No end to eurozones stress?
Spains economic troubles are nothing short of being a déjà vu for the eurozone. Having seen quite a few economies calling for bailouts, the overriding fear is whether Spain will be walking down the same alley.
Last Thursday, S&P downgraded Spanish sovereign rating from A/A-1 to BBB+/A2 owing to significant risks to the countrys economic and budgetary performance. And evidently, S&Ps concerns are not uncalled for.
Only a day after the downgrade, the Spanish government reported an increase in the countrys unemployment rate to 24.4 percent in the first quarter of 2012-the highest in the eurozone. At the beginning of this week, the government announced the Spanish economys slump into a second recession after 2009.
Soon after, S&P came with another downgrade, this time, the negative rating actions were taken against 16 Spanish banks, bringing another blow to the economy.
The fourth-largest economy of Europe sits at pretty high debt levels, with the debt to GDP ratio coming to a little less than 70 percent currently. S&P has warned of another possible downgrade should the Spanish debt to GDP ratio go above 80 percent between now and 2014.
Given the state of the debt levels, and the recent sovereign downgrade, it comes as no surprise that Spanish 10-year bills seem to be closing in towards yields of 7 percent-the high levels at which Greece and Portugal had started requesting bailouts.
Trouble with the Spaniards spells much distress for the eurozone because of the countrys significant size. The economy is more than four times the size of the much-maligned Greece, and analysts claim that a prospective bailout would be even harder because Spain is too big to bailout.
Even though the Spanish government has called for reforms similar to Greece-spending cuts and tax rises-the efficacy of such austerity measures is put to question in an economy that has already fallen into recession twice since 2009. The austerity formula hasn worked much wonders for Greece either.
It appears that warnings about the Greek economic fiasco only being a trailer to what may further plague the eurozone are coming true. Already, there are talks that Germany, the largest eurozone economy, may move into a recession which would be clarified when the country releases its economic data for the quarter gone by.
"The entire EU and eurozone are widely believed to be in recession...a fact likely to be confirmed when their combined GDPs are reported on May 15," said CNN on Tuesday.
Some even believe Greece might depart from the eurozone later this year, further blemishing any prospects for the eurozone. Even the bigger economies are now showing signs of stress, and theres only so much that the European Central Bank can contribute towards bailing out several ailing economies, some quite large in size too.
If fears of the larger eurozone economies requesting bailouts and smaller ones contemplating an exit materialise, the days of the euro and the eurozone may be numbered.
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