ANALYSIS: A year after bailout fears, Spain wins back its investors


Mon, Sep 23, 2013 - Page 15

Cast as the sick man of the eurozone a year ago, Spain seems at last to be luring back investors, despite lingering threats to its recovery.

“Viva Espana,” blared a recent report by the global financiers Morgan Stanley, advising clients to invest in bonds from the eurozone’s fourth-biggest economy, which came close to a full bailout last year.

“Last year, a bit before September, everything was different. We were trying not to read analysts’ reports so as not to get depressed,” said Antonio Carrascosa, leader of Spain’s state bank-restructuring fund.

“Right now, it’s the opposite. We are seeing the start of a recovery,” he said.

Having risen in the middle of last year as investors shunned the country, Spain’s sovereign borrowing costs — the yields or rates of interest it must pay on the debt markets to finance its public spending — have fallen sharply.

In July last year, the yield on its benchmark 10-year bond was around 7.5 percent — a level considered unsustainable by economists. It is now around 4.4 percent.

The Madrid stock market has just broken back through the 9,000-point barrier for the first time since October 2011.

“The concerns that were on the world’s front pages a little over a year ago have disappeared,” Carrascosa said.

Scrambling last year to stabilize public finances, Spain’s conservative government introduced a series of austere reforms, including spending cuts and looser hiring-and-firing laws for companies, plus a shake-up of the banks to bolster their balance sheets and purge bad loans.

“With regards to structural reforms, certainly Spain, versus its neighbors, seems to be an exemplary case for progress, namely on the issues concerning the financial sector, labor market and fiscal framework,” Morgan Stanley’s analysts wrote.

The government is forecasting that the current quarter will see an end to the recession — the second in a double downturn sparked by the collapse of a construction boom in 2008.

The government’s latest forecasts tip a 1.3 percent contraction in overall economic output this year before a return to growth of 0.5 percent next year and 1 percent in 2015.

The towering unemployment rate is currently forecast to stand at 27.1 percent at the end of this year and 26.7 percent next year, staying above 25 percent till 2016.

Others were also cautious.

“We are very much in wait and see mode,” DBRS sovereign ratings head Fergus McCormick said.

His agency currently scores Spain at “A minus” with a negative outlook, indicating it is creditworthy, but at risk from economic shocks.

McCormick said he is looking for “signs of progress” in cutting the deficit, job creation and structural changes, warning that more unpopular labor reforms may be needed.

“I think the greater concern is the stability of the housing market,” he said.

Spain’s banks have drawn more than 41 billion euros (US$55 billion) from an emergency eurozone credit line, but remain weighed down by unsold buildings and unpaid loans.