The Spanish ten-year note offers a lower yield than any other treasury in the G-20, including the United States and United Kingdom bonds. That means that we are getting cut-rate financing deals and have more attractive bond prices than core European nations such as France and Germany.
Still, we also have less risk (practically none) than other peripheral European countries such as Greece. These low rates will likely last for several more months according to Mario Draghi. But as with anything in economics, there is often some bad with the good. The positive effects that lowering rates have had are being cancelled out. For example, the euribor will not contract any more against home mortgage prices. And interest rates on debt are not going to shrink much further either. The real problem is that our overall debt load is growing even though we are getting cheap financing. The government predicts that in 2016 the Spanish national debt will be 101.5% of its GDP and that our annual deficit will be 2.8%.
Based on these figures, interest rates will start to rise and the government has predicted that it will be paying 3.7% of GDP on its loans, which is two tenths of a point greater than right now. Under these circumstances, it is dangerous to depend on economic recovery to balance the budget. The ECB?s monetary policy has had to adjust to the fiscal status quo, namely what nations are earning through tax revenues and spending through fixed services. The main goal now should be to best government predictions and start to trim the national debt and deficit before anyone expected. Otherwise, we'll stay trapped in this cycle for a long time.
