Spain, the fourth largest European economy, which contributes around 11 percent to the euro blocs GDP and has been dubbed as "too big to bail, too big to fail" is likely to become the fourth victim of the euro zone debt crisis, lest it is bailed out.
The country is suffering from soaring borrowing costs, looming debt repayments and unemployment rates hitting a record high of 25 percent.
In September, the government disclosed the countrys 2013 austerity budget, which ordered ministries to slash spending by around $51.3 billion preceded by $84 billion in spending cuts and taxes that were announced in July.
Besides, Prime Minister Mariano Rajoy gave his forecast for the austerity cuts to expand to 14 percent of GDP by 2014.
The cut-throat fiscal austerity measures have triggered elevated recession in Spain. These deficit ripping measures have discouraged investment and consumption, which in turn are the drivers of economic recovery. Moreover, slit in the consumer spending has offset growth in exports.
The yield on Spanish bonds has skyrocketed to close to six percent and the rating of its sovereign debt has dropped to BBB- (S&P) and Baa3 (Moodys) which is just above the "junk" level.
Standard & Poors (S&P) Ratings Services has relegated the credit ratings of seven Spanish banks including Santander and BBVA which are the countrys biggest banks, given the dreary economic backdrop.
Besides, Cataluna; the major regional economy of the country, which accounts for up to 20 percent of the Spanish economy and contributes 30 percent to its exports, is pushing hard to attain independence.
As the stinging impact of the austerity measures becomes eminent, there appear two camps in favour of and against the austerity measures, led by European commission and IMF, respectively.
IMF research highlights that slashing the budget deficit by one percentage point would lead to a gash in the economic growth by 0.9 percent to 1.7 percent. Thus, rather than following an austerity programme focused on specific targets, countries must be given more time to reduce their debt. So the Fund suggests decelerating the austerity scheme.
On the flip side, ECB is of the opinion that shifting the ways while trapped in the midst of crisis would lead to shaking up the worlds confidence in the efficacy of the plan. While the contrarian views are debated, Spains economy is gasping for liquidity and relief.
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