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Eurozone contagion fears spread to Spain
Zapatero blames speculators, as Madrid identified as next 'weak link'
By Sean O'Grady, Economics Editor
Wednesday, 17 February 2010
Even as the 27 finance minsters of the European Union gathered in Brussels yesterday and ordered Greece, again, to impose yet more hardship on its people in order to slash the national deficit, some may have been eyeing their colleagues around the Brussels meeting room warily.
For all are concerned about which nation might next suffer from the dreaded "contagion". The fear is that the next member of the so-called "PIIGS" – Portugal, Ireland, Italy, Greece and Spain – to suffer a crisis of confidence will be Spain.
Representatives of the continent's stronger economies chimed in on the need for austerity in Athens. The German deputy finance minister Joerg Asmussen, whose government has proven resistant to calls for a bailout, said that Greek efforts will "have to measure up" to steps taken by Ireland, which cut public-sector wages sharply. "We certainly won't let them off the hook," added the Austrian finance minister Josef Proell. His Swedish counterpart, Anders Borg, called for Greece to take more "concrete steps to regain credibility".
And yet fears are growing that, even though the Greek crisis is far from resolved, Spain could be the next "weak link" as the Greek Prime Minister, George Papandreou, described it a few weeks ago. It would certainly be standard market practice, analogous to the way they chased successive investment banks into the ground in 2008. Now the Spanish Prime Minister, Jose Zapatero, has virtually admitted as much is happening to him, blaming "speculators" for Spain's travails.
At first glance, Spain is in a much more secure position than her "Club Med" neighbours, because she starts with a level of national debt that is comparable to the UK, France and Germany – around 60 per cent of GDP (against well over 100 per cent in Greece) – and her banking sector has not, yet, suffered from quite the same meltdown as other economies that enjoyed a property bubble in the early years of this decade, notably the British, and Irish.
Spain's banks are strong and acquisitive, stronger than most other countries' institutions. But Spain's annual budget deficit, like the UK's and Greece's, has spiralled well into double figures – at almost 12 per cent of GDP it rivals Greece's Olympian disregard for the old Maastricht treaty rules of prudence.
And the markets are worried. Not, admittedly as fretful as they are about Greece, but the market price of insuring Spanish government debt has jumped in recent weeks (the mysterious-sounding credit default swaps), and now stands at €139,000 per €10m of debt – four times the cost of insuring an equivalent German bond.
Zapatero blames speculators, as Madrid identified as next 'weak link'
By Sean O'Grady, Economics Editor
Wednesday, 17 February 2010
Even as the 27 finance minsters of the European Union gathered in Brussels yesterday and ordered Greece, again, to impose yet more hardship on its people in order to slash the national deficit, some may have been eyeing their colleagues around the Brussels meeting room warily.
For all are concerned about which nation might next suffer from the dreaded "contagion". The fear is that the next member of the so-called "PIIGS" – Portugal, Ireland, Italy, Greece and Spain – to suffer a crisis of confidence will be Spain.
Representatives of the continent's stronger economies chimed in on the need for austerity in Athens. The German deputy finance minister Joerg Asmussen, whose government has proven resistant to calls for a bailout, said that Greek efforts will "have to measure up" to steps taken by Ireland, which cut public-sector wages sharply. "We certainly won't let them off the hook," added the Austrian finance minister Josef Proell. His Swedish counterpart, Anders Borg, called for Greece to take more "concrete steps to regain credibility".
And yet fears are growing that, even though the Greek crisis is far from resolved, Spain could be the next "weak link" as the Greek Prime Minister, George Papandreou, described it a few weeks ago. It would certainly be standard market practice, analogous to the way they chased successive investment banks into the ground in 2008. Now the Spanish Prime Minister, Jose Zapatero, has virtually admitted as much is happening to him, blaming "speculators" for Spain's travails.
At first glance, Spain is in a much more secure position than her "Club Med" neighbours, because she starts with a level of national debt that is comparable to the UK, France and Germany – around 60 per cent of GDP (against well over 100 per cent in Greece) – and her banking sector has not, yet, suffered from quite the same meltdown as other economies that enjoyed a property bubble in the early years of this decade, notably the British, and Irish.
Spain's banks are strong and acquisitive, stronger than most other countries' institutions. But Spain's annual budget deficit, like the UK's and Greece's, has spiralled well into double figures – at almost 12 per cent of GDP it rivals Greece's Olympian disregard for the old Maastricht treaty rules of prudence.
And the markets are worried. Not, admittedly as fretful as they are about Greece, but the market price of insuring Spanish government debt has jumped in recent weeks (the mysterious-sounding credit default swaps), and now stands at €139,000 per €10m of debt – four times the cost of insuring an equivalent German bond.
