Spain is a major Eurozone economy and there seems to be the sort of domino effect I wrote about in my earlier "Dire Euro" posts. On Wednesday, Portugal sold 500 million euros of shorter term debt (3 month bills) at an average yield of 3.4%, up from 1.8% only a month and a half ago. When investors heard Moody's rumblings, Spanish debt yields rose but flattened out. Theory may be that Spanish costs have already risen so much as to factor in this news. Its yield on 12-18 month bills are more than 1% higher than one month ago.
As in the U.S., Spain is suffering from a long binge and the collapse of an overheated housing market. Unemployment is over 20% Austerity measures have been put in place, as they have been in the other faltering Euro countries:
Responding to intense pressure from markets and the European Union, Prime Minister Jose Luis Rodriguez Zapatero has stepped up efforts to cut its double-digit budget deficit and spur economic growth. He forced through an austerity budget that included tax hikes and deep spending cuts for this year and next. Earlier this month, he announced a series of economic measures to raise about 14 billion euros through the partial privatization of the national lottery and airport operator AENA, as well as the managment of Madrid's and Barcelona's airports.
You cannot win your way back to prosperity by selling your country's treasures on the cheap. That's a one shot deal at fire sale prices.
Very soon there will be a European Union summit. Maybe not soon enough. Hopefully there will be solutions hammered out dealing with the unsustainability of escalating debt in the face of recession, high unemployment and harsh austerity measures. There is a bailout fund, the European Financial Stability Fund, that Greece and Ireland had to utilize. But that expires in 2013.
The U.S. cannot look away from the problems in the Eurozone. We are competing in a global marketplace. Sooner or later, unsustainable debt levels for a country become prohibitively expensive. We (or rather, U.S. politicians) have to make choices. And no one wants to eat cat food.
No man is an island...
Send not to know
For whom the bell tolls,
It tolls for thee.