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    [ID] => 9882
    [post_author] => 28822
    [post_date] => 2011-04-08 16:15:59
    [post_date_gmt] => 2011-04-08 14:15:59
    [post_content] => The ECB did what everyone knew it would do: moved by a buoyant Germany and rising inflation, it raised euro-area rates yesterday. How bad is this news for Spain?

On the exchange-rate front, the rate increase is actually not a negative development. Spain exports and imports little outside of the euro area, so its foreign competitiveness with see little change. In fact, one of its key non-euro imports is petroleum, which is denominated in US dollars, so Spain will see a small benefit from lower oil prices in euros if the European currency appreciates.



On the domestic-economy front, higher rates are basically bad news. Higher mortgage payments will further strap families, many of whom may be in negative equity positions as house prices continue their slow declne. This cannot help consumption. And investors, already discouraged by a near-stagnant economy, may roll back more potential investment plans when faced with higher borrowing costs. The result could be a slower recovery.

But the worst development of all would be for Spain's lame-duck government to respond with a slightly more expansive fiscal stance, to offset the restrictive impact of higher rates on the economy. Spain has so far held itself apart from the crises on the periphery, and rightfully so, since its fiscal indicators even now are fairly respectable. But any whiff of more expansive fiscal policies would likely cause investors to panic. This could make Spain in short order the fourth country to run to the EU for fiscal rescue.
    [post_title] => Higher rates:  how will they affect Spain?
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    [post_modified] => 2023-12-13 13:43:00
    [post_modified_gmt] => 2023-12-13 12:43:00
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The ECB did what everyone knew it would do: moved by a buoyant Germany and rising inflation, it raised euro-area rates yesterday. How bad is this news for Spain?

On the exchange-rate front, the rate increase is actually not a negative development. Spain exports and imports little outside of the euro area, so its foreign competitiveness with see little change. In fact, one of its key non-euro imports is petroleum, which is denominated in US dollars, so Spain will see a small benefit from lower oil prices in euros if the European currency appreciates.

On the domestic-economy front, higher rates are basically bad news. Higher mortgage payments will further strap families, many of whom may be in negative equity positions as house prices continue their slow declne. This cannot help consumption. And investors, already discouraged by a near-stagnant economy, may roll back more potential investment plans when faced with higher borrowing costs. The result could be a slower recovery.

But the worst development of all would be for Spain’s lame-duck government to respond with a slightly more expansive fiscal stance, to offset the restrictive impact of higher rates on the economy. Spain has so far held itself apart from the crises on the periphery, and rightfully so, since its fiscal indicators even now are fairly respectable. But any whiff of more expansive fiscal policies would likely cause investors to panic. This could make Spain in short order the fourth country to run to the EU for fiscal rescue.