EU: Spain’s 'lose-lose' struggle reignites euro crisis

The Telegraph ^ | 4/10/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

The eurozone crisis has returned with a vengeance after Spain’s mounting woes pushed 10-year bonds yields back to the danger line of 6pc and the Madrid bourse crashed to its lowest level since the 2009.

Markets took no notice of fresh austerity pledges from premier Mariano Rajoy, including new cuts worth €10bn in health and education - seen as a belated move to salvage Spain’s credibility after a spat with Brussels over fiscal slippage.

Mr Rajoy said the bond attack should dispel the illusions of those who think Spain can muddle through without serious austerity. "Markets can decide to lend or not to lend, and they can do so at a rate that is affordable or not," he said.

The country’s borrowing costs have jumped 100 basis points since February, when the European Central Bank last flooded banks with liquidity under its three-year lending scheme (LTRO). "The LTRO was supposed to be the game changer but the stimulus has worn off. It looks like it is falling apart at the seams," said the Suki Mann from Societe Generale.

A disastrous debt auction last week was taken as a sign that Spanish banks have exhausted their LTRO money and can no longer prop up the Spanish state through this back-door funding, leaving the country nakedly exposed. Other buyers are scarce after the EU imposed a 75pc haircut on investors in Greece.

Finance minister Luis de Guindos confirmed that Spain has tipped back into recession, with a 0.3pc contraction in the first quarter. He expects the economy to shrink by 1.7pc this year, though Citgroup said it could be much worse. Unemployment is already 23.6pc.

Mr de Guindos said Madrid faces a "lose-lose situation" since markets will punish excessive austerity as harshly as too little austerity. Tightening too fast

[Lurker]

Here it comes.

[rbg81]

Not to worry. Someone (or something) will print $$ from nowhere to make it all better. For a little while (until the Nov election is over). [/s]

[GeronL]

The word “Austerity” is thrown around a lot. I don’t think that word should be applied to making a government live within its means. “Austerity” should be defined as when the people are being taxed to death or so much that their lives are deprived by it.

[kingu]

Finance minister Luis de Guindos confirmed that Spain has tipped back into recession, with a 0.3pc contraction in the first quarter. He expects the economy to shrink by 1.7pc this year, though Citgroup said it could be much worse.

1.7pct plus the 8.53pct deficit spending exceeds the common definition of a depression of an economy that's 10pct or more down. And before we point and mock, we need to remember that we're going down the same path. Only there's no economy in the world big enough to pick us up.

[SunkenCiv]

thanks bruinbirdman.

The Real Threat is Spain, Not Greece: Sullivan
CNBC.com | April 10, 2012 | 05:05 PM EDT
http://m.cnbc.com/id/47008853