Spain : The Next Euro-Crisis?

13 Mar

Spain is the Eurozone’s fourth largest economy, with unemployment running above 22% and the decline within its property market means Spain could have significantly worse problems than Greece. This could threaten the Eurozone’s  vulnerable stability.

There are some suggestions that public debt in Spain might be higher than the official statistics. If this is true, there’s a serious concern that it might end up very high within the next few years. The banking system throughout Europe, including Spain, is fragile and with debt problems in the housing market, means we could see a situation comparable to that in Ireland. If this is the case, bailouts and defaults would become a problem. The associated fall-out for Europe would also have  far worse consequences than Greece. Spain is much larger than Greece, so any risk of a default or a bailout has a much bigger implication for the Eurozone.

Eurozone finance ministers on Monday urged Spain to make new cuts to its 2012 budget to reduce its deficit by a further 0.5%, agreeing a new target of 5.3%. In the same meeting, some of the finance ministers dismissed any comparisons with Greece as Spain has made progress.

Spain has large downside risks and is in a very fragile situation. Its problems are significantly worse than Greece’s. The macroeconomic situation of the country posed a major threat from the current austerity program.

The financial panic is temporarily over but 2012 will be the year of austerity across Europe.


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