This might be bigger than Greece! Spain and Portugal financial crisis puts Europe on brink Friday 5th February 2010 By Mike Jones First it was Greece's debt woes casting a long shadow over Europe - now the nightmare has spread to Spain and Portugal. Credit default swaps (CDS) measuring bankruptcy risk on Portuguese debt surged 28 basis points on Thursday to a record 222. This follows Wednesday's failed â¬500m debt auction. The yield spread on 10-year Portuguese bonds has risen to 155 basis points over German bunds. But economic problems in Spain may overshadow them all - yesterday Madridâs IBEX index fell 6%, triggering slides on markets throughout Europe. http://www.investortoday.co.uk/News...risis_puts_Europe_on_brink&type=news_features
Spain should nationalize Banco Santander. They had an 8 Billion Euro profit last quarter? In no time national debt is payed off. Screw shareholders.
I briefly commented in 2008 about the possibility of nations defaulting in a domino fashion like worthless banks, which they were desperately trying to save back then. in conclusion, I asked if we can afford to bail out defaulting nations? The following article asks pretty much the same thing. Next Round of the Financial Crisis May Drag Down Governments [D]efault isn't the only risk. Governments around the world are under increasing pressure to avoid default, and that means cutting back on spending to bring their deficits under control. Those cutbacks are difficult to achieve because they will trigger significant political backlash, which is generally understandable. Even if the cutbacks are put in place, they are likely to depress global economic growth just as the world is moving out of recession. And a slowdown in the economy is likely to lead to lower government revenues, which will in turn put more pressure on weaker governments when it comes time to pay down debt. There are still plenty of systemic risks in the global financial system, and they are shifting to the massive public sector. If those risks spread, the financial and economic fallout could be enormous. The political fallout could be huge, as well. It's likely to be a defining issue in 2010. http://www.portfolio.com/views/blog...e-financial-crisis-may-drag-down-governments/
I think the ECB and euro area national governments are delighted the euro is going down. They can throw a few drips to the PIGS and keep the euro weak for a while.
In Spain's case, current national debt is not the issue... It's the writedowns that the Spanish banking system still has to take on various loans to property developers that are looking increasingly, shall we say, unpleasant. EUR 8bn ain't gonna do the trick, not even close. The actual figure's closer to EUR 200 - 300bn.
Could you explain then why they don't just add to the national debt? I understand it would hurt their creditworthiness and the perception on that even perhaps leading to another downgrade but that's not the end of the world is it?
I have this wild, wild guess that they will find a fix for this one over the next few days, I mean how hard can it be, we fixed our economy with bubble ben bernanke taking all the right moves in a few months.
'Cause they cannot afford to... Spain's fiscal deficit was running at 11.4% in 2009, when things were looking sort of OK. If you then add EUR 300bn to gross national debt, debt to GDP will be at arnd 71%, which is not too bad. However, the Spanish economy is on its knees and, in contrast to other European sovereigns, is projected to contract even in 2010. Moreover, Spain has suffered probably the worst employment crisis among the Eurozone countries, with current unemployment at smth like 19%. All this means that, unlike Greece, Spain entered the crisis with its public finances in a relatively good shape. However, the speed at which the economy deteriorated (as a result of the real estate bust) is staggering, which means the govt cannot afford to backstop the domestic banking system. At the moment, anecdotal evidence suggests that Spanish banks are alive solely thanks to the generosity of the ECB, long may it continue.