Daily Commentary: On Spain’s Insistence It Will Not Need A Bailout

I am increasingly worried about what is happening in Spain. It seems that the crisis there is hitting a flashpoint with no obvious means of turning things around. Over the past few days, I have been reading and listening to Spanish media assiduously. Here is what is happening there based on my review.

What I have heard over the past twenty-four hours represents a full-court press by Spanish politicians of all political stripes. Clearly there is major concern in Spanish policy circles. Prime Minister Mariano Rajoy has categorically denied that Spain would ever need a bailout. He says his government is not seeking one and that the Spanish government will re-double austerity efforts to show it means business about getting its fiscal house in order.

Moreover, the Spanish government reacted sharply to media comments attributed to Italian Prime Minister Mario Monti in which Monti is alleged to have lamented the rise in Italian bond yields. According to the reports, Monti blames the Spanish for what’s happening in Italy. Rajoy is having none of it. I have heard Rajoy’s condemnation of these alleged remarks multiple times on different Spanish outlets, suggesting that this is being treated as a top story.

Former Prime Minister Felipe Gonzalez was also heard in these same stories refuting the contention that Spain would need a bailout. Gonzalez quipped that Spain’s needing a bailout would end the euro zone. Those are very telling words because, while Gonzalez is giving bipartisan support to the anti-bailout rhetoric of the Spanish government, he is also reminding us how critical the Spanish issue is. Spain is too big to fail and I believe to big to bail too. So it is quite worrying that things continue to worsen in Spain.

We had a relief rally in Spain earlier today with yields on government debt falling. But this is only a short respite. More pain is coming. Watch this issue as the number one economic ‘grey swan’. It has the potential to do considerable damage. I will be posting in Spanish and English as stories arise.

That’s it. Here are the links.