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Dovre Insight: The Spanish FluSpanish government bond yields have risen to the highest level in three months. Will the sick Spanish economy end the recovery market at Oslo Stock Exchange? Spanish and Italian banks were lent huge amounts at the minimum rate of the ECB through LTRO scheme. The money was invested in the south-European government bonds with high interest rates. This contributed to a drastic reduction in market rates and risk premiums. Standby What has caused the sudden turnaround in the Spanish credit market? One important reason is that the ECB has been on standby mode. LTRO scheme is closed so the effects from increased liquidity are gone. Greek taste Some of the upward revision is due to weaker economic conditions. A significant part of the discrepancy, however, is a Greek flavor. As we have learned from Greece, there is a great difference between political decisions and implementation. Only half way One of the greatest threats to Spain comes from the banking sector. The decline in house prices is accelerating and many experts predict that prices will return to 2004 levels. In that case, we are only halfway through the fall. A lost generation Spain's biggest problem, however, is the labor market. The overall unemployment rate is 24 percent, while unemployment among those under 25 is 51 percent. These unemployment figures testify that the Spanish economy is fundamentally sick and needs profound and drastic reforms. Reforms that are unparalleled in the Spanish history. Dovre Portfolio • Intex Resources In: -
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