Outlook For Spain…Not Good

Europe is kind of fucked.  Looking more and more like unifying the diverse cultures of Europe under one currensy might have been a fail.  Time will tell.  Looking like Greece has someone to hang out with at the my economy is shit party.  All I know is the Brits are smirking with a mug full of fucked up teeth at the thought that they are still using their national currency.

(The Atlantic) Let’s try a thought experiment. Imagine you walked into the bank, told them you were going to be taking pay cuts for the next few years, and then asked for a loan. You’d be laughed out of the office or else pay an interest rate so high that “usurious” wouldn’t do it justice. The logic is simple: If you’re in debt and your income is shrinking, it’s mighty hard to pay back what you already owe.

It’s not any different when it comes to countries that can’t print their own money. That brings us to Spain.

The following charts (courtesy of Reuters) show overall and youth unemployment across the euro zone. Spain tops both measures, with truly depression-level joblessness.

Nearly a quarter of Spain’s population is unemployed. Half of its youth are out of work. And it’s only going to get worse. Spain is supposed to trim its deficit by some 5.5 percent of GDP over the next two years. That’s not a recipe for growth. Just ask the IMF, which downgraded its projections for Spain’s economy back in January.

What matters for a nation is its GDP. That’s a country’s equivalent of personal income. If Spain’s GDP is set to fall for the foreseeable future — and it is — then who would want to lend to Spain? The markets gave their answer — practically nobody! — and ECB was forced to fill the void by giving Eurobanks free money to then invest in sovereign debt. Yields came down. European policymakers declared “Mission Accomplished.”

But now the free money is gone. It’s unsurprising that Spanish borrowing costs are surging again.