Spain region, Greek exit warnings rattle eurozone
PARIS CENTRAL banks and companies not bracing for a possible Greek euro exit would be making a grave error, Belgium’s foreign minister said on Friday, rattling markets already alarmed by Spain’s deteriorating finances.
Greek elections are due on June 17 and could hasten the country’s departure from the currency club should a government intent on ripping up the country’s bailout programme result. Polls suggest the outcome is too tight to call.
Greece accounts for little more than two percent of the eurozone economy but could pose a profound contagion threat if it quit the currency area, throwing the spotlight on Portugal, Spain and even Italy.
“There is no organised discussion at the European level along the lines of: what do we do (if Greece leaves),” Belgium’s Didier Reynders told the European American Press Club in Paris. “Now, if central banks and companies are not preparing for the scenario, that would be a grave professional error.” Spain is in plenty of trouble even disregarding any backwash from Greece.
It’s important autonomous region, Catalonia, said it needed help from the central government because it was running out of options for refinancing debt this year.
“We don’t care how they do it, but we need to make payments at the end of (each) month. Your economy can’t recover if you can’t pay your bills,” Catalan President Artur Mas told reporters.
Spain’s trump card was that it had successfully issued will over than half the sovereign debt it needs to in 2012.
But after revealing this week that its highly indebted regions faced 36 billion euros of debt refinancing bills this year, way above the previously stated 8 billion, that advantage may have been wiped out.
On top of public debt, the country is hobbled by a banking sector overwhelmed by bad debts tied to a property market boom that bust and has some way further to fall.
Troubled lender Bankia is set to ask the state for a more than 15 billion euros ($19 billion) bailout, well above the 9 billion euros the government had mentioned.
Spain is nationalising Bankia, which holds some 10 percent of the country’s bank deposits. The government insists the bank is a one-off case but economists say a wider bailout of the sector, either by Madrid or the euro zone, may become necessary.
Markets have been buffeted this way and that by the escalating eurozone crisis in recent weeks and face more uncertainty up to the Greek election date any maybe beyond.
The euro plumbed a fresh 22-month low against the US dollar on the back of the Catalonian warning, stocks went into reverse and Italian and Spanish borrowing costs rose.
Having risen 0.8 percent earlier in the session the FTSEurofirst 300 index of leading European shares was down 0.2 percent by 1400 GMT.
“The Catalonia news was a big deal because it implies that the Spanish government may have to take on more debt and it cannot afford to do so,” said Richard Franulovich, senior currency strategist at Westpac Securities in New York.