Spain, oh Spain!
Just as Greece moves towards the the pro-bailout group in terms of election polls, the Prime Minister of Spain is today digging bigger holes for the current set of EU Eurofudge.
Things are indeed crazy for Spain, their short-term debt rates are hitting 7%. Totally unsustainable in the long-term and for Ireland this was the trigger for a bailout.
If it was not so terrible for the Spanish it would be quite funny. After all, UK rates are at 1.8%. The UK has a worse structural deficit, a higher Debt to GDP ratio and far higher personal and total indebtedness; but we have the Pound and Quantitative Easing.
Spain is not Greece, the problems in Spain are centred around a huge property bubble, the likes of which we too had in the UK. This was driven by low rates across the EU. Now Spain is suffering a massive bust which again it does not really have to. This is a disastrous situation.
Spain cannot remain in the Euro in its current form. Neither the markets nor the politicians are going to stand for this forever. What Prime Minister Rajoy is calling for today is in fact common sense. If the Euro is to survive then it must change, there must be a last guarantor and debts must be shared in some form to give the weaker Countries access to cheap funding so that they can pursue austerity policies in a less charged atmosphere.
Of course Germany does not seem to trust that austerity will be followed through if Latin countries are allowed to borrow at cheaper rates. In this case, if Germany does not trust its own currency counter-parties then someone has to leave the party. As I have said before, it will be better for everyone if that is Germany, but somehow I doubt it will turn out this way.
Greece is a sideshow, as Greece itself sinned many times and deserves little sympathy for its own mess. Spain is different, Spain is a victim of the Euro - how Spain is treated will determine the fate of the Euro.