Europe’s reactive leadership
Spain doesn’t need financial help. That was the verdict from euro zone ministers on Monday – quickly followed by a selloff in Spanish stocks and bonds on Tuesday. The trouble with that line of thinking is that it again leaves policymakers behind the curve, reacting to events rather than preempting them, write currency strategists at Brown Brothers Harriman in a research note:
For several weeks now Germany Finance Minister Schaeuble has argued against the need for Spain to request aid. France and Italy, in contrast, have been reportedly encouraging Spain to ask for assistance, which they assume would ease financial pressures within the region as whole. The Eurogroup meeting of euro area finance ministers endorsed Schaeuble’s position. Spain is taking necessary measures to overhaul the economy, they said. Spain is able to successfully fund itself in the capital markets. Aid is simply not needed now.
While there is a compelling logic to the argument, the problem is that it prevents officials from being proactive rather than continue to its reactive function. It means that whenSpaineventually requests assistance, it will be in a crisis and the cost of assistance will be greater. It is penny-wise but dollar foolish. By failing to find a preventative salve, officials are not maximizing the breathing space that the ECB has created (intentionally or otherwise).