The ruling party in Spain got a hammering in the local and regional elections and the markets have reacted in fear. The FTSE is down 2%, Paris CAC40 down 2% and the Dow down 1.2%.
As European and world leaders bury their heads even further into the sand, the markets are reacting to the fear that without public support austerity measures cannot be inflicted on the peoples of Spain and elsewhere in Europe and ultimately the debt crisis will not be solved.
Spain is the key to unlocking the nightmare that is the destruction of the Euro. If Spain requires a bail out all bets are off. The fear is that Spain is simply too big to fail and in effect cannot be bailed out.
The domino effect is still continuing as Italy is struggling with it’s debt crisis, as growth alludes many economies except those strong enough to continue to finance borrowing in bad times. Germany races away in growth terms while Spain, Italy and Portugal are stuck in a cycle of austerity and stagnation, their debt getting heavier around their necks without any real prospect of alleviating the suffering of their populations.
This could all become a self fulfilling prophecy, as the markets anticipate more bail outs and restructuring of debts around Europe. The Euro looks on shaky ground and the chances of the Euro zone looking the same way it does now in a years times are slim.
Many will be giving a large sigh of relief that the UK did not take that leap of faith into the Euro zone, but if the Euro implodes, more economic woes are sure to follow and the UK will not escape.
3 1/2 years into the financial crisis and there are no signs of a let up in the bad news. The UK could well be heading for a long period of stagflation and erosion of standards of living, even more so than already suffered. Southern Europe and the emerald Tiger are suffering far worse than ourselves.
If a tide of unrest ensues, as is likely with recent events, a summer of discontent across Europe could put some governments under increasing pressure to default on debt payments and to restructure their debts. The snowball effect on financial institutions in Northern Europe will put further shock waves into the European economy.
In the end people power may bring all of this to a head, but until, or if it does, we wait in slow motion, a the Euro zone heads toward it’s climax of implosion.