After clearly failing to raise enough capital in today’s bond auction, Spain is unable to refinance its debt, needs a bailout from the EU-fund, triggering further state bankrupcies in Portugal, Belgium and Italy –
Newspaper’s headlines might look like this in a few days, if Spain really fails to raise close to the desired 2 bn Euro in Thursday’s 3-year-bond auction. Following up on Vivipre’s post from Monday, I had a closer look on its possible outcomes, as the auction is another landmark in the sheer never-ending Euro-crisis history.
The probability for a desastrous chain reaction like this however seems low, says Barbara Schäder from Financial Times Deutschland today. According to Barbara, recent announcements of further budget cuts by the Spain government, the endorsement of the bond auction by big banking individuals such as Joseph Ackermann, and the relatively small contribution of the banking sector to Spain’s GDP make the auction look a likely success.
But there are other voices, the most renowned amongst them economics professor Nouriel Roubini, who became famous by predicting the financial crisis. In a speech given in Taipeh, Roubini sees the financial contagion moving into one EU-country after the other, as the enormous costs of the bailouts will cripple their ability to refinance their debts.
I think that the positive indications the day before the auction (even the US are rumored to take part in the EU bailout fund if worst comes to worst) take the edge off the auction, especially amidst news of a recovering consumer spending in the US and a recovery of the Euro in the last days.
Nevertheless, I hope that the lessons from the last 8 months are learned, and incorporated into a new Euro-currency-treaty, because otherwise, we might see the whole story happen again in a future nearer than anyone would like!