(Image: insead.eu )

 

BY LIAM KEEGAN

 

Fears are growing over a new financial crisis in Europe.   The reason?  Borrowing costs in Spain have increased to their highest rate since December. Euronews has the story.

“Some Spanish banks might not survive the recession there, which may be made worse by the government’s austerity drive, having been hard hit by the bursting of the country’s property bubble. The banks are now seeing a surge in loan defaults in other sectors.”


The New York Times explains — Spain is heading into its second recession in the last few years.

“With unemployment of around 23 percent, there is fear that austerity measures, deemed critical for winning back market confidence, could have the perverse effect of further depressing growth and creating a vicious cycle in which more budget cuts are needed to balance the public books.”

Spanish newspaper El País notes — Prime Minister Mariano Rajoy just announced a budget which would cut 10 billion euros in the education and health sectors. Despite media speculation that Spain could soon need a financial bailout...

“Economy Minister Luis de Guindos insisted Spain did not ‘need a bailout at the moment,’ pointing to the fact the Treasury has covered about 50 percent of its needs for the year.”

To that — an editorial contributor for The Wall Street Journal says...

“Given the number of times we heard that from officials in Ireland, in Greece, and in Portugal, we’d emphasize that time is really, really of the essence here.”

A German banking economist tells Bloomberg — it’s all about confidence— and Spain’s austerity measures are doing nothing to convince the markets the country is recovering.

“Are they really going to be able to implement those cuts they’re putting forth, and the fact that they keep piling on new costs, doesn’t really convince anyone.”

Bloomberg BusinessWeek notes— Spain has already received some aid. The European Central Bank pumped more than trillion euros into the nation — but the loan didn’t help.

“The problem is that the easy money from the ECB didn’t do anything to fix Spain’s fundamental problem—overindebtedness and an uncompetitive economy that, because of the common currency, can’t use depreciation as an escape hatch.”