Spain's Dangerous Waiting Game

Spain's delay in requesting a bailout doesn't look like a prudent bet

Jeremy Glaser 16 October, 2012 | 10:00AM
Facebook Twitter LinkedIn

The Spanish government (with an assist from the rest of Europe) has spent the last few weeks denying it is on the verge of asking for a bailout or even that the country needs a bailout at all. Given the underlying problems in the Spanish economy, the only way this could be at all credible is if the continent were on the verge of a surge of economic growth. 

As the International Monetary Fund pointed out this past week in its updated economic outlook, that is extraordinary unlikely. In fact, the IMF now sees an "alarmingly high" risk of a global slowdown in 2013. By holding out on accepting the help of the European Union, and by extension the European Central Bank (ECB), Spain is playing with fire and hoping the market's patience doesn't run out. It likely isn't a risk worth taking.

Spain's Tribulations
Spain's economy is in real trouble. The IMF expects gross domestic product to contract by 1.5% and 1.3% in 2012 and 2013, respectively, assuming everything goes to plan and there are no external shocks. Growth could be much worse. Unemployment looks set to remain stratospheric at more than 25%. The country is trying to bring budget deficits under control, but it keeps missing targets as revenue falls short of expectations and cuts are harder to execute than expected.  The housing market remains deeply troubled. Banks are going to need a huge amount of capital to stay afloat. Political protests and talk of regional secession are becoming the norm rather than the exception. The only plausible way out of this mess is going to be through a lifeline from the rest of Europe.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Jeremy Glaser  is markets editor for Morningstar.com, the sister site of Morningstar.co.uk.

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement