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Spanish PM calls debt fears related to country’s sovereign debt as “complete madness” but CDS on Spain keeps climbing higher

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The politicians keep saying that the sovereign debt fears related to their country are a complete hogwash but these fears keep coming true with nasty regularity.Dubai’s leader at an investment conference 2-3 months before the crisis said he had nothing to fear before the debt crisis reached a peak for Dubia.Same thing happened with Greece before a EU-IMF bailout . Now the Spanish PM calls it  “complete madness”. However unlike Dubai who  had rich big brother Abu Dhabi to bail it out and Greece which has EU-IMF to partially bail it out , Spain is too big to be bailed out. If the debt fears regarding Spain increase then it will be very difficult to contain them.Portugal and Italy will certainly face the brunt of it with other European countries also facing the heat indirectly from their financial sectors. Earlier  I thought that the European debt crisis would take more time to develop but the speed and ferocity of the sovereign debt crisis has been surprising to say the least.Here are some interesting reads.

Greek Quarantine Tested as Spain Denounces Contagion – Bloomberg

European governments are hoping that Greece’s 110 billion- euro bailout will stop a crisis that Nobel Prize-winning economist Joseph Stiglitz says threatens the currency’s survival. Investors are speculating that Spain and Portugal may also eventually need assistance, prompting Spanish Prime Minister Jose Luis Rodriguez Zapatero to dismiss such talk as “complete madness.”

Bonds Tumble

That didn’t stop a sell-off in Spanish bonds yesterday. The extra yield that investors demand to buy its debt over German bunds rose 21 basis points to a 14-month high of 117.8 points. Spain’s benchmark IBEX Index, the euro region’s worst performer after Greece, fell 5.4 percent to the lowest since July. Portugal’s spread rose 40 basis points to 247 yesterday.

The euro weakened 1.4 percent to $1.3011, the lowest in more than a year. The currency retreated further in Asian trading today, to $1.2961 as of 11 a.m. in Singapore.

Even the bears aren’t bearish enough on Spain’s coming sovereign debt problem – Fortune

There are two ways we look at how likely a country is to default on its debt. First, we consider the ratio of budget deficit-to-GDP. Here, Spain is clearly in trouble. As of the end of 2009, Spain’s ratio was 11.2% of GDP, and set to accelerate in 2010. Historically, anything beyond 10% is in the danger zone of potential for sovereign debt downgrades, and will lead to an acceleration of borrowing costs. Based on that metric, Spain will need roughly 150 billion euros in debt to fund its budget this fiscal year.

Our second metric, the ratio of debt-to-GDP, does not look as bad for Spain, with the ratio being a lower than the EU average of 54%. Yet while favorable at first glance, the reality is that this ratio has doubled in the last year. This ratio will continue to grow as the Spain’s budget becomes ever more funded by debt.

More importantly, Spaniards have a substantial amount of outstanding debt that has to be rolled over this year. Estimates suggest the figure could be as high as 225 billion euros, of which foreigners hold almost 45%. Considering that the total proposed Greek bailout is 146 billion euros over three years, any potential bailout — and to be clear, we are not there yet — would be of an exponentially larger scale than Greece.


Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

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