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Thursday, August 30, 2012

The euro crisis: Another southern front

WILL Spain be next? The Spanish government is trying to put off a full bail-out, but it was dealt a blow on August 28th when the regional government of Catalonia said it needed a €5 billion ($6.3 billion) rescue by the Madrid government.First it was the banks that needed help, now Spain’s second-most populous region. Bailing out Catalonia may well cost more than the requested €5 billion: it may need several billion just to cover the budget deficit until the end of 2014. A government liquidity fund has €18 billion in it, but Valencia, Murcia and other regions that are excluded from the markets are also queuing up for money. Spain can top up the fund by borrowing more—but only at punishing rates. The yield on ten-year bonds has stayed above 6% for more than three months.Not surprisingly, many think Spain will eventually need a sovereign bail-out. In public, officials claim this is not being negotiated. European leaders instead praise the reforms and austerity of Mariano Rajoy, the prime minister. Yet Spain is plunging into a double-dip recession. The economy shrank at an annual rate of 1.3% in the second quarter. Bank deposits dropped by 4.7% in July. Consumption is falling at an annual rate of 3.9%. Unemployment remains stuck at around 25% of the workforce (and 50% for youths).Meanwhile in bailed-out Greece the government was relieved when the first trip abroad of Antonis...


READ THE ORIGINAL POST AT www.economist.com