Time for a Spanish Bailout?

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Time for a Spanish Bailout?

Time for a Spanish Bailout?

European woes persist and the Spanish Prime Minister's insistence that a bailout will not be sought has thrown another spanner in the works.

Investors had been gearing up for a bailout and many officials in the country have mentioned that preparations have been going on behind the scenes.

Of course, the major signal was last week's budget, which proposed more austerity than had been expected, and many saw this as an indication that a bailout request was imminent.

For now, however, it looks as though the German paymasters, who are naturally opposed to a Spanish bailout, have been able to assert enough pressure to prevent it from happening.

The problem is that the financial markets don't like the current situation and so Spanish borrowing costs are rising again.

The longer that Spain is left to its own devices, the more the uncertainty will build. We will continue to see markets oscillate up and down as investors think, yes they will, no they won't.

Even this morning's Spanish services PMI data makes for grim reading, coming in way below expectations.

The Least of the Eurozone's Concerns

But it's not just Spain that we have to worry about. Italy is another ticking time bomb, but these are the least of the Eurozone's concerns when you consider that the big beast of France could well be targeted in the not too distant future.

The budgetary and fiscal measures announced by President Hollande go little way to inspiring confidence when the country has one of the most bloated public sectors in Europe.

If he does not address his government's spending soon, France might be the next target of nervous investors. A 75% wealth tax on millionaires might win a few votes, but it won't bring your deficit down or protect you from attack on the bond markets.

Anyway, haven't we seen all this before, where countries continually deny the need for financial assistance only to eventually succumb? We will see in the case of Spain.

By Simon Denham - 3 October 2012

Time for a Spanish Bailout? - Part 2

Update - 09 November 2012

Markets remain understandably nervous, with the US fiscal cliff looming on the far side on the Atlantic and, despite what the ECB President says, the Eurozone crisis continuing on this side.

Following yesterday's inaction at the ECB meeting, Draghi's press release comments were so extraordinarily bullish that most analysts and economists were taken by surprise, with many rebuffing such claims.

Many would argue that he may be a little deluded to be as bullish as he was, almost claiming that the Eurozone had turned a corner.

The only evidence of that was yesterday's successful Spanish bond auction, which means that the country has wrapped up their funding requirements for 2012.

The problem is that this almost certainly rules out a bailout request this year and so the news was actually one of the precursors to the sell off, at least for the euro-dollar.

With unemployment still rife throughout Europe, and only set to get worse, the economic prospects remain challenging.

This is stifling any prospect of a pick up in demand as those actually surviving in work or businesses are deleveraging or hoarding their cash.

The expectation continues to be that Spain will succumb eventually and, the longer they put it off, the more nervous investors will become.

Already this morning, the 10 year bond yields on Spanish and Italian government debt are creeping higher.

Whilst European markets are trying their best, the overriding problem is that the bulls are reluctant to jump in just in case things will be cheaper in a matter of days or even hours.

Also see:

By Simon Denham, 9 November 2012

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