Shock: Spain may ask for 280 billion Euro bailout

govt debt us eu compared

spanish bull and cranes

“A rumor that Spain will ask for 280 billion euros of aid money in order to deal with its debt is running in the past few hours in trade rooms. This is what’s bringing down the Euro.”

It appears that bailing out Greece wil not be enough to save the European community as Spain is another country which has joined the list of riskier investments since its credit ratings were lowered earlier this year.

According to Israel’s Globes, Germany will not be able to back Spain on such a big request, more than two and half times the size of the Greek plan. So, the Euro’s fate is to fall. Due to the Greek debt issues and riots, the Spanish debt problems have escaped the eyes of many analysts, despite its 20% unemployment rate.. Contrary to Greece, Spain is already at the heart of Europe and its huge debt is a danger to the whole Euro zone. Germany was reluctant to help Greece, and cannot aid Spain.

Countries like Spain and Greece should have never been admitted to the Eurozone because when these nations joined the European economic monetary union, they kept their interest rates artificially low. This resulted in massive mis-allocation of investment by the real estate sector which led to massive artificial property booms that have now turned to bust.

It is becoming obvious to many people that the PIIGS (Portugal, Italy, Ireland, Greece, Spain) have no economic future if they stay in the European Union because of the massive debts they carried with them when they transfered it to Euro denominated debt. Indeed when the Euro was designed, there were these things called the Maastricht criteria which were the basic economic rules.

govt debt us eu compared

German, French, and other economists repeatedly warned policy makers that countries like Greece were not passing the criteria for admittance, but like all politicians, they pushed countries into the union for political reasons. For the short term, bail outs will work, but in the long term, the Euro is a currency that is far too expensive and strong for the weak nations in the European Union like Spain and Greece.

Really, this is not about Greece. Greece is just the tip of the iceberg. There are a group of countries, collectively known as the PIGS (Portugal, Italy, Greece and Spain) that are all in dire straits. Recently the PIGS have become PIIGS (added Ireland) and then PIIGGS (added Great Britain) to reflect similar problems in the UK.

So the issue is that much of Europe is borrowing and spending like drunken sailors and that the “solution” is for the other countries that, while still in debt but not to the same degree, borrow more and lend it to the PIIGGS. Its a house of cards that does not address the rampant borrowing and over spending but in fact EXTENDS it to create a worse condition.

The people running these countries don’t have a clue and are creating the conditions for a long, deep, depression. If you want to know how long and how deep look at Japan which is about 10 years ahead of this current group of idiots in the cycle.

If Greece does default, 7 percent of the entire European Union financial institution liquidity disappears. Likewise, you cannot get paid in drachmas (Greece’s original currency) that are worth next to zero, and the Greek economy would likely still operate on Euros with or without EU approval. In fact, they’d be a constant 6% pain to the system through arbitrage.

The euro continues to slide & smart money has been moving into USD for over a year. Given what we know about the US economy, the EU situation must be even worse. It’s not just Greece and Spain and Italy and Ireland and Portugal that are teetering – the countries propping them up are looking shakey. The day of big-spending governments is over. Public treasuries have been emptied. Watch for a wave of fiscally conservative govts (regardless of stripe) to take over.

Will the European Union break apart?

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The Europeans dismantled much of their socialist framework two decades ago; like Canada did with NAFTA. Talk to any Swede; most of it is gone and the revenue generation is now the purview of Volvo, SAAB, Erickson, and so on. The same can be said of Germany and France. European style socialism was an abysmal failure and Greece, Portugal, Spain, Iceland, and Ireland are the last hold-outs. As the last week’s events have shown, they are now collapsing.

Far too many mix-up social programs with socialism. What clearly is the next paradigm is that corporations will start delivering the social programs because governments can no longer afford to do so. Then the question becomes “What is the relevance of the nation-state?”

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