If Greece is the Fuse then Spain is the Bomb

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If Greece is the Fuse then Spain is the Bomb

If Greece is the Fuse then Spain is the Bomb

Spain is beginning to look like Greece as the riots escalating in the country are slowly but surely resembling those seen in its smaller European counterpart.

Another round of spending cuts are set to be announced tomorrow in the country's latest budget. This will attempt to appease the EU's ruling elite so that Spain can qualify for the €100bn bailout earmarked for their banks.

Nevertheless, this will not help the mood in the country, and it seems that trouble is brewing on the streets of Madrid. In fact, it's a little surprising that there hasn't been more coverage of the Spanish unrest, compared to when Greece was implementing its cuts.

Throughout the Eurozone saga, the focus has been very much on Greece, who has been considered the linchpin of the whole affair.

With the Greek card being marked as the first to exit, a few spending cuts in Spain aren't big news until Greece is out and Spain is the next domino to fall.

But across Europe we can expect more social unrest as the austerity belt tightens. For a Spanish Prime Minister who was elected with a landslide majority, it is staggering to see just how quickly his popularity has evaporated.

Making tough decisions is certainly not a politician's dream, and in Greece and Spain, and even the UK, you can see why.

By Simon Denham - 26 September 2012

If Greece is the Fuse then Spain is the Bomb - Part 2

Update - 27 September 2012

It's a big day for Spain as their latest budget is due to be announced.

Many investors are also hoping that they will make a request for financial assistance in the form of a Eurozone bailout. Bonds Spread Betting This seems highly unlikely as an already unpopular Prime Minister will not want to give in when he has some very important regional elections coming up in the next few months.

Spain has not been helped by the ongoing wrangling between creditor nations, who are still voicing their opposition to the ECB's recently announced bond buying program.

This bickering has seen European indices give up the gains that they had made earlier in the month.

The euro has also given back most of its recent gains as risk aversion is setting in once again.

So, in essence, we are back to where we started, with Spanish bond yields heading higher and the troika finding more big black holes in the Greek budget.

A few months ago, someone said 'if Greece was the fuse, Spain is the bomb' and this is looking increasingly likely to be the case.

As long as the Spanish resist financial assistance, investors will continue to see their situation as unsustainable until, at some point soon, Spain caves under the pressure. By not asking for a bailout now, it will just make matters worse.

Then there's Greece, which is nearing the exit door quicker than many people think.

Holders of the outstanding €327bn of debt are beginning to realise that Greece will either need another haircut, on top of the previous 80%, or the country will have to leave the Eurozone.

Despite this, we are unlikely to see another haircut. Much of the remaining debt is held by the IMF and ECB, who cannot take haircuts, and the other creditors, which include the likes of Spain and Italy, will not wish to participate.

Having said all that, we are seeing a few buyers creep into the markets this morning, as they seem to think that the weakness of the last few days represents a buying opportunity.

Even if Spain resists now, the chances are that they will have to accept a bailout sooner or later and, if they do, equities will probably rally.

Also see:

By Simon Denham, 27 September 2012

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