Fears of contagion are spreading like a rash, replicating the patterns preceding the bail-out of Greece. An article in Der Spiegel has a very useful break-down of the challenges facing the key euro countries feeling the heat at the moment - Greece, Portugal, Ireland, Spain with a place also reserved for Italy.
The article notes that "Spain is 'the litmus test' of Europe":
"Hundreds of thousands of Spaniards lost their houses and 1.2m their jobs [after the housing bubble burst]. Today, bad loans amounting to €180bn burden the institutions, half of which are related to retail banks."The unemployment rate in Spain is 20%, with youth unemployment being twice as high, at a crazy 40%.
Next year Spain must raise €65bn in order to refinance old debt. Problem is that this could turn out to be hugely expensive. The rates on Spanish ten-year government bonds rose to more than 5% yesterday for the first time since 2002, amid fears on the markets that Spain is only one jitter away from meeting the fate of Ireland. The country's multi-billion euro exposure to bad debt in Portugal isn't helping either.
As Der Spiegel notes:
"There is a lot at stake – for Germany. Firstly, because German banks have lent approximately €134bn to Spanish banks and companies. Secondly, because the European rescue package, equipped with €750bn, was not designed for the bankruptcy of a large country like Spain. In other words: if Spain falls, the Euro falls."Meanwhile, a piece on Reuters is "Thinking the unthinkable - a euro zone breakup", quoting some people arguing that we'll be fine because it's only "bond spreads" - and the political will is too strong for the euro to sink.
True, the political force behind the euro is powerful, and some politicians will see hell freeze over before giving up on their flagship project.
But seriously, all these people who got the euro wrong in the first place must now begin to realise that political will alone cannot stamp out economic laws and economic reality?