David Larock in Mortgages and Finance, Home Buying, Toronto Real Estate News
This week’s Update was going to focus on the latest employment report from Statistics Canada and how it brought an end to our March and April run of higher-than-expected job creation data. The 7,700 new jobs that were created in May were much more in line with our other economic indicators, like GDP growth, and while the report wasn’t bad, it effectively ended the debate about whether our surprisingly strong job numbers were the first green shoots of a broad-based economic upswing or a temporary anomaly caused by slower-than-expected job creation over the winter.
And then Spain happened.
After repeatedly denying that Spain would require a bailout, Spanish Prime Minister Mariano Rajoy announced over the weekend that his country was requesting approximately 100 billion euros in emergency funding to recapitalize its imperiled banking sector. (This will be done through a program called the FROB, which, when translated into English, stands for the Fund for Orderly Bank Restructuring. I can only assume that this name was chosen because the Fund for Disorderly Bank Restructuring was already in use…but I digress).
So what does this mean for the euro-zone crisis and, more importantly for my readers, Canadian mortgage rates?
First, this latest bailout unfolded in the same manner as each of its predecessors. The euro-zone’s leaders waited until what seemed like the last possible moment and then offered a weak solution. Although it might do just enough to keep speculators from pushing Spanish bond yields past the point-of-no-return in the near future, it does little to restore investor confidence over the long term. (The experts I read are predicting that the true cost of saving Spain will be in the trillions, not billions.)
This incrementalist approach has evolved because euro-zone leaders are constantly faced with the same dilemna, which is that the very emergency measures that are needed to save the region from collapse are by their nature perceived to run counter to the national self-interests of their respective electorates. It isn’t lost on these decision makers that just about every incumbent who has stood for re-election since the crisis began is no longer cashing a government paycheck. Although it’s hard to imagine that letting the euro zone collapse would be any better for a government’s re-election prospects, decisions about whether to support more bailouts look like choices between the devil and the deep blue sea.