Spanish Prime Minister Mariano Rajoy warned Wednesday that his country was facing “extreme difficulty” as its cost of borrowing money on global markets jumped and doubts increased about whether the government can stick to the strict austerity program designed to bring its debt under control.
Rajoy’s comments come as European Central Bank chief Mario Draghi on Wednesday warned the region’s political leaders to adhere to promised budget and economic reforms in addressing the euro zone’s problems.
Speaking after the monthly meeting of the bank’s governing board, Draghi signaled that the onus is now on governments to finish fighting the crisis.
But even that, he noted, is merely a temporary help — providing a “window” during which banks are expected to rebuild their financial health and governments are expected to trim debt and rejuvenate their economies.
Three nations — Greece, Ireland and Portugal — are receiving bailouts from other European countries and the International Monetary Fund. This emergency support frees the three governments from having to raise money on global markets, where the cost of borrowing could be prohibitive, and give them several years to retool their economies and try to balance public budgets. Those programs have not always run smoothly, but in the case of Portugal and Ireland have stayed largely on track. In Greece, the program was recently restructured to include a massive reduction in the value of government bonds held by private investors.
In Italy, reforms engineered by Prime Minister Mario Monti have so far earned the benefit of the doubt from investors and allowed the country to keep borrowing at affordable rates.
In Spain, however, Rajoy has said his government may miss the deficit targets being demanded by European officials. The country’s overall level of debt, while low in comparison with countries such as Greece and Italy, is at risk of rising sharply in coming years because of slow growth and high annual deficits.
The ECB, European leaders and IMF have prescribed a rigid austerity program for Spain, including cuts in public-sector wages and higher prices for electricity and other public services. Spain faces a danger, however, that spending cuts could be so deep that they undermine the economy and leave government accounts in even worse shape as tax receipts fall and social spending rises.
No comments:
Post a Comment