Spanish government positive despite market rumblings

Spain is one of the countries where the Greek crisis is being most keenly followed, due to its own economic characteristics which in the past have made it the focus of euro-zone uncertainty.

As Greece's exit from the monetary union looked increasingly imminent, the Spanish stock market was among the hardest hit in Europe on Monday morning, with the Ibex 35 blue-chip index losing over 5.0 per cent on opening, before rallying somewhat. Major Spanish banks such as Santander and BBVA suffered notable losses.

However, Spanish economy minister Luis de Guindos offered a robust defence of the health of the euro zone’s fourth-largest economy, insisting that it is “shielded” from any potential Greek contagion.

He told the media that a country has “never been as well-prepared” for a neighbour’s crisis, pointing to Spain’s current rate of growth, which the IMF expects to average 3.1 per cent this year.

He also underlined efforts the conservative government has made to cut the public deficit since taking power in late 2011. Three years ago, recession and a ballooning deficit put Spain at the heart of the euro-zone crisis and the country was extremely vulnerable to turbulence elsewhere in the bloc, particularly Greece.

“The situation of Spain is very different to that of other countries, because it’s the [major] economy that is growing the most [in the euro zone],” Mr Guindos said. “The situation of the banks is nothing like that of three years ago, nor is our fiscal deficit.”

In 2012, after Spain’s banks had been heavily exposed to the fallout of a burst property bubble, the country requested a €100 billion bailout from the EU for its financial sector. Eventually it only used €41 billion of that amount.

Under the terms of the rescue, the financial sector was heavily streamlined. In addition, Spain set up Sareb, the equivalent of Nama, which manages the toxic assets that many banks took on during the property boom.

This seemed to be among the main areas prime minister Mariano Rajoy was referring to when he appeared before the press alongside French former president Nicolas Sarkozy in Madrid this morning with an upbeat message to counter the Greek gloom.

“The Spanish people can feel at ease because, throughout the last few years, with their effort and understanding, they have supported the reforms which have ensured that in Spain we can be free of worry,” the Spanish leader said.

While the positivity of Mr Guindos and Mr Rajoy is entirely predictable, analysts say there is something in their argument. Financial analyst Juan Ignacio Crespo says that the Spanish economy is genuinely stronger than it was the last time the euro zone was plunged into crisis. He also highlights another factor.

"We have a friend who has €1 trillion available to help us: the European Central Bank," he said, pointing to the funds the ECB has put aside to buy up the debt of struggling euro-zone countries. "The ECB and Mario Draghi aren't going to allow countries beyond Greece to be hurt by all this."

The spread on Spanish bonds rose as markets opened on Monday, although less than those of Portugal and Italy, suggesting that in terms of contagion, Spain is not currently first in line.

However, analysts do see continuing weaknesses in the Spanish economy in its 24-percent unemployment rate and a public debt that totals around 100 percent of GDP.

“The big worry when it comes to debt is talking about the debt,” said Mr Crespo. “Because when it’s being talked about a lot that affects confidence.”

In addition, Spain’s unstable political landscape is a further factor to take into account. With the governing Popular Party (PP) assailed by corruption scandals, Podemos, an anti-austerity party with links to Greece’s Syriza, has become a major political force over the last year.

In a strongly worded statement issued today, Podemos underlined its support for the government of Alexis Tsipras in the face of “the blackmail of its creditors”. Podemos also praised the announcement of a referendum next Sunday, saying that that “the Greek government has reacted in an exemplary way, giving the people the choice so that they decide democratically and in a sovereign way on their future.”

But with none of Podemos, the PP or the opposition Socialists enjoying a clear lead in polls, the Spanish political scene is highly fragmented and the outcome of the general election expected later this year is uncertain.

"In the short term Spain is in a good situation," said Antonio Barroso, an analyst at Teneo Intelligence, a global advisory firm. "But in the medium term it could be quite different."