GO
Loading...

Spanish Stand-off Continues: What Next?

The epicenter of the euro zone debt crisis has shifted almost daily for the past few weeks, but Spain is currently to the fore – and any sign of a resolution to its problems is moving markets.

Spain
GlowImages | Getty Images
Spain

Much of Wednesday and Thursday’s rally in European stock markets was motivated by hopes that European officials are getting closer to a solution for the country’s troubles.

Officials are weighing up a bailout program that would aid its domestic banking sector while imposing only “very limited conditionality” on aspects such as austerity, according to a report in the Financial Times on Thursday.

“The Spanish authorities want to be seen to be playing by the rules,” Lena Komileva, Chief Economist, G+ Economics, told CNBC.

“At the moment there’s soft negotiation behind the curtains about getting this kind of aid directly into the Spanish banking system without having to comply with stringent conditionality.”

One of the main fears of the Spanish is that even more stringent austerity measures will be imposed if a bailout is needed.

“What we have seen has been a relief rally,” Lauren Rosborough, senior foreign exchange strategist, Societe Generale, told CNBC’s “Squawk Box Europe” Thursday.

“The timing of this announcement with regards to Spanish banks couldn’t be more perfect heading into the bond auction to get good yields and good demands.”

Spain is auctioning up to 2 billion euros ($2.5 billion) on Thursday.

“Germany doesn’t want Spain to have significant problems, orGreece,” Rosborough said.

“Rules can be changed – it simply needs political will to do so. There may not be loopholes as of now but there’s no reason that can’t change. There are risks that this could spiral out of control if it’s not contained now.”

Economic signs for the country are not encouraging. Industrial production in Spain fell sharply in April, to more than 8 percent below the same month in 2011.

Spain is waiting for a new Governor and Deputy Governor of its central bank, with bank official Luis Maria Linde tipped by state-owned newswire EFE to be named governor of the Bank of Spain Thursday.

The euro is expected to continue its fall against the dollar to as low as $1.15 in the medium term as Spain’s troubles continue, according to Rosborough – although she said it could move as high as $1.32 in the short term on “pain trade.”

Contact Business

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More