The government maintains that Spain will not have to demand a bailout similar to that required by Greece, Portugal and Ireland after their different stages of cutbacks and internal reforms. Spain will emerge from the crisis “without exterior aid,” according to the remarks made to the newspaper Frankfurter Allgemeine by Economy Minister Luis de Guindos, who has become the habitual spokesman for a government hard pressed by the investors and by the EU authorities. According to this line of reasoning, the idea of a contagion affecting Spain is nonsense, because Mariano Rajoy’s government will, on its own account, continue to take all the measures that may be necessary.
The government took far too long in bringing forward the state budget, after needlessly indulging in a tussle with the European Commission about the deficit-reduction objective for this year. In view of the fact that the belt-tightening has not been sufficiently impressive, it now wishes to speed up other reforms, trusting to its clear parliamentary majority. This is a fast method of course, but the resulting lack of consensus may become a factor of investor distrust. This was the time for solid pacts against the pressures exerted by international leaders, from Mario Draghi of the ECB to French President Nicolas Sarkozy, who seems inclined to see Spain mired as deeply as Greece in the bog of inability to pay its debts — even if his remarks in this respect have been made in the context of an electoral campaign. Instead of encountering a show of unity and firmness, both the ECB and the European Commission seem merely to be waiting for Rajoy to react to the rise of the risk premium, at a record level during his mandate so far, and to the disastrous Easter week on the stock market.
The problem is the type of reforms being planned. Now comes the application of the scalpel to the public services of health and education. Both initiatives include the danger not only of new stresses between the government and the opposition in Congress, but also between the central government and the regional ones, whose job it now is to supply the public services of health and education: particularly Catalonia, Andalusia and the Canary Islands, whose governments are not of Rajoy’s Popular Party.
Besides, Rajoy wishes to hurriedly get through the most unpopular reforms, from the labor market to the fiscal amnesty, as well as the Budgetary Stability Law — a case which exposes the absence of consensus on a norm that arose, precisely, from a pact reached by Rajoy and Zapatero.
With this scenario of political and ideological conflict in the offing, the Gordian knot binding the Spanish economy remains tight. The Spanish financial system contains a concentration of debt contracted by households and companies. Without the reform of the financial system, it is unlikely that investors will recover confidence in Spain, for all the unilateral measures affecting public spending that the government may announce.