General idea
As we have been able to see these days, after the Franco-German agreement, the risk premium in Spain has dropped significantly despite the economic situation we find ourselves in.
Risk premium in Spain has dropped significantly despite the economic situation in which we find ourselves.
Measures and requirements to obtain the fund
We have heard how they are going to create a recovery fund of no more and no less than 500,000 million, but what does this fund imply?
Well, first of all, this reconstruction involves issuing aid in the form of subsidies and not credits, they are not loans, but transfers. Therefore, Spain will not have to pay back any interest, easy right?
This reconstruction fund has had a direct effect on our risk premium, as it has been able to fall from 155 points to 120, which has led to a change in the trend of the risk premium and, with it, a very positive effect on our country’s economy.
It is true that this drop in the risk premium is not only due to the Recovery Fund, but also to ECB president Christine Lagarde, who has stated on several occasions that she will continue to “act without batting an eyelid” in the event of a rise in interest rates in the affected countries, i.e. that the ECB will continue to buy debt.
This is all very well, but… without getting into political territory, we all know that the current government would be willing to give money to anyone who passes in front of it, and in the economy things do not go like that.
The ECB will impose a series of measures and requirements in order to be able to grant aid to our nation’s companies, in other words, they will be the ones to decide what to spend the money on, and from what we have seen… we are not on the right track.
Why do we say this, they are not going to give us money to increase spending and the deficit with the measures demanded by Podemos, nor are they going to tolerate tax rises that ruin the economy even more (with the famous rises for large estates, which have repercussions in terms of capital flight). We can explain this in three very brief points:
– As we have mentioned, the fund will have a limited duration, and they will apply the fund to what the EU determines, not to the multiple social shields announced by our government.
– The fund will only be issued to European priorities. These priorities are the transition to the green economy (improving human well-being by reducing environmental risks) and the digital economy, strengthening R&D.
– Such support will be based on the clear commitment of member states to pursue sound economic policies and an ambitious reform agenda”, in other words, the opposite direction the government is going in.
In other words, we can summarise what the EU is going to ask of Spain in terms of austerity, cuts, reduction of public spending, preference for investment over unproductive spending, abolition of subsidies and grants, reduction of the administration, with a broader labour reform (not its repeal), pension reforms, liberalisation of markets, reduction of bureaucracy?
Still convinced that the government will be able to go ahead with a party which offers proposals opposed to these measures?
As a subjective opinion, Sánchez will have to choose between his partner Iglesias or a bailout in one of the most critical moments of our country.
Conclusion
If Sánchez finally chooses the bailout, he will be left in a minority, and in order to avoid calling new elections, he will need support that manages to give him a majority, so we could see for the first time the PP and the PSOE united in the fight against this great economic crisis.
