Spain forensic

Spain has been used as a poster child for austerity medicine, receiving constant praise from the Troika for its efforts. However, the programme is incomplete which leaves the recovery vulnerable. Eurozone growth is an increasing drag. Mild deflation and a weak labour market will eat into private sector spending and maintain the upward trajectory of both private and public debt levels. At the same time, the political scene has several layers of risk which will hamper further reforms and compromise fiscal sustainability. Based on fundamentals, Spanish debt is clearly expensive. Nevertheless, we wouldn’t yet be short with the prospect of full blown ECB QE hanging overhead. What the backdrop does remind us of is the need for a weaker euro.

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