The markets want austerity right? June 11, 2012 at 9:11 am

Post Bailout Spanish Yields

Apparently not. Spain now owes 100 billion euros more, give or take, but yields are compressing and stock markets are rising. Clearly the austerians have, in a limited sense, been defeated.

In the immediate aftermath, two things occur to me. First, this fits alarmingly into the pattern of doing enough to prevent an immediate crisis, but not enough to address the underlying problems, guaranteeing that another crisis will arrive in a few months. Second, I bet the Irish are exceedingly peeved by this. After all, they didn’t get a break anything like this, and have suffered huge pain as a result. Moreover the Spanish bailout doesn’t even give them hope that they can line up at the queue for that sweet sweet Euro-liquidity.

(HT FT Alphaville for the data.)

2 Responses to “The markets want austerity right?”

  1. In a while, the market will be freaking that Spanish banks will use the new capital to absorb the capital hit from deleveraging, not to fund new lending (like that’s needed…) and reflate the real economy. Ain’t no way to short-circuit a banking crisis.

    I find the market totally schizophrenic on this. Austerity Good / Austerity Bad seems just the same as Risk On / Risk Off.

  2. Famous last words!