After the encouraging data from the beginning of the week and a significant gain on the Dow, investors have one again turned their eyes to Spain, and the potential problems with the European Union.
In Europe, major stocks fell after weak data was revealed for the construction sector and Italy in particular.This caused stocks in the U.S. on Tuesday to fall slightly upon this new worrying data. Of course these issues in the E.U: went on to discussions about Spain. The big question on everyone’s mind is will Span need a bailout? Most E.U. and Spanish officials are claiming that the situation is under control; however, the facts may point in a different direction.
This week, Euro Group president and Luxembourg Prime Minister Jean-Claude Juncker declared “Spain is on track” and said he “does not think Spain will need any kind of external support.”
German Finance Minister Wolfgang Schaeuble made similar comments and said its wrong to compare Spain with Greece or Portugal. “The fundamental data in Spain is not comparable to those in the countries that are under a program,” he said.
In addition to this Prime Minister Mariano Rajoy has repeatedly claimed that Spain does not need or want a bailout.
The facts seem to tell a different story.
Spanish bond yields are still at 6 percent, a very high price to pay for the Spanish government. The recent bond auction could be considered to be a success, but the yields once again are so high that it could be argued otherwise.
Spain also has a different fundamental problems in comparison to Greece or Portugal. Spain is still suffering from an enormous housing bubble, one that makes the American housing bubble seem like child’s play in comparison.
In addition to these problems mentioned above, the banks are experience the highest rate of non-performing loans since 1994 at a rate of 8.2 percent. The U.S. rate in comparison is around 2.8 percent.
With all of this information in mind in addition to an unemployment rate of 25 percent, it seems to be more of a question of when rather than if Spain will need a bailout.
Investor seem almost certain that Spain will need a bailout at some point in the very near future.; they have already moved on to questioning Italy’s economic health. This would have major implications for the E.U. and the euro in general if these two countries topple. Italy’s economy is 50 percent larger than Spain’s.