Spanish Banks Grant Respite To Eurozone

By Vlad Grinkevich

The eurozone has started breathing easily because the results of the stress tests of Spanish banks have shown that their financial losses are smaller than was predicted. Experts are urging not to be under delusion though. The banking sector is not the only thing that matters here.

In spring this year when Greece was in the focus of attention of the world community, many economists warned about the oncoming problems in Spain.

By the beginning of autumn Madrid has turned into the centre of economic tension in the eurozone. Positive news from Spain’s banking sector have become a pleasant surprise for both experts and market players. Director of the fund Centre for the Development of Stock Market Yuri Danilov, says.

“A positive tendency in Spain has come as a surprise. The stress tests of Spanish banks have shown that the banking sector is in a better condition than the market thought earlier.”

The European markets have already reacted to the positive news when they closed trading up on October 1st . But does this mean that the eurozone has moved away from the crisis line? Nobody is certain on that score. Banks are not the main disease of the Spanish economy, Head of Banking Equity Research at NOMOS-Bank Andrei Mikhailov says.

“The main risk factor in the eurozone is a drop in the Gross Domestic Product (GDP) and recession. And this risk is still in force. Although the situation with the Spanish banks has improved, problems remain.”

The expert believes that the situation in the banking field is unable to seriously influence the GDP. And it is rather doubtful that the optimism of brokers about the good results of the stress tests will last for a long time. The news that Spain is ready to ask the European Union for help could bring far more optimism to the stock markets. The leading expert at the Institute of World Economy and International Relations Sergei Afontsev says.

“There is an effective mechanism to offer help to problem countries in Europe today.”

And quite another matter is the fact that the terms for the allocation of such aid are very tough. And it is not accidental that numerous protest rallies were held last weekend. Budgetary restrictions were the reason for this. Economic rationality against social protest. However, this is not the only thing that matters here. The EU anti-crisis practice has quite a number of opponents among economists. Many of them are sure that saving measures only strengthen the influence of the crisis. The reduction of spending that causes a decrease in consumers’ demand is a catalyst for the GDP. Budget revenues decrease – hence, budget deficit grows, and to reduce it, it is necessary to reduce spending again. A vicious circle, or a spiral leading down.