Spain’s worsening economic crisis and fears that the cash-strapped country might need a bailout that the eurozone can barely afford have caused a violent economic storm in European financial markets.
Fears soared high after the interest rate on Spain’s debt bonds climbed to a record high of 7.39 on Monday causing the euro to take a nosedive versus the US dollar and China’s Yuan, a recent report by Radio France Internationale (RFI) said.
While every euro was dealt for USD 1.20, most financial and economic experts in Europe expect further fall in euro-dollar parity during the coming weeks.
Meanwhile, on Monday Moody’s Investors Service changed the outlook for the ratings of Germany, Luxembourg, and the Netherlands to negative from stable, citing the uncertainty about the eurozone’s ongoing debt crisis. If fears over the eurozone financial crisis continue to rise over the next months, Germany’s AAA-ratings as Europe’s number one economy will be lowered.
The recent development comes as financial markets believe Spain’s economic woes go far beyond the country’s ailing banks that have been grappling with major economic problems.
Global investors say the single currency area’s economic situation will remain critical considering the amount of the Spanish government’s debt, which demands capabilities beyond the current European mechanisms for assisting the eurozone member states, Greece’s worsening economic crisis and its possible exit from the 17-nation bloc, and also Italy’s falling economy. As a result, many analyst wonder whether Spain can be still considered a financially creditable state.
The bitter fact to admit is that Spain is experiencing a seriously critical economic situation with all its macroeconomic indicators having crossed the red line. Moreover, the country’s economic growth has been negative during the past nine months.
Secondly, more than 24.4 percent of Spain’s active population is jobless and the rate is 50 percent among the youth, meaning that one out of every two Spanish youths is currently unemployed.
Thirdly, the Spanish government’s debt will exceed 800 billion euros by the end of 2012 to account for over 68 percent of its gross domestic product (GDP) while foreign debt (for both public and private sectors) will exceed 1,000 billion euros.
Fourthly, the budget deficit currently stands at over 8.5 percent of the GDP and Madrid’s stock exchange index has lost 2420 points in less than seven months.
To top it all, the country has been swept by nationwide protests against the difficult living conditions, which have aggravated its economic woes.
Experts say Spain is going through dire economic and financial straits. In order to save Spain’s ailing economy from financial bankruptcy, which will threaten the country in the next 3-5 months, more than half of the government’s debts should be amortized through European and global (including International Monetary Fund) mechanisms. This extreme measure has been already taken in the cases of Ireland, Portugal and Greece.
However, when it comes to Spain, the plan looks more daunting as Spain’s debt is much higher than the other countries. If the European Union agrees to grant over 300 billion euros in aid to Spain, its emergency aid fund will be practically depleted with nothing left to help other countries.
Eurozone states have so far failed to come up with an important and reliable economic scheme in order to head off the financial storm which looms ahead.