Martin Feldstein: Spain's Banks Are Not The Problem

Experts have become increasingly concerned with Spain and its troubled housing and banking sector.

Concerns over the Spanish economy has sent yields on the Spanish 10-year moving as high as 7.28 per cent yesterday. In fact the country had to pay a euro-era record price at short-term debt auction this morning.

Harvard professor Martin Feldstein was on Bloomberg TV saying Spain’s real problem isn’t its banking sector, or even its central government:

They have to demonstrate that they can rein in the regions. The big fiscal problem in Spain is not the central government itself. They’ve got the bank situation maybe under control with this €100 billion line, but the key thing they haven’t yet demonstrated is that the separate regions can’t go on running deficits and throwing those deficits to Madrid.”

Feldstein also went on to say that he doesn’t expect the European Central Bank to act as a lender of last resort, and that despite the results of the Greek election he expects the country to leave the euro. “Greece remains a basket case. The numbers are terrible. It’s hard to see how you turn around an 8 per cent current account deficit.”

Watch the entire interview at Bloomberg TV:

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