All Eyes on Spain

Two weeks ago when I first arrived in Europe several sources told me of the seizing up of the eurozone inter-bank market and about grave concerns regarding Spain. This was the primary reason that I chose to focus on Spain in my weekly letter on May 28th. The situation has deteriorated considerably since just one week ago and today the G7 is holding a conference call to discuss what to do about Spain. The problem is that there is simply no magic bullet to deal with an economy the size of Spain with enormously oversized banking & construction sectors. The following graphics speak volumes:

 

Asia Times

What is certain is that Spain will have to take more tough medicine (writedowns and bank failures) very soon in order entice any new capital into the country. The ECB/EU/IMF (Troika) will almost certainly have to embark upon some sort of bailout program for Spain’s banking sector and they will want to do it at the lowest possible cost – this means that Spain will have to force its banks to open up their books and face reality as to the scale of the loan losses. The timing of today’s G7 conference call is made all the more interesting given that the ECB meets tomorrow with an opportunity to potentially announce a new LTRO, an interest rate cut, and/or lower collateral requirements. The next 24-48 hours should be quite interesting……

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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