View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
31 May 2012updated 26 Sep 2015 6:47pm

Focus shifts to Spaxit

The banking crisis could even mean that Spain beats Greece out the door.

By Alex Hern

Greece is so passé. This week, the eyes of the world have slowly begun to shift to Spain.

The real kick to switch focus was the news on Monday that the Spanish/German bond spread had topped 5 per cent – that is, the yield on Spanish bonds is now over five percentage points above the yield on German bonds. Why does this matter? Because spreads for Greek, Irish and Portugese bonds were over that level for 16 days, 24 days and 34 days respectively before they were forced into bailouts.

The root of Spain’s problems are very different from Greece’s, though. It’s a combination of a terrible housing bust and the bind the euro traps them in. Once house prices started to plummet, the banking sector was in deep trouble, but due to the single currency, Spain can’t recapitalise it the way a fully sovereign state would. So there is a very real risk of Spain going bankrupt and being forced out of the eurozone.

But this risk alone is surmountable. A combination of a sympathetic ECB (which, of course, means a sympathetic Germany), confidence in the ability of the institutions involved to find a solution, and speedy action would greatly reduce the danger of Spain leaving the currency (which has, inevitably, been dubbed a “Spaxit“). Unfortunately, none of those things actually exist.

Afraid of Spain leaving the eurozone, Spaniards are moving their euros out of their country’s banks, and either hoarding notes or opening accounts in Northern Europe. Which means that the banks are in even more trouble, the bailout costs go up, and Germany is even less likely to help out. As Tyler Cowen put it:

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

Spain is in a self-cannibalizing downward spiral, as Greece was and is.  It will not end until there is, at the bottom, an absolute and total crash.

The Wall Street Journal’s Matthew Lynn even thinks that the Spanish exit could happen without a Greek one, giving six reasons Spain will leave the euro first:

There are few good reasons for the country to stay in the euro — and little sign it has the will to endure the sacrifices the currency will demand of them.

What’s more, as Matt Yglesias points out:

I don’t think anyone has deluded themselves into the idea that the eurozone could survive Spain leaving. If Spain goes, it all goes.

Grexit may or may not increase the chance of Spaxit. But Spaxit almost certainly means Netherlexit, Fraxit, and even Gerxit. (Although hopefully those “words” will never again see print)

Ironically, this death spiral may now be the best hope for Spain. The knowledge that a failure to recapitalise its banks could lead to the end of the eurozone gives it much needed leverage over the ECB to gain the funds it needs. But, as the Telegraph’s Ambrose Evans-Pritchard reported:

There is no sign so far that the ECB is ready to relent as Frankfurt and Madrid cross swords in an escalting test of will. The ECB has scotched Mr Rajoy’s tentative plans to recapitalize Bankia by drawing on ECB funds.

Perhaps put more vividly by the LSE’s Luis Garicano:

It is dangerous to play chicken when you are driving a Seat and the ECB is driving a tank.

 

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU