Spain is in big trouble

This week's newsletter was originally going to be on forecasting outcomes in the European sovereign debt crisis. However, as I began to write, I realised that much of this hinged on Spain. So I want to discuss Spain first because Spain is in big trouble and its policy prescriptions are going to make things worse. In my view, the potential for downside economic and portfolio risk has increased markedly as we realise that Spain is at risk and there is no plan B in the euro zone. This is very serious because Spain is an enormous economy. Spain could well become the euro zone's defining issue.

A short history on Spanish debt

Before the financial crisis, Spain had a booming economy. Along with Ireland, Spain was seen as one of the fast-growing "tiger" economies of Europe, almost...


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