Spanish ambassador reacts to Magno's column

I would like to comment on some statements made by Mr. Alex Magno in his column entitled “Cajas”, published in your newspaper last July 27, which I believe presented an inaccurate and exaggeratedly bleak view of the Spanish economy.

First, it asserts that “market reaction to the outcome of the (stress) tests was mixed” because some Spanish “Cajas de Ahorro” did not pass the tests. In reality, market reaction has been clearly positive, not mixed: the euro has risen and most European stock exchange indexes, including the Spanish Ibex-35 have gone up, welcoming the transparency of the exercise. And if any doubts remain, they are not because of Spain.

In fact, the risk premium in Spain — measured as the difference (spread) between the interest rates of the German 10-year bond and of the Spanish long term debt — clearly declined right after the tests.

In any event, let us not forget that stress tests on banks are supposed to assess the consequences of extremely difficult and highly unlikely hypothetical situations on them.

Moreover, with respect to Spanish financial regulation, I would like to underscore that Spain, unlike other countries, included all of its savings banks (“Cajas de Ahorro”) and almost all of its banks in these tests and “has released information on all their holdings of European government debt” (The Economist, 23 July) in order to show maximum transparency, resulting in the positive reactions by markets that I mentioned above.

As proof, let me quote the Financial Times’ editorial of July 26: “The results coming out of Europe’s bank stress test are less important than the accessibility of the inputs to investors. That is why the country with most “failures” — Spain — is emerging as the biggest winner” or “…by actively embracing transparency (…) Spain has shown that leadership in a financial crisis is not beyond Europe’s capacity” and “Madrid’s ability to bail out those that fail is less in doubt now that the amounts needed seem likely to be manageable”.

Regarding other comments on the general state of the Spanish economy, the opinion of all the international institutions and analysts, reflected in their forecasts, is much more positive and hardly that “Spain is in danger of reverting to deep recession”, as Mr. Magno states.

With reference to the austerity program which, understandably, may not be popular, everyone agrees that it was necessary and the markets welcomed it as soon as it was announced. And the reason for this program is not that “the level of Spanish debt is, like Greece’s, deemed unsustainable”, as the author points out. The Spanish fiscal deficit is high, but the level of the Spanish debt is among the lowest of the European Union, 53 percent of GDP in 2009, which is of course sustainable, in contrast to others that are approaching 120 percent of GDP.

Finally, there is a reference in the column to “ethnic tensions” in Spain. I am certain that the readers of The Philippine STAR know that there are no ethnic differences between Catalonia and the rest of Spain and, therefore, such “tensions” are not possible. There is, however, an ongoing debate regarding certain articles in the Statute of Autonomy of Catalonia which, although relevant, perhaps I should not delve into here as the main objective of my letter is to assure your readers of the health of the Spanish financial system.