European euphoria: markets rely on Draghi and on a ‘new’ Merkel to start growing again

Por el 25 de April del 2013

El Confidencial on Thursday said in an article that “more than 14 months has taken the Spanish risk premium  to discover that there is life below 300 basis points.” On Tuesday, the Spanish differential closed at 301 points and now is even below that level in the middle of an input stream of money into Spain.

According to experts, the more symptoms of distress European economy shows, the better, because that will lead the European Central Bank (ECB) to act immediately. Investors expect  next Thursday May 2 the ECB will announce a rate cut from the current 0.75% to 0.5% and propose a plan designed to stimulate lending to SMEs in the Eurozone.

A change in the German position against the austerity policies is another key aspect in this differential decline. The eternal expectation that Angela Merkel finally soften its demands in economic matters in much of Europe reappears on the horizon. Incoming macroeconomic data give good faith of an undergoing weak European economy, and Germany does not escape this trend. Daniel Pingarrón believes “there is a general feeling in the economic debate that an anti-austerity trend begins to take over and is expected within months to nuance the European austerity policies and to increase stimulus measures. ”

The latest data released by the statistics office, Eurostat, also blows in favour of a relaxation of the differential. The publication of the final 2012 deficit data (10.6% of GDP) paves the way for the Commission to decide whether to soften the target of 4.5% for this year and also if to give a two-year term to approach 3 %. Brussels believe that Spain has fulfilled the commitment of structural fiscal adjustment and it seems that the financial vice-president Olli Rehn, will not request the Spanish Government to implement further cuts in 2013. The Spanish Executive is confident that this extension will be granted for two years, until 2016, although Europe has already announced that this will be subject to the viability of the stability plan to be approved by the Government on Friday, April 26.

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