The week has begun, as Wall Street starts to crank out its takes on the Spanish bailout.
First up, a take from Goldman’s Andrew Benito who sees says: “We view this as a positive near-term development for Spain, and in particular for its banks. But it does not solve Spain’s overall fiscal and macroeconomic challenges, which remain substantial.”
The problem? Major core structural problems with the Spanish economy:
Not Enough, By Itself
Will this step be sufficient to forestall a broader programme for Spain with additional conditionality? By itself: No. Instead, in our view it needs to be accompanied by a fiscal plan specifying fiscal measures that will set Spanish debt on a sustainable path in the medium-term. This is still less of a Euro area-wide solution, but continues in the spirit of a country-by-country approach.
A one-off loan of less than €100bn or 10% of GDP is not, by itself, a major threat to Spain’s debt sustainability. The threat to Spain’s debt sustainability instead comes from the lack of a medium-term plan to stabilise its debt-to-GDP ratio over the next 5 or so years. The weekend’s announcements will do little to change that.