Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said the European Central Bank can’t solve the region’s fiscal crisis, with challenges to leaders “rising fast.”
“Whatever the ECB does, the ECB cannot solve the crisis,” he said in an interview with Guy Johnson on Bloomberg Television’s “The Pulse” Friday. “Only European policy makers can do so. I think we are seeing some encouraging signs in terms of structural reforms, including in Spain, but the challenges are rising and rising fast.”
Kraemer made the remarks shortly after S&P cut Spain’s credit rating two levels to BBB+, citing concern that public funds will be needed to shore up the country’s banking system, which has been ravaged by the collapse of the real estate market. It will be “very difficult” for Spanish banks to resolve the situation on their own, he said, adding that the amount of “contingent liabilities that might migrate to the balance sheet of the government are actually pretty sizable.”
While the Spanish government is taking steps to improve public finances and revamp the economy to make it more competitive, the bank threat is increasing, Kraemer said.
“There are initiatives currently under way that are addressing the issues,” he said. “We still downgraded Spain because we think that while actions of the government are coming now, we see that the challenges are rising faster. It’s a bit of a race.”
Governments shouldn’t strictly focus on austerity measures to improve finances and need to revamp their economies to increase potential growth rates, he said. Freeing up growth has to come through structural reforms and not stimulus spending.
“This is simply an option that is not available for the Spanish government right now,” he said.
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