Just how bad is Spain? Greece is Greece,its still relatively small in the whole scheme of things. Once the spotlight starts to shine on Spain, this will drag in Italy as well. Greece and Spain, and you can add in Portugal, and to a lesser extent Italy, have the same economy type, less export oriented, less high-tech, more rural, services, tourism, produce and crafts. In a significant way, these type of economies will find it extremely hard to export their way out of a financial crisis.
Spain at many levels is much more dangerous because the government is high on ego and is still not willing to fully acknowledge just how deep in doo-doo the economy is.
A snapshot of the problems:
a) unemployment is at 25% of the labour force (and rising)
b) 10 year bonds edging towards 6.8%, the debilitating rates will make any rescue difficult as the Germans insistence on budget austerity measures will be double hit by huge interest servicing
c) there is an estimated $230bn of troubled loans in real estate
d) property values have plummeted 60% from its peak in 2008
e) rather than make property developers loans in default, Spanish banks have basically given then new loans to pay off old one, so Japan circa 1990s
f) amidst all that concerns, money is fleeing from Spanish banks
g) bad debts held by Spanish banks rose to yet another 17-year high in March. 8.37% of the loans held by banks, or EUR147.97 billion, were more than three months overdue for repayment in March, up from 8.3% in February--the highest ratio since September 1994. The total number of non-performing loans is now almost 10 times higher than the level reported in 2007, when Spain's decade-high property boom peaked
During the boom times, the real estate sector surged spectacularly, at one stage accounting for even 20% of Spain's GDP. A level which Ireland also got to just as things started unravelling there. At least Ireland bit the bullet and took the hardy measures, and now seems to be recovering.
Thanks to being in the E.U., Spain cannot devalue their currency to restore competitiveness. Spain formally requested euro zone rescue loans to recapitalise debt-laden former savings banks on Monday, but those who receive funds will be subject to European Union state-aid rules that include selling equity assets.
With the price of such assets languishing as the euro zone's financial crisis drags on, that will involve the likely fire sale of big chunks of Spain's corporate titans, including telecoms leader Telefonica, oil major Repsol and power firm Iberdrola.
UBS estimates 22 billion euros ($28 billion) of Spanish stakes could be up for sale, most of which is in the hands of savings banks. This represents as much as 9 percent of the capitalisation of the country's blue-chip index.