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Greece is a problem – but Spain could destroy the euro
http://www.independent.co.uk/news/b...but-spain-could-destroy-the-euro-1958682.html
What are the risks? The euro itself could break up, though probably not because of Greece.
Spain however, is the fourth largest eurozone economy and quite another matter, and there are particular causes for concern. Her devolved government makes cuts difficult to impose; her labour market is dangerously inflexible; and the maturity of her debt is the shortest of the PIIGS, so that debt repayments are more frequent. Spain is simply too large to be rescued by France and Germany, and a Spanish crisis would mark the end of the single currency: the euro's last monument will be rows of unfinished apartment blocks on the Costa del Sol.
Beyond that the most serious danger is that the market for government bonds issued by the PIIGS will just freeze up. Greek debt is practically valueless, because there are few real buyers.
In this sense, what is happening is similar to the sub-prime crisis, credit crunch and financial crisis of 2007 and 2008 that led to the Great Recession. Investors are unable to judge whether these countries will be solvent, just as they doubted whether Bear Stearns, Lehman Brothers and the rest of them could honour their debts.
Then, as now, there is the same tendency of markets to seek out the next victim. And, then as now, there is the same sluggishness on the part of governments to take urgent action, with, one fears, incalculable consequences.
If the trillion of euros worth of Spanish, Irish, Greek, Italian and Portuguese government bonds become devalued then those who hold them will lose money. And who are they? French and German banks are rumoured to hold a lot of Greek government bonds, and UK banks have approaching €100bn (£86bn) of lending to entities, private and public across the PIIGS. Pension funds also hold the bonds, as do investment funds, while banks are required to hold them as reserves.
If the banks – already fragile – around Europe suffer further losses through the usual domino effect, then that will reduce their lending to home owners and businesses over here, too. Let us not forget that Alliance & Leicester, Bradford and Bingley and Abbey are owned by Banco Santander, one of Spain's largest institutions.
The last thing the world needs is another financial crisis – but this time without the governments being able to issue debt to bail them out with. Britain will be badly harmed by the crisis engulfing our largest export market and source of investment funds. Our banks will undoubtedly also be victims of a renewed loss of faith.
It will hurt – after all, we are hardly in the best of economic health ourselves.
http://www.independent.co.uk/news/b...but-spain-could-destroy-the-euro-1958682.html
What are the risks? The euro itself could break up, though probably not because of Greece.
Spain however, is the fourth largest eurozone economy and quite another matter, and there are particular causes for concern. Her devolved government makes cuts difficult to impose; her labour market is dangerously inflexible; and the maturity of her debt is the shortest of the PIIGS, so that debt repayments are more frequent. Spain is simply too large to be rescued by France and Germany, and a Spanish crisis would mark the end of the single currency: the euro's last monument will be rows of unfinished apartment blocks on the Costa del Sol.
Beyond that the most serious danger is that the market for government bonds issued by the PIIGS will just freeze up. Greek debt is practically valueless, because there are few real buyers.
In this sense, what is happening is similar to the sub-prime crisis, credit crunch and financial crisis of 2007 and 2008 that led to the Great Recession. Investors are unable to judge whether these countries will be solvent, just as they doubted whether Bear Stearns, Lehman Brothers and the rest of them could honour their debts.
Then, as now, there is the same tendency of markets to seek out the next victim. And, then as now, there is the same sluggishness on the part of governments to take urgent action, with, one fears, incalculable consequences.
If the trillion of euros worth of Spanish, Irish, Greek, Italian and Portuguese government bonds become devalued then those who hold them will lose money. And who are they? French and German banks are rumoured to hold a lot of Greek government bonds, and UK banks have approaching €100bn (£86bn) of lending to entities, private and public across the PIIGS. Pension funds also hold the bonds, as do investment funds, while banks are required to hold them as reserves.
If the banks – already fragile – around Europe suffer further losses through the usual domino effect, then that will reduce their lending to home owners and businesses over here, too. Let us not forget that Alliance & Leicester, Bradford and Bingley and Abbey are owned by Banco Santander, one of Spain's largest institutions.
The last thing the world needs is another financial crisis – but this time without the governments being able to issue debt to bail them out with. Britain will be badly harmed by the crisis engulfing our largest export market and source of investment funds. Our banks will undoubtedly also be victims of a renewed loss of faith.
It will hurt – after all, we are hardly in the best of economic health ourselves.
