Tags: Spain | elections | economy | bailout

Spanish Election Results Highlight Fragility of Europe's Periphery

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Monday, 21 December 2015 12:23 PM Current | Bio | Archive

Without any doubt, the news investors better keep an eye on comes out of Europe where in Spain, which is the fourth most important economy of the eurozone, the general elections have left the country in an extremely difficult situation whereby the two major political blocks, the center-right as well as the left, aren’t able to form a durable majority without the participation of the separatists, which in practice is nearly unachievable.

Yes, I know, never say impossible in politics, but this time could be different.

Now, and this is important for people who have or are interested in investments that are “Spanish-linked” in one way or another because under Spanish law a “new” Parliament must be called by January 13, and if there is no government within two months from that date there will be new elections.

Until now, many investors seem, once again, complacent to political risks and now more specifically to the political situation in Spain that could provoke a prolonged political crisis, which could, if it were to occur, easily spread beyond its borders.

Notwithstanding this is not the opinion of the majority of investors, but Spain remains an economically fragile and still “convalescent” economy whose GDP growth rate, for example, is still below where it was before the Great Financial Crisis and, last but not least, below the levels of January 1999 when the Eurozone came into force.

Let's hope it doesn’t come to a political stalemate, because with what we know so far, a political crisis in Spain could easily evolve into an unpleasant form of “Spanish contagion”.

Anyway, Spain will have to learn to live politically with until now unseen/inexperienced forms of government coalitions, where all parties involved will have to put a lot of water in their (Spanish) wine.

From an investor’s standpoint, that is not a positive development for the still fragile recovery in the Eurozone.

Besides Spain, the Financial Times just published an interview with the Greek Prime Minister Tsipras wherein he gave interesting comments, which for sure will not please the people at the IMF as well as well as the Germans and, last but not least, the ECB.

We’ll let for now what Brussels will say or think aside because trouble won’t probably come from their side.

Greece is still in the installment period (no, its rescue program has not been completed yet) of a 86 billion euros or about $93 billion rescue package of which the third part, for which the Greek Prime Minister now wants the IMF to leave the bailout management team that has been called the “troika” and that is composed by the European Commission, the IMF and European Central Bank, said: “We’ve been five years in a program, Europe now has the institutional capacity to deal successfully with intra-European issues. It’s hard for an EU country to have lost its sovereignty for such a long time. To regain it and to get out from the control of the troika, we have to implement the [bailout] agreement.”

Trying to refresh our memories a little bit about Greece in the EU and when we look back at the history of Greek documents, declarations, promises, non-compliances, etc., since and from before the country entered the Eurozone on January, 1, 2001, they entered, by the way, after having “cooked” their books so that, at least on paper, they complied with the rules that were enshrined in the “Maastricht Treaty,” during all these years the only logic conclusion one can make about Greece’s behavior and trustworthiness is that someone has to be a completely irrational optimist to believe what Greece says they are doing or what they are going to do.

That said, it all looks like, once again and unfortunately, the stage is set for another episode of the Greek debt crisis, which isn’t over yet, that’s for sure.

Of course, in case that would happen, it would cause another round of serious damage to the Euro zone and the euro itself.

So, on the same day we got Spain and Greece that have set new scenarios for other rounds of troubles in the Eurozone.

As conclusion I’d like to say, financial “Contagion” will be one of the biggest threats for investors in 2016.

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HansParisis
Without any doubt, the news investors better keep an eye on comes out of Europe where in Spain, which is the fourth most important economy of the eurozone, the general elections have left the country in an extremely difficult situation.
Spain, elections, economy, bailout
707
2015-23-21
Monday, 21 December 2015 12:23 PM
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