Suppose you have X dollars outstanding on your credit card while earning Y dollars, if your debt increases and you are still earning the same Y dollars, does your credit rating go up or down? Spain may be about to find out. “Spain’s €100bn bank bailout could backfire on Madrid by destabilizing public finances and hampering the country’s access to capital markets, experts have warned.”
Open Europe, the London-based think tank, said if Spanish banks take up Brussels’ offer of €100bn in loans, Spain’s public debt would grow by around 10pc.
“If this is a victory – finally dealing with a glaring problem after four years – then we don’t want to see a defeat,” said Raoul Ruparel of Open Europe. “Spanish debt to GDP could be about to jump by 10pc in the near future and given its current path this could put Spain over 90pc debt to GDP, the level beyond which sustainability becomes questionable, much sooner than had been anticipated. This will require adjustments in its reform programme and lead to increasing market pressure.”
In other words the bond markets might penalize Spain for getting deeper into hock. Who would have known?[...]
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