Please Make Spain Austere, But Not Just Yet!

Spain is on the brink of another wave of profound market distrust. It is about to enter a depressionary cycle while serious doubts remain about it financial sector’s ability to avoid defaults. There is no doubt that Spain will have to push through far-reaching cuts in public expenditures, but neither Spain nor its Eurozone partners should take an ideological view about how soon Spain should balance its budget. There are far greater risks for the Eurozone if Spain is forced to rapid fiscal stabilization than if it is allowed to honour the three-percent deficit rule “in the breach rather than observance” until at least 2015/16.