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Spain's Austerity Threatens Economy : HSBC

Source: Bloomberg - Tue 17th Apr 2012
Spain's Austerity Threatens Economy : HSBC

Spain's efforts to cut its debt burden and calm the fears of lenders are increasing the country's risk of a deeper recession and financial crisis, HSBC Holdings Plc's Madhur Jha said.

Spain needs more external financial help to "buy time" for its government to implement reforms to its housing market, pension system and labor market, Jha said in a radio interview on "Bloomberg Surveillance" with Ken Prewitt and Tom Keene. Credit-default swaps insuring Spanish government debt rose today to a record in London, according to CMA, signaling deterioration in investor perceptions of credit quality.

"People are beginning to realize the more and more austerity you impose on an economy, the worse it becomes in terms of growth and also in terms of debt sustainability," said Jha, an HSBC Bank global economist based in London. "There needs to be more in terms of actual financial support."

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Yields on Spain's 10-year bonds climbed to 6.16% on Monday, the highest level since Dec. 1, before trading at 6.07%. Credit-default swaps jumped to 521, CMA prices showed. They have jumped from 431 at the start of the month and 380 at the end of 2011.

Prime Minister Mariano Rajoy said today Spain must cut its budget deficit to maintain access to financing.

"These kinds of imbalances have built up over so many years, you can't give a country one or two years to get rid of those imbalances," Jha said. "Structural reforms have to take place."

The country is scheduled to sell as much as €3 billion of 12- and 18-month bills tomorrow and auction €2.5 billion of notes on April 19 due in October 2014 and January 2022.

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