions on May 16. The Prime Minister should support a pact that galvanizes pending reforms targeted at the public sector, taxes, market consolidation, and professional services. The reforms are an effort to transform the country and give us the strength to get out of this crisis. If the Peoples' Party can't get the reforms going, it will pay a high price politically. But for Spain, the cost will be devastating countrywide.
