Rajoy tried to to boost his party's spirits yesterday, after it was damaged by the Bárcenas case, by citing a series of data that indicate that the crisis in Spain could be reaching its end. The deficit has been reduced, the nation's ability to compete economically is improving, debt levels are decreasing (especially for families), tourism and foreign trade are showing good numbers, the risk premium dropped to 300 basis points yesterday, foreign investments are increasing and it looks like the threat of a bailout is farther and farther away.
Plus, unemployment levels for June, which are being published today, could be the best in recent history. Even though they are down nearly 10 points, this is not a good justification for stopping all the work that has been done. Public accounts have been cleaned up slightly, but without continuing labor and tax reforms, the budget will still be dismally unbalanced.
Competitivity has increased because salaries have been slashed, not becuase production has increased. Foreign sales are still very influenced by plummeting imports, not becuase of increased interest and markets for Spanish goods. And the risk premium has yet to drop to the 200-250 basis point range, proving that the government has not done much to improve the economy.
In regard to the official unemployment level, June numbers could show that job losses have finally leveled off. But we'll have to wait until Q4 to know for sure. Too much optimism is not a good thing when many reforms still loom on the horizon. Unlike the EU, the Spanish government is resisting retirement system reforms and increasing the scope of its labor reforms. Overall, the good news issuing from Spain does not outshine many dark stories of government corruption that will prolong the recovery if the government does not complete the work it started.
