Spain Should Restructure Debt Now: Economist
Spain should be restructuring its debt right now, Matthew Lynn, founder of Strategy Economics, told CNBC's "European Closing Bell," suggesting a 50 percent haircut on Spanish sovereign debt holdings now in order to get the country back on track.
“The problem in Spain is that they’re just following exactly the same path as Greece – which is to insist on austerity; to make cuts; to push through structural reform, and hope that the structural reform comes through in time to generate enough growth to get the economy moving again,” Lynn said.
“But it didn’t work in Greece. It hasn’t worked in Ireland or Portugal. And it won’t work for Spain,” he added.
The trouble is that austerity measures destroy the ability to stabilize debt levels and the single currency, Lynn argued.
“Structural reform is very hard to do when the economy is shrinking,” he said. “It’s actually quite hard to push through structural reform in an economy that’s growing 3 percent a year.”
Meanwhile, Patrick Armstrong, Managing Partner of Armstrong Investment Managers has another suggestion on how to fix Spain: restructuring through inflation.
“The most elegant solution for this is very much monetary driven – thereby creating very loose monetary policies; creating inflation, which leads to nominal growth,” Armstrong said.
He added that while it won’t create real economic growth, it will help manage debt-to-gross domestic product ratios and push the euro down.
“You need a weak euro for the periphery to become competitive,” he said. “That’s the same game the United States is playing. The UK is also playing that to some extent. You need the ECB to get on board and play that same game.”