Home > Europe > PIIGS: Spain is trying to sneak one by us

PIIGS: Spain is trying to sneak one by us

A few weeks back I predicted that Spain would be the next country to fall – and we are on the eve of it happening.

May 24th it was announced that CajaSur had been nationalized. “Cajas” are savings banks, and their exposure to bad loan debt is only speculated upon; however, this one got nationalized and it is rumored that four more are either about to be nationalized or to undergo forced mergers.

Spain insists that they are fine and there is nothing to worry about, but I highly doubt that. I strongly feel they are trying to pull a fast one on us.

Why should we care?

Here’s why: Spanish banks are enormously influential. They are a large section of the backbone that holds up the Euro. Some of them also have a large presence in the USA (like BBVA). In a few days the credit ratings for countries will be coming out for the second quarter of 2010. If Spain gets downgraded because their banks are on the verge of failing, then a huge chunk of what makes the Euro valuable will evaporate. If the Euro tanks, then so will any business that trades in Euros because all of their Euro holdings will be essentially worthless.

How much does the US do in Foreign Direct Investment? For the period 2000 to 2007 it was a net of about $207bn. If all of that investment pans out to be a big loss… then I guess the joke’s on us – but it isn’t funny.

Some perspective:

Let me give some perspective to you, the reader. Since yesterday, as of right now, according to Der Spiegel the Euro (EUR) has dropped 0.3% compared to the dollar (USD), but the value of the Euro has actually increased in value by about one USD penny. Seems backwards doesn’t it? How can the Euro LOSE against the dollar, yet be worth MORE? It’s because the EUR and the USD are related to each other and both economies are tanking compared to the rest of the world.

What might be in the future:

The USA is heavily invested in the International Monetary Fund (IMF). If the EUR becomes a failed currency, the USD will not be far behind it and the IMF will be bailing out both economies. This will put both economies under the rule of the same group.

Good bye sovereignty!

Categories: Europe
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