John Bruton: If the EU doesn't act decisively we could lose in five months what it took over 50 years to create
THE bailout of Spain’s banks over the past weekend was necessary, but it may not be sufficient. Spanish banks are carrying a lot of bad debt from the construction bubble there. The banks have not properly acknowledged this debt in their books, and this has sapped investor confidence in them.
House prices in Spain have not adjusted downwards as much as they have in Ireland, and Spanish competitiveness has not improved as much as Irelands’ has. Unit labour costs remain high, although Spanish exports have been fairly buoyant.
The new Spanish Government has introduced sweeping labour market reforms that will improve Spanish growth potential in the next few years, but that is not immediate enough to kick start the Spanish economy today. The true financial position of many Spanish regional governments is obscure, and that saps confidence too.