Could Spain be more virulent than Greece?
That is a question that is being asked more frequently as the whole country of Spain almost seems to be on the verge of collapse, just as the crisis in Greece has somewhat faded recently in anticipation of the Greek general elections due to take place on June 17.
Bankia, Spain’s largest mortgage lender and itself the result of the merger of seven savings banks,, has asked the Spanish federal government for 19 Billion euros ($23.88 Billion) in additional help, substantially above the amount that was estimated was needed to firm up the institution when it was partially nationalized on May 9, with the government pumping in 4.5 Billion euros ($5.6 Billion) in convertible notes in exchange for a 45% stake in Bankia.
Further fueling the urgency, Standard & Poor’s also downgraded Bankia to junk status, along with Banco Popular and Bankinter, and lowered ratings on two additional banks that are staggering under mounting losses.
The palpable fear now is that these banking problems in Spain could lead to a bank run similar to what happened after the 2008 Lehman Brothers collapse.
The huge setback that is Bankia is furthermore fueling rising concerns about how to recapitalize numerous other banks facing similarly dire conditions, raising fear of the entire Spanish banking system collapsing under untenable strains.
Regional problems are also coming to the forefront, as Catalonia, a region that accounts for a full 20% of Spain’s economy, could probably only meet its obligations for May, with beyond murky at best, and this is after the federal government had just come up with a 545 Million euros bailout in March.
Companies are loudly complaining of a massive lack of liquidity prompted by these regional governments not paying their bills in a timely manner, producing a cascading effect that is spilling over into the general population that is already succumbing to a 20% unemployment rate.
The central government itself is under tremendous pressure, as it is falling behind the deficit reduction targets agreed to with the European Union, and still has to deal with an economy in tatters and the highest unemployment rate within the Euro zone.
These burgeoning problems emanating from Spain have contributed to the Euro reaching a new low not seen since July 6, 2010, at 1.2496 Euro to the dollar. The strengthening dollar is becoming of increasing concern to the U.S. as the country struggles against its own deep recession by making U.S. exports to the Euro zone that much more expensive. A flight into the 10 year U.S. Treasury is currently under way.
Is Spain more virulent than Greece? As the world remains fixated on Grexit, it seems to have forgotten that Spain is a greater threat to the integrity of the Euro zone, thus more forcefully and adversely affecting the global economy.