The Spanish Revival

MUNICH – After fighting for its life for the last two years, Spain’s economy finally seems to have moved out of intensive care. The banking sector has been deemed “cured”; demand for Spanish bonds has soared; and the country can once again raise capital at reasonable interest rates on the market. But much more work must be done to ensure a stable long-term recovery.

First, the good news. Investor confidence is on the mend, exemplified by the recent placement of €10 billion ($13.8 billion) in ten-year government bonds – which was over-subscribed by four times. While risk premiums on ten-year bonds remain far above pre-crisis levels, yields have dropped considerably, from 4% at the beginning of 2010 to 3.2% today. And a growing number of banks and companies are returning to the capital market.