8th April 2011
Yet, when it comes to Spain, those markets have remained relatively calm. The amount Spain has to pay to borrow money for ten years has not increased for many months, remaining at just above 5 per cent while Portuguese 10 year paper was at 9 per cent and its five year debt in double figures.
The Spanish finance minister Elena Salgado is also adamant that the country's financial position is solvent and sound and is giving reassuring interviews to anyone who will listen, reported here on egovmonitor.
But not all commentators are convinced of the strength of Salgodo's case.
The Economist magazine gives a bearish view here, suggesting that markets may not like what they see when they take a closer look at Spain's stricken savings banks known as cajas in Castillian, caixas in Catalan. Those regional divisions may be part of the problem but more on that later.
Here the Guardian's City editor Nils Pratley suggests that poor old Portugal has merely bowed to the inevitable by seeking a bailout which is why the European Central Bank wasn't particularly worried about making their bad situation worse and raising Eurozone rates. Pratley sees the real risk of the rate rise as that of creating a two speed Europe. While the price Spain is paying to borrow on the bond markets has remained steady, he is concerned about Spanish unemployment – nearing one in five of the workforce – which does impact on a country's ability to service debts and could make the situation of the Spanish banks much worse.
Another Guardian stalwart, economics editor Larry Elliott warns in this webcast that the EU may not have the funds to bail out Spain. To put things in perspective, Ireland, which has had its bailout, has an economy the same size as Hamburg's, he says. Spain has 40 million people and is of a whole different order. Elliott expects markets to put Spain's mettle to the test in the coming weeks.
Here Citywire takes a very long technical look at the Spanish situation, reports the Goldman Sachs' view that Spain's banks could have astonishing credit losses of Euro 145bn and notes a very tepid response to an Italian bond auction last week.
It also reports that some analysts are concerned that Spain's devolved political structure makes concerted action to restructure those cajas/caixas much more difficult.
On Citywire commenter derek farman says the media is doing its bit to erode confidence.
"It's the media again !!!!! Constant stories of doom and gloom will erode any confidence that Spain can handle the situation . There will then be a run on the banks and stalling of investment."
Pedrolx, who is Portuguese, also has a theory.
"This is my take on the so-called European sovereign debt crisis: Greek boomed because it WAS insolvent. They lied for years about their public finance. This started two things at the same time:
a) It started scaring away traditional bondholders. Who started to sell in the secondary markets.
b) it was seen as an opportunity for some sectors of the market to make profit, who bought those bonds.
This led to a self-feeding system, which was then pumped even further by speculative articles in the international media. The new investors in the bond markets didn't really fear much because they knew a bailout would occur so they basically would never lose money.
The Irish situation happened because when the new bondholders, hedge funds and vulture funds heard of the "haircut" they started selling like crazy and bond yields rose sky high. End of story for Ireland. Hopefully Portugal and Spain can still be saved from the greed of some of these markets sectors. So I am all for Portugeuse banks buying our bonds. The more they buy the better. And I am certain they have the ECBs approval to do so."
Perry Patel shares Pratley's unemployment concerns.
"Spain has a lower budget deficit than Britain(10,2%) and Ireland (32,3%) and a lower public debt level than both. The worrying issue is indeed the 20% unemployment rate, the largest employer in Spain is the building industry which is virtually at a standstill. The number of forced sales of homes and second homes at discounted prices is mind boggling and one can only wonder at the state of local banks holding such delinquent mortgages. With long-term mortgage rates being offered at 3%, one can wonder what else will it take to kick start the economy. Foreign buying of property seems to have dried up too, the Costa life style has soured somewhat."
In the view of Mike S, the UK is only safe because it can print money, not an option in the Eurozone with Germany keeping such a close eye on the ECB's printing presses.
Mike S says: "Why does the UK get a prim AAA rating? I believe that is because like all countries in control of their own currency the UK can just print more – therefore, all GBP debt can be repaid. Similarly, the highly indebted USA can and has been printing USD. Portugal, Ireland, Greece and other EMS members can't – they are at the 'mercy' of the EU and the Euro. For what it's worth I hope the Euro survives 'as is' but at a lower rate than its current level."
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