TV

Marie-Louise Møller
Greece has been granted some temporary relief from its creditors as it looks set to secure a four-month extension of its 240 billion euro bailout. But with debt being rampant in several member states, the euro zone continues to face far more serious fundamental issues, says renowned UK economist Vicky Pryce. Without a solution to those, the euro may only have a 50/50 chance of surviving.
Article / 23 April 2012 at 12:05 GMT

Spain's pains increase chance of 2012 rescue to more than 50%

Chief Economist & CIO / Saxo Bank
Denmark

In this macro view video with Steen Jakobsen, Chief Economist, Saxo Bank, he discusses the likely scenario for saving Spain which is awfully close to putting out its hand for what will be the Eurozone’s fourth bailout package. Steen believes there’s more than a 50 percent chance Spain will ask for help already this year. A combination of European Financial Stability Facility and European Central Bank support is the 'saving Spain' route we will see, he says.

The problems abound for Spain, ranging from the country’s regional banks’ balance sheets, the autonomy of the regions and resultant issues in implementing austerity plans, the struggles of the government to pay its debt and stay afloat and the furore on the streets with unemployment at exorbitant levels. Ranking which challenges the Spanish government should tackle first however is not possible at this late stage in the game. With youth unemployment close to 50 percent and more than 1.8 million people living on less than 400 euros a month, Steen describes Spain as a society grinding towards the edge.

He gives the Spanish Government credit for trying to make changes but adds that adhering to what Germany wants Spain to do, which is more austerity, is probably not the best solution with Spain mostly reaping lots of pain and little gain.

Spain’s fiscal multiple is greater than 1 percent which means that for every 1 percent of austerity implemented the negative impact on gross domestic product is more than 1 percent and Steen believes it's actually closer to 1.5 to 2 percent. In other words, if Spain is successful in reining in expenditure by about 5.5 percent over two years it could cost between 5 and 10 percent of growth, says Steen. This renders the exercise in itself futile, he says.

With the fiscal multiplier so large and the social dimensions so unsolvable he believes there is more than a 50 percent chance Spain will be asking for help already this year. Such help will most likely come in the form of asking the European Financial Stability Facility for bank recapitalisation funds because Spain’s banks are a sore point. More property price declines are seen ahead and the resultant forced sale of assets at low prices means the banks will have to take significant losses.

Furthermore Spain still has the ability to ask the European Central Bank for help in buying its bonds. A third round of the ECB's Long Term Refinancing Operation is not a likely scenario, he says.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Investment Research
- Full disclaimer

Show latest activity
Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail