Spain Is Not Out of the Woods Yet
Officials from Washington to Frankfurt have recently declared that the worst is over for the euro zone.
But here in Spain, worrisome signs abound.
On paper, Spain seems far from needing a Greece-style bailout: its debt, though climbing, is half the level of the Greek government’s. And Spanish banks, helped by cheap and bountiful cash from the European Central Bank’s loan program, continue to lend Madrid the money it needs to get by.
But experts warn that an alarming combination of escalating fiscal austerity and a worsening real estate bust threatens to set off a vicious economic circle in Spain like the one that brought Athens to its knees.
“The math does not work,” said Jonathan Tepper, the founder of Variant Perception, a research firm in London. “Spain will eventually need a rescue of some kind.”
Spain may be euro zone's next source of contagion
Spain shocked markets last month when it said it had missed its 2011 budget deficit target and a few days later set itself a softer goal for 2012.
Investors seeking the high yields on offer in the euro zone periphery have since been ditching Spanish bonds for Italian, in a sign that the epicentre of the crisis is shifting.
"The whole Spanish situation has just deteriorated so quickly. We're pretty much looking at Spain as the next point of stress, the next point of weakness," said Peter Allwright, head of absolute rates and currency at RWC Partners, which manages assets worth $4 billion.
If investors keep selling Spanish debt, contagion to the rest of the euro zone risks being more damaging than that triggered recently by Greece and Portugal, economies much smaller than Spain.
Originally posted by surrealist
I think bond yields are beginning to reflect this as well as Spain's bonds have been creeping upward again as I understand.
Spain's unemployment-scarred economy has skidded back into recession, a Bank of Spain report said Tuesday, days before a general strike and a biting austerity budget.
The report confirmed widespread forecasts of a second straight quarterly slump in the first three months of 2012, sending Spain back into recession barely two years after it emerged from the last one.
"The most recent information relating to the beginning of 2012 confirms a continuation of the contraction of activity in the first quarter of this year," the bank said in its March economic bulletin.
It was grim news for a country suffering from a near-23 per cent unemployment rate, facing a general strike against labour market reforms Thursday and due to hear of massive budget cuts Friday.
The central bank did not give a figure for the first quarter contraction but said it was mainly caused by a decline in private consumption in January and February to levels not seen since 2010.
The Spanish economy, the fourth-biggest in the euro area, had already shrunk by 0.3 per cent in the fourth quarter of 2011 compared to the third quarter, according to official data.