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Saturday, April 28, 2012

Spain: Economic troubles continue but no bailout requested



In spite of the fact that Standard and Poor had just downgraded Spain's credit rating the Minister of the Economy Luis de Guindo in an interview said that Spain was not seeking a bailout. He said:“Nobody has asked Spain, either officially or unofficially” to seek a bailout.

However the Spanish economic situation seems to be going from bad to worse. The unemployment rate is already the highest in Europe but reached a new high of 24.4 just short of the all time record of 24.55 set in 1994. The increase in joblessness for the first quarter will decrease tax revenues by about 1.3 billion dollars exacerbating the debt crisis.

The risk has increased for Spanish debt as bond yields rose above six per cent. This has fueled speculation that Spain may seek rescue. One minister called for the European Central Bank to buy Spanish bonds. However de Guindos stood firm:“This is not the real cure for the problems and the volatility of the market,”“I don’t think that we need any further liquidity injections after the two LTROs that the ECB has implemented over the last three or four months.”
No sooner had de Guindos expressed his views then Standard and Poor cut Spain's credit rating two levels to BBB+ reasoning that Spain will need to provide more money for its banks. This is the second downgrade by S and P this year.

The International Monetary Fund (IMF) predicts that budget deficits will remain in Spain until at least 2017. A 1.8 per cent contraction of GDP is forecast for this year and growth of only .1 per cent next year. For more see this article.

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