Spain is short for “Severe Pain“


There is a back and forth between the Spanish government and the European Central Bank on the imminent bailout of Spain. Nothing has been announced yet as Spain has to formally request the buying of their bonds. What are the odds of this happening? It seems pretty certain; it is simply a matter of time.

Looking at the evidence for this view, there are increasing austerity measures being implemented in Spain due to lackluster government revenues. This is leading to increasing unemployment and rioting in the streets.(6)(2)(3)(4) The economy of Spain is not doing very well as evidenced by the declining GDP and terrible real estate market. (4)(5) If you have an increasing debt obligation, a decreasing ability to pay it back and you are already owe a lot of money, the situation cannot stay as it is.

If the rest of Europe buying Spain’s goods is thought to help alleviate the pain, this idea is a non-starter. The only country in Europe with growth high enough to buy Spanish goods is Germany, and there is a lineup of countries trying to win this trade. (2)(3)(4)

Why all of this jockeying if it is obvious that money is needed in Spain? Is it because of the conditions that come with the bailout money? Are the people sensing that Spain is just a giant Greece in terms of the current fiscal situation? Is there a reality that there are not many choices? It is all of these reasons. Spain does not want to receive bailout money because the conditions attached to it are very severe. The government may lose control of the country if they agree to the bailout circumstances. At the least, they may be permanent changes as to how the country is being operated. This is not necessarily a bad thing, but for the unprepared, it may come as a shock.

Sources:

1)                  http://www.bloomberg.com/news/2012-10-09/imf-says-european-banks-may-have-to-sell-4-5-trillion-in-assets.html

2)                  http://www.cbc.ca/news/business/story/2012/09/26/spain-recession.html

3)                  http://uk.reuters.com/article/2012/10/09/uk-spain-deficit-idUKBRE89807L20121009

4)                  http://www.bloomberg.com/news/2012-10-08/imf-sees-alarmingly-high-risk-of-deeper-global-slump.html

5)                  http://en.wikipedia.org/wiki/2008%E2%80%932012_Spanish_financial_crisis

6)                  http://www.huffingtonpost.co.uk/2012/09/26/spain-riots-protesters-clash-riot-police_n_1915225.html

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About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

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