The key to Spain's turning the corner as 2013 begins is the housing market. This takes on increasing importance given the reprieve in crisis interest rates. House prices are still falling and the economy is contracting despite the improvement, making a return to crisis possible.
The positive narrative for Spain would be that the Spanish are finally doing what the Irish have done and recognizing the bad debt in the financial sector. Having done so, Spain is now experiencing a tailwind courtesy of the ECB's support. Despite the contraction in the economy, the crisis will fade away as the writedowns from bad debts diminish and the banks are recapitalised.
That's the narrative supporting purchases of Spanish debt right now. And while I think much of this narrative makes sense, it doesn't fit...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.