While European leaders are at war of whether or not Greece should undergo a “reprofiling” or soft-restructuring, it may be good for them to listen to the complaints of the ECB, and recognise the benefits of kicking the can down the road a bit more.
By supporting Greece, Ireland, and Portugal, the eurozone’s leaders have given Spain, the region’s fourth largest economy, time to effectively reorganize its financial position.
From Societe Generale’s Michala Marcussen:
…Spain has been able to move swiftly on both fiscal austerity and a resolution plan for the banking
sector. We see this strategy paying off. The latest spring forecasts from the EU Commission even revised down the public debt forecast for 2012 to 71% of GDP from 73% previously. Furthermore, recent economic data are showing some light at the end of the tunnel. Most importantly, financial markets are clearly recognising these improvements. In giving Spain time to build credibility, the rest of the euro area has also benefited tremendously in terms of economic and financial stability.
So while it’s true that austerity and the current bailout strategy isn’t working for Greece, it is working for Spain. It is giving the country time to reform its banking sector and economy, strengthening it before a Greek restructuring might have a damaging impact on the eurozone’s banks.
If protecting the eurozone’s core from the sovereign debt crisis is the goal of the Greek bailout, it has been successful thus far. Note Spain’s recent return to growth.
Photo: Societe Generale
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