Spain: no respite from the market


The sign at Mariano Rajoy's victory rally says "Thanks." By yesterday he was probably thinking "Thanks, for nothing" when it comes to the bond markets.



At a press conference on Monday, Mariano Rajoy, landslide victor in Sunday's Spanish election, asked the markets for a breathing space as he puts together his new government. Tuesday the markets gave him an answer:

They doubled the interest on 90 day Spanish bonds over the price the country had to pay from last month. Spain now pays a higher rate of interest - 5.11 percent - for this short-term paper than Greece.

Pretty shocking considering Spain is still a functioning economy (and society) who's debt to GDP ratio is less than Britain's.

But as they teach the young masters of the universe in business school, "Markets are wise." So the people who bid up short-term Spanish debt must know something we lesser mortals don't.

Maybe they know the key is to invert the lesson I learned as a first grader and was caught making silly errors as I raced to be the first person in class to finish spelling tests. "Patience is a virtue." Clearly not in the bond market.

In this case, Rajoy is not taking office until December 20th. It is not likely the bond markets can give him the month-long breathing space he needs to get his team together and his policies organized into working shape.

He is expected to make an announcement about further cuts in Spanish government spending sooner rather than later. The question is whether the haste with which he is forced to act will lead to the kind of errors on a macro-scale that I used to make in first grade spelling tests on a micro-scale.
Patience really is a virtue.


"Out of Chaos comes opportunity." is another lesson taught to young masters of the universe on their MBA courses. Today's Guardian underscores that lesson with a story that notes British firm De La Rue, who print bank notes, is gearing up to print new currencies should the euro zone fall apart.

The paper reports: "Tim Cobbold, the chief executive, said De La Rue could start printing new currencies for any country that breaks away from the euro 'within six months'."

Cobbold acknowledges that Spain, Italy and Greece won't need his firm's services as they have national printers. Smaller countries in the euro zone are his target market.