Spain Too Big To Bail?

While the focus is on Ireland, and there are insignificant talks about Portugal, they’re both relatively small in comparison with Spain, the Euro-zone’s fourth largest economy. Andy Jordan from the Wall Street Journal made a series of videos about the PIIGS countries. The video below discusses Spain’s issues – public and private debt, unemployment, housing bubble bust and more. Is it too big to bail?

Back in May, there was a rumor that Spain would ask for a 280 billion euros of aid from the European Union. This is much bigger than the current program for Greece and the estimated figure for Ireland. The Greek plan is valued at €110 billion and the Irish estimates stand on €120. Spain is much bigger than both.

Austria is already very reluctant to pay its share in the Greek bailout and Finland opposes a rescue plan for Ireland.  It’s not just the anger about bailing out these countries. With Spain, it might be just impossible. The headline by the International Political Economy Zone: “Spain’s Too Big to Fail, But is It Too Big to Bail?” might be too accurate.

Currently, the situation isn’t that bad – a recent bond auction in Spain, just on November 18th, was quite successful. The Euro rose after the success was reported. So, on one hand, Spain can still raise funds in the markets, but on the other hand, the Euro’s sensitivity to this auction shows that if future auctions fall short of expectations, the Euro will suffer.

The Euro had quite a few volatile weeks. This is likely to continue as every day brings more headlines on the crisis. For the upcoming economic indicators and an updated technical analysis of EUR/USD, see the EUR/USD forecast.

Update Nov. 22, 17:45 GMT: There is fresh information about credit problems in Spain. Joseph Cotterill, at Alphaville, reports that “it is becoming harder and more costly for Spanish banks to refinance their debt”

Real estate boom and bust, troubled banks, credit freeze, high unemployment, growing debt, etc. Very similar to Ireland, just much much bigger.

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