Spain’s local government units are gradually going bust, thanks to the property boom collapse and the austerity measures recently announced in Madrid.
And Spain apparently can’t really pay off its bonds and reduce budget deficits by 2012. Unemployment’s above 20%, and Spanish banks need fresh capital to the tune of 50-90 billion Euros. The outlook is for years, if not decades, of crippling deflation, social unrest and mass unemployment.
Haircuts for bondholders on the order of 30% (and you just know the haircuts actually being contemplated are far larger) would reduce Spain’s GDP by 40% and Eurozone GDP by 15%.
The stress tests currently being performed do not take into account the possibility of defaults, so the true picture of Euroland insolvency has yet to be painted.
Gorilla says: “Time for Spain to take a siesta from the Euro!”
