Economists: Spain Is Getting Scarier Than Greece or Italy

Thursday, 17 Nov 2011 08:13 AM
By Forrest Jones

Spain's economy is in worse shape than people think, and a new government coming in will be unlikely to fix it right away, resulting in financial collapse and widespread social unrest, economists warn.

"In a lot of ways it's more worrisome than Italy," Megan Greene, senior research analyst at Roubini Global Economics, tells CNBC.com.

While Italy and Greece may be grabbing headlines, Spain is battling multiple problems on top of high sovereign debts, including a fragile banking sector, high unemployment and stagnant gross domestic product growth.

The country will hold elections next week, with the center-right People's Party led by Mariano Rajoy, seen as winning and defeating the incumbent Spanish Socialist Worker's Party.

Markets are still worried about the economy, with yields on Spanish 10-year bonds hitting almost 7 percent Thursday, the most since the euro’s creation, as demand for the securities dropped.

"What's likely to happen is that the People's Party take control and say: 'Oh my God, we have looked at the books and it's much worse than we thought,'" Alistair Newton, senior political analyst at Nomura, tells the network.

"There is a huge degree of uncertainty over how high it will be."

Add to that, Spain has already carried out tough measures to aid its economy, and another round could seriously test a weary public.

The government, meanwhile, cut its growth forecast for 2011 by half a point to around 0.8 percent, barely above recession levels, the Associated Press reports.

Yields on Italian debt have broken 7 percent, and borrowing is getting very costly for both countries, although analysts stay financing the Mediterranean economies is still manageable — for now.

"We said 6.0 percent, we're now saying 7.0 percent. But it depends on how long it lasts," says Jean-Francois Robin, bond strategist with Natixis bank, the Associated Press adds.

http://www.moneynews.com/StreetTalk/Spa ... /id/418355