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José Luis Álvarez, Professor of Economics, University of Navarra

Why are we affected by Greece?

Tue, 14 Jun 2011 10:56:37 +0000 Published in La Razón (Madrid)

Uncertainties about the new bailout plan and Greece's status are complicating things for Spain's Economics .

- Why is Spain affected by the Greek debt uncertainty?
- One of the causes that led to the crisis was the generalization of a certain insensitivity to risk in the markets. The outbreak of the crisis has taken us to the opposite extreme, in which the markets are very susceptible to any sign of trouble. Thus, although the status of the Spanish Economics is basically the same whatever the outcome in the case of Greece, the growing uncertainty about the Greek debt increases fears about Spain. It does so because, although we are far from suffering Greece's problems, our status is weak, with poor growth expectations and serious difficulties in redressing fiscal imbalances.

-What measures should be put in place to correct this?
- Measures are needed in two directions. On the one hand, it is essential to redirect public accounts towards lower deficit and debt levels. In this sense, it is the Autonomous Regions that must be asked to make a greater effort. On the other hand, reforms must be implemented to improve the poor growth prospects. We are missing opportunities to do so. The failure to reform collective bargaining is the latest example of excessive and misunderstood caution that undermines credibility.

-Would institutions have to halt their imminent IPO?
- The problem with institutions such as Bankia delaying their IPO is that the markets could suffer further tensions if they were to interpret that the end of the reform of our financial system is being delayed once again. This would start a vicious circle, in which uncertainty hinders the recapitalization of the entities and this raises the perception in the markets that Spain suffers serious financial problems.