Spain had an estimated 350 billion euros of debt that it needed to roll over in the three years from 2011 according to analysts at Brockhouse Capital. Add in the likely need to fund regional government deficits and rollovers as well as the need to recapitalise banks as the housing market continues to decline and you see the fundamental problem for Spain.
My concern with Spain is liquidity more than solvency. Given the deflationary policy path, the high private debt levels that create higher private savings and the debt rollover, you are guaranteed to have gargantuan funding needs during a period of high deficits. For any currency user, this is a recipe for a liquidity crisis. Right now, Spain is looking good because the yields have subsided after the OMT program was put in place by the ECB. But the fundamental liquidity problems are still there. And as the funding schedule ramps up, I expect it to become an acute problem, causing Spain to seek a bailout.
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