Worries about the solvency of its banks, particularly the bailout of huge Bankia, rating agency calls that the Spain economy has entered a double-dip recession, and nearly 25% unemployment have pushed Spain’s borrowing costs above 6.5%. Most economists believe that this level cannot be sustained by a country that needs capital to feed deficits that may not fall much for years. Or, they may balloon if the nation’s economic recession turns into a depression. Unemployment levels alone could upset that tipping point.
Spain’s problem raises the difficult issue of whether the EU and IMF would bail out the country, and on what terms. Because Spain is so much larger that Greece, aid could run well into the hundreds of billions of euros. Europe’s rescue facility will reach over one trillion euros, if proposed support for it continues, by some estimates. On top of that, the IMF has about two hundred billion euros at its disposal. Altogether, Spain’s needs could tax these funds, if another nation like Portugal also needs substantial aid.
According to the Financial Times:
Spreads on Spanish 10-year bonds over German Bunds were also flirting with euro-era highs, climbing above 500 basis points.
Douglas A. McIntyre
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