Europe faces 'massive' problems: Former Spanish PM

We need QE to stimulate growth: Ex-Spain PM
We need QE to stimulate growth: Ex-Spain PM   

The European Central Bank (ECB) needs to launch a bond-buying program in order to stimulate growth and stave off the "massive" problems of deflation and lack of growth, Spain's former prime minister told CNBC.

"I think that it is inevitable that the ECB will take some decision in favor of some kind of quantitative easing," Jose Maria Aznar said on Wednesday.


A growing number of analysts are expecting ECB President Mario Draghi to announce a government bond-buying -- also known as quantitative easing (QE) -- program at the central bank's next meeting on January 22.

"Maybe we need it (quantitative easing) to stimulate growth in Europe because one of the most serious problems in Europe is the lack of growth," Aznar said, adding that deflation was also a concern.

Spain: From blight to bright spot

If any country in the euro zone deserves praise for quietly turning around its economy, it could be Spain.

Spain emerged from recession at the end of 2013, following a prolonged financial crisis that began in 2008 with the collapse of its property market and, subsequently, its banking sector that was weighed down with billions of euros worth of toxic assets.

Fast-forward to 2015 and the economy is growing and unemployment is falling, possibly providing a lesson to other euro zone countries like Italy that have been slower to implement reforms.

On Wednesday, current Prime Minister Mariano Rajoy told fellow southern European country Greece to stick to tough reforms, as Spain had done. There are growing concerns about Greece ahead of a snap general election on January 25, which anti-austerity party Syriza could win.

Acknowledging that reforms were "tough", Rajoy said they were "necessary and essential" nonetheless, and had produced "solid results" for Spain.

Former prime minister Aznar agreed, telling CNBC that: "countries that make serious reforms can reach higher rates of growth than the countries that don't take reforms seriously."

The Bank of Spain forecasts that the Spanish economy grew by 1.4 percent last year, and projects expansion of 2 percent in 2015, led by domestic demand. In its latest 2015 growth forecasts, published this week, the World Bank said that in Spain "a pickup appears underway, helped by gains in cost competitiveness and strengthening corporate balance sheets."

Furthermore, any extra stimulus measures – which could include QE – announced by the ECB next week could further support Spanish growth, as well as help tackle deflation across the euro zone.

It's not all rosy for Spain, however. Unemployment remains a problem although it is falling – declining to 23.9 in November 2014 from 25.8 percent in November 2013, according to data from Eurostat.

Aznar told CNBC that he was not happy with the country's employment level, calling the lack of jobs "unacceptable."

Podemos leads polls

While Spain's economic future may be looking brighter, the same cannot necessarily be said for Prime Minister Mariano Rajoy, with his center-right People's Party challenged by the rise of popularity of a grassroots, political movement.

2015 is an election year in Spain and there are fears that the left-wing, anti-establishment party Podemos ("We Can" in English) could win the vote, set for the end of the year.

Like Syriza in Greece – with which the party has allied -- Podemos has surged in popularity as voters tire of ongoing corruption scandals in Spain and high unemployment. Although it was only founded a year ago, Podemos could even usurp the Socialist Party as the main left-wing candidate in Spain.

Indeed, a January 2015 poll by Metroscopia published in Spain's El Pais newspaper showed Podemos as the top choice for the majority of voters, taking 28.2 percent of the vote. The Socialists came next with 23.5 percent.

Things looked bad for Rajoy, with support for the People's Party continuing to decline. It garnered 19.2 percent share of the vote in the January poll, versus 20 percent in December.

Rajoy was dealt another blow on Tuesday from the separatist movement in Catalonia, an affluent region in northern Spain, which wants independence from the rest of the country.

Catalan Premier Artur Mas announced that early regional elections would be held on September 27. The vote will indicate the amount of support for a possible future referendum on independence for the region.

"Mas' strategy is to keep the pro-independence momentum alive while gaining time for his party to recover in the polls," Antonio Barroso, senior vice president at risk consultancy Teneo Intelligence, said in a note Wednesday.

- Written by CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld