21st November 2011
"Although the Spanish government is not so heavily indebted compared to its eurozone peers, the country suffers from excessive mortgage debts following a burst property bubble, as well as heavy company debts. Spain also has the highest unemployment in Europe, and its economic growth has stagnated."
"Cesar Perez of JP Morgan Private bank (himself a Spaniard) gave me a clue earlier this week; fund managers he talked to were unwilling to buy peripheral bonds on yields of 7-8 per cent but they would buy at 4-5 per cent. The reason for this paradox is that, at yields of 7-8 per cent, the finances of Spain and Italy look unsustainable (the same would be true of most developed countries). A fall in yields to 4-5 per cent would, in contrast, be a sign that the crisis was over and an indication that both countries could get their fiscal houses in order.
He writes: "The new government will try and rein in local government spending. There will be more structural reforms, making it easier to hire and fire and to set up new companies. But where will the growth come from to bring down the debt? Although the construction bubble has well and truly burst, the fall-out continues.
"No-one is quite sure what exposure Spain's regional banks have to housing debt. The banking sector is saddled with 176bn euros ($239bn; £150bn) of bad loans. The pace of evictions is rising."
One problem is the fact that Rajoy does not take over until the 20th December, which strikes many as a very long time when the country is in the eye of an economic crisis.
Website Expatic quotes El Pais, the left of centre Spanish paper calling for outgoing Spanish Prime Minister Jose Luis Rodriguez Zapatero and Rajoy to make a statement to reassure markets about Spain's finances.