The end of the euro crisis, a waning recession and growing confidence in the European economy have driven down financing costs in Spain. Plus, ups and downs in the emerging economies are making investors look toward more secure places to put their money.
Also a factor, J.P. Morgan announced last January that Spanish stocks would be hot again this year. Most of their forecasts panned out, and it will be difficult for Spanish treasury bonds to dip much lower than their historic lows of between 2.8-2.9% even though inflation will slow down and the European Central Bank (ECB) could decide in June similar to what the US Federal Reserve did with its quantitative easing plan. But this will be hard to pull off because the ECB rules do not allow this kind of action. If debt interest rates keep falling and we sell bonds tied to inflation and close to the rates offered by Germany and the United States, our debt will surely be attractive. Now, we are living through a major paradox: financing costs are hitting new lows while interest rates continue to climb. The reason is that our national debt is practically 100% of GDP and is expected to increase through 2016.
The Treasury is selling a high volume of debt because our earnings need to exceed our spending. Still, the two ways to put an end to this situation have been delayed: tax and public sector reforms. Solving these problems will speed the recovery and create jobs. Until the jobs return, the government will not have done its work.
