{"id":33756,"date":"2022-06-26T21:00:00","date_gmt":"2022-06-26T19:00:00","guid":{"rendered":"https:\/\/www.11onze.cat\/?p=33756"},"modified":"2023-01-11T12:54:46","modified_gmt":"2023-01-11T11:54:46","slug":"spain-doldrums-despite-ecb-support","status":"publish","type":"post","link":"https:\/\/www.11onze.cat\/en\/magazine\/spain-doldrums-despite-ecb-support\/","title":{"rendered":"Spain in the doldrums despite ECB support"},"content":{"rendered":"<div class=\"component text\">\n  <div class=\"container\">\n\n\n    <div class=\"row\">\n      <div class=\"col  col-lg-8  offset-lg-2\">\n        <h3><b>After the escalation in the risk premium paid by Greece, Italy, Spain and Portugal for their debt, the intervention of the European Central Bank has restored some stability to the market. But the interest paid by these countries on their debt continues to rise, and the situation is becoming increasingly unsustainable.<\/b><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">On 14 June, Greece&#8217;s risk premium was dangerously close to 300 basis points, Italy&#8217;s was close to 250, Spain&#8217;s reached 140 and Portugal&#8217;s closed the session at 138. <\/span><b>The interest rates payable by the countries of southern Europe on their debt had soared<\/b><span style=\"font-weight: 400;\"> in recent days compared to Germany&#8217;s.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Because that is what the risk premium measures: each basis point of the risk premium is equivalent to 0.01 % more interest than the yield on the German ten-year bond. Therefore, 100 basis points means paying 1 % more interest than Germany and 200 points is equivalent to 2 % more.<\/span><\/p>\n<p><b>In the first half of June, the market has been showing growing distrust in the debt payment of the PIGS<\/b><span style=\"font-weight: 400;\">, a pejorative acronym for Portugal, Italy, Greece and Spain by their initials. So the interest differential that these countries were forced to pay to place their debt bonds versus Germany had been rising.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3><b>Much ado about nothing<\/b><\/h3>\n<p><b>The European Central Bank (ECB) decided to take matters into its own hands<\/b><span style=\"font-weight: 400;\"> and, after an emergency meeting, <\/span><a href=\"https:\/\/www.ecb.europa.eu\/press\/pr\/date\/2022\/html\/ecb.pr220615~2aa3900e0a.en.html\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">announced<\/span><\/a><span style=\"font-weight: 400;\"> on 15 June that it would reinvest part of the portfolio of the Pandemic Emergency Purchase Programme (PEPP) to prevent the risk premiums of these countries from soaring. <\/span><span style=\"font-weight: 400;\">Everyone has inevitably interpreted this as a new bailout for these countries, as happened during the last crisis. Spain looks set to be rescued from bankruptcy once again by the ECB.<\/span><\/p>\n<p><b>Since then, the situation has calmed down<\/b><span style=\"font-weight: 400;\">. The risk premium on Greek debt has fallen by 70 basis points in one week, Italian risk premium is now back below 200 points and Spanish and Portuguese risk premium is below 110 points.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In reality, the ECB&#8217;s announcement is nothing very new. As we explained in the <\/span><span style=\"font-weight: 400;\"><a href=\"https:\/\/www.11onze.cat\/en\/magazine\/ecb-check-most-fragile-economies\/\" target=\"_blank\" rel=\"noopener\">article<\/a> <\/span><span style=\"font-weight: 400;\">&#8220;ECB&#8217;s check on the most fragile economies&#8221;, <\/span><b>in recent years the banking regulator has bought nearly two trillion euros in debt<\/b><span style=\"font-weight: 400;\"> and announced in March that purchases would be drastically reduced as of June. But it also <\/span><a href=\"https:\/\/www.ecb.europa.eu\/press\/pr\/date\/2022\/html\/ecb.mp220310~2d19f8ba60.es.html\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">warned<\/span><\/a><span style=\"font-weight: 400;\"> that it would reinvest the returned principal of securities purchased under debt purchase programmes &#8220;for as long as necessary to maintain favourable liquidity conditions&#8221;. Now it only goes a little further by adding the possibility of reinvesting the returned interest as well.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3><b>Good news?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The fact that the risk premium of the PIGS has fallen in recent days is good news in the sense that<\/span><b> their financing has not soared relative to that of Germany<\/b><span style=\"font-weight: 400;\">. But this does not mean that the interest on their debt costs the same as before, because the interest paid by Germany on its ten-year bonds has risen by 1.78 percentage points in just four months.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">German bond yields, which were at negative levels at the beginning of March, have risen steadily since then, even after the ECB&#8217;s emergency meeting, and now stand at 1.69 %. In short, <\/span><b>both Germany and the PIGS are paying considerably more for their debt today than at the beginning of March<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3><b>More clouds than clear skies on the horizon<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Complicated times lie ahead for everyone, although the PIGS&#8217; cushion is obviously much thinner than that of countries such as Germany. The ECB&#8217;s future rate hikes in an attempt to control inflation should result in a generalised rise in the cost of debt. And, moreover, when the effects of the banking regulator&#8217;s recent announcement on debt purchases wear off, <\/span><b>it cannot be ruled out that the spread between the southern European countries and Germany will increase again<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The ECB is running out of tools to maintain the stability of an economy that is caught between stagnation and inflation. And, with debt running out of control, <\/span><b>the PIGS would be the main victims of any possible adjustment measures<\/b><span style=\"font-weight: 400;\"> or cuts that Europe might demand in the future.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some warn that, if recession hits, the solidarity of Europe&#8217;s partners could crack, as it almost did a decade ago. From then on, <\/span><b>the future of the Eurozone is unpredictable<\/b><span style=\"font-weight: 400;\">, as is the future of pensions and public health care.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><b>11Onze is the community fintech of Catalonia. Open an account by downloading the super app El Canut for <\/b><a href=\"https:\/\/play.google.com\/store\/apps\/details?id=com.e11onze.app&amp;utm_source=emailing&amp;utm_campaign=CANUT+launch\" target=\"_blank\" rel=\"noopener\"><b>Android<\/b><\/a><b> or <\/b><a href=\"https:\/\/apps.apple.com\/us\/app\/11onze\/id1566129237?utm_campaign=El+Canut\" target=\"_blank\" rel=\"noopener\"><b>iOS<\/b><\/a><b> and join the revolution!<\/b><\/p>\n\n      <\/div>\n    <\/div>\n  <\/div>\n<\/div>\n\n\n<div class=\"component cards\">\n  <div class=\"container\">\n    <div class=\"row\">\n      <div class=\"col col-xl-8 offset-xl-2\">\n        <h1>If you liked this article, we recommend you read:<\/h1>\n        <div class=\"cards__wrapper\">\n          <div class=\"card\">\n            <a href=\"https:\/\/www.11onze.cat\/en\/magazine\/debt-interest-rates-highest-2015\/\" class=\"card-link\" target=\"_self\"><\/a>\n            <div class=\"card-img\">\n              <img decoding=\"async\" src=\"https:\/\/www.11onze.cat\/wp-content\/uploads\/2022\/05\/THUMBNAIL_BONS_ALEMANYS.jpg\" class=\"card-img-top\" alt=\"\">\n                <span class=\"card-category\">Economy<\/span>\n            <\/div>\n            <div class=\"card-body\">\n              <p class=\"card-title p2\"><strong>Debt interest rates, highest since 2015<\/strong><\/p>\n              <span class=\"card-time\">4 min read<\/span>\n              <p class=\"card-text small\">Public debt in Europe is at record highs, and the interest<\/p>\n            <\/div>\n          <\/div>\n\n\n          <div class=\"card\">\n            <a href=\"https:\/\/www.11onze.cat\/en\/magazine\/ecb-check-most-fragile-economies\/\" class=\"card-link\" target=\"_self\"><\/a>\n            <div class=\"card-img\">\n              <img decoding=\"async\" src=\"https:\/\/www.11onze.cat\/wp-content\/uploads\/2022\/03\/THUMBNAIL_FINAL_ESTIMULS_BCE.jpg\" class=\"card-img-top\" alt=\"\">\n                <span class=\"card-category\">Economy<\/span>\n            <\/div>\n            <div class=\"card-body\">\n              <p class=\"card-title p2\"><strong>ECB\u2019s check on the most fragile economies<\/strong><\/p>\n              <span class=\"card-time\">3 min read<\/span>\n              <p class=\"card-text small\">With the announced reduction in the funds earmarked for debt<\/p>\n            <\/div>\n          <\/div>\n\n\n          <div class=\"card\">\n            <a href=\"https:\/\/www.11onze.cat\/en\/magazine\/keys-inevitable-debt-crisis\/\" class=\"card-link\" target=\"_self\"><\/a>\n            <div class=\"card-img\">\n              <img decoding=\"async\" src=\"https:\/\/www.11onze.cat\/wp-content\/uploads\/2022\/02\/THUMBNAIL_INDICATIUS_CRISIS_GLOBAL-800x533.jpg\" class=\"card-img-top\" alt=\"\">\n                <span class=\"card-category\">Economy<\/span>\n            <\/div>\n            <div class=\"card-body\">\n              <p class=\"card-title p2\"><strong>The keys to the inevitable debt crisis<\/strong><\/p>\n              <span class=\"card-time\">5 min read<\/span>\n              <p class=\"card-text small\">All economic forecasting rates indicate that we are heading for<\/p>\n            <\/div>\n          <\/div>\n\n              <\/div>\n              <br>\n              <br>\n              <div class=\"cards__wrapper\">\n\n        <\/div>\n      <\/div>\n    <\/div>\n  <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"","protected":false},"author":71,"featured_media":33747,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[1],"tags":[172],"class_list":["post-33756","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-economy"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - 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