Thursday, July 12, 2012

Spain's new austerity buys time, not solution....Well isn't that EU Policy?

(Reuters) - Spain may have won some time with markets and praise from Europe but it has little left in the locker to avoid a state bailout as a new 65-billion-euro austerity program could deepen the country's economic woes rather than solve them, analysts say.

The measures announced on Wednesday saw Prime Minister Mariano Rajoy backtrack on many of the pledges he campaigned on six months ago, to meet demands made by the European Union and put the Spanish economy under de facto external administration.

The austerity plan was a condition for being given an extra year to bring the public deficit in line with EU rules and for an up to 100-billion-euros bailout of the country's crippled lenders. But neither concession will put Spain on the path to recovery.

Ailing banks, badly hit after a decade of unsustainable lending ended with a property crash four years ago, coupled with highly-indebted regions have pushed Spanish borrowing costs though the roof.

Investors and analysts are worried that the latest measures will only make things worse for a country already in recession which, if it deepens, will cut government revenues and make even the newly relaxed debt targets harder to meet.

"It doesn't address the funding issue and the problem of a lack of demand. It will only cut the revenues, the capacity to generate jobs and will even make more difficult to repay the debt," said Juan Torres Lopez, professor of economics at the Seville University. "The deficit targets will also be more difficult to meet." Read More