Spain: How Long Will It Take Markets to Recover?
Staff Writer, CNBC.com
Worries about whether Spain will have to seek a full bailout from international monetary authorities dragged down markets around the globe on Monday.
Will the euro zone’s fourth economy prove to be another Greece in terms of its impact on markets around the world? Or have its problems already been factored into most market watchers’ calculations?
Bob Parker, senior advisor at Credit Suisse, told CNBC's “Squawk Box Europe” that while Spain is “highly likely” to cause downside risk in the next 2 to 3 weeks, over 2 to 3 months markets will still be up again despite its troubles.
“The combination of monetary easing and some improvement in economic data Northern Europe and maybe the US in September will be a catalyst (for a turnaround in markets),” he said.
He wasn’t particularly optimistic on Spain itself, where GDP (for an explanation click here) fell by 0.4 percent in the second quarter of 2012, according to data released on Monday. The country’s banks are suffering from worries about its property sector – and the links between banks and sovereign debt holdings are getting stronger as foreigners dump Spanish bonds (click here for more on the world's most indebted nations).
“The very fundamental problem is: what will be the extent of the Spanish recession this year?,” Parker asked.
“There’s this vicious circle of investors not buying Spanish bonds, depositors moving out of Spanish banks, the problem with the regions and the problem that the recession in Spain shows no sign of turning around.”
If GDP continues to be disappointing, then fiscal revenues could be lower than expected – which would limit Spain’s ability to repay creditors if it has to take a bailout from the troika of the International Monetary Fund (IMF - for an explanation click here), European Central Bank (ECB - for an explanation click here) and European Commission.
As Spanish 10-year bond yields hit a fresh euro-era high of 7.52 percent on Monday, the prospect of a full bailout looked closer.
Analysts at Barclays predicted risk “will remain range-bound, as both rallies and sell-offs are faded” – apart from US Treasurys, which they predict will see even more record lows.
A Spanish bailout is also predicted to be a further drag on the euro, which hit a two-year low against the dollar Monday.