Euro crisis: Spain debt fuels German angst

Anti-austerity protest in Madrid, 24 Jul 12 Madrid: Another day, another anti-austerity demonstration in Spain

Sometimes in a prolonged crisis there comes a moment when the fundamental questions become clearer.

The Spanish crisis is doing just that. Its borrowing costs of around 7.5% cannot be sustained. Some time, probably in the autumn, the country will need a full-blown bailout. It will not be immediately. The country has around 40bn euros (£31bn; $48bn) to survive the short term.

If and when a rescue comes it will focus attention on the eurozone's bailout fund. Currently the EFSF has around 250bn euros left in the pot. That will be replaced by a permanent fund, the ESM, probably in September. When it is fully launched it is hoped it will have access to 500bn euros. A Spanish bailout would need around 350bn. An Italian bailout might need more than 700bn euros. Most officials doubt there are the resources to save Italy and Spain together.

And that brings us to Germany. Throughout this crisis the pressure has been on Germany to do more to save the euro - to agree to common European bonds, to agree to a joint deposit guarantee scheme. All require Germany to increase its liabilities. Indeed, a common assumption is that German taxpayers must do more to help out weaker eurozone countries.

And then overnight the ratings agency Moody's raises a disturbing question. It downgrades the outlook for Germany (and the Netherlands and Luxembourg) from stable to negative. One of the reasons was the extra financial burden that might be involved in supporting Italy and Spain. It was a warning that even a stellar economy like Germany cannot carry the weight of the eurozone's debts.

The German government was irritated by the assessment and affirmed the strength of the German economy. But ultimately the risks to Germany in becoming the eurozone's paymaster cannot be disguised.

Moody's did cite a second reason for its outlook for Germany - the risk that Greece might leave the eurozone.

The international lenders - the EU, IMF and European Central Bank - are back in Athens assessing whether Greece has done enough to meet its bailout conditions and to qualify for a further tranche of funding in September. It will only get the next 31bn euros if it gets a favourable report. But that is in doubt. Tax revenues are missing their targets, as is the privatisation programme and Greece is behind in reducing staffing numbers in public services.

Some German politicians are expressing doubts that Greece can stay in the eurozone. So we will be back with a very familiar dilemma. There is an argument for forcing Greece out if it is judged to have failed to deliver. But expect the combined weight of European officials to stress the risks and dangers of such an option. And in the end fear will probably persuade Chancellor Angela Merkel to stick with Greece - but Italy and Spain may raise a much more difficult dilemma.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 521.

    518"Nothing has changed since."

    That includes the valid justification for it. Especially the Braggadocio except for it no longer being empty. As Europe burns down while the USA slowly recovers from its own self induced economic depression it remains clear that the USA is the best invention the human race has managed so far.Doesn't Europe hate that and hate being reminded of it. I know you do .

  • rate this

    Comment number 520.

    515 Allen

    If you feel ill, need help with the taxman, car needs mending, teeth decaying, sink bunged up etc do you call the doctor, accountant, garage, dentist or plumber or your mates at work?

    I thought experts were people who spent years learning their trade and could be trusted rather than Jo Bloggs from down the road.

  • rate this

    Comment number 519.

    517 They can't be "kicked out." Not from the Euro, not from the EU. The system was deliberately designed that way so that there would be no going back through the turnstyle in the opposite direction.It's a one way gate. All ye who enter here abandon hope. There were few dissenting voices when this building on fire with no exits was engineered.It's a little late to cry about it now.

  • Comment number 518.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 517.

    Greece, Italy, Spain are much the same in terms of financial stability. They all share a big ZERO. Putting pressure on stronger economies, like Germany, France or perhaps even a hypocratic UK are quite fashion if Brussel's paycheque is late. I doubt anyone with common sense is surprised? Rather then bail-out just kick-out and get on with it. They should have never entered in the first place.

  • rate this

    Comment number 516.

    Right me old chinas:

    Now the saucepans are up the apples, time for some fun with the septics (intellectual raspberries) ...


  • rate this

    Comment number 515.

    We all said that the euro would not ever work & that was people from all works of life, but we have these so called experts who for some reason think that they know what they are talking about. They do not listen to the mass or is it they dont want to. Now we have Spain to contend with & yet these so called experts still think that they know what they are doing & they get paid a lot of money.

  • rate this

    Comment number 514.

    The EU political/economic/social system is disintegrating before our eyes.It is not the result of external pressures but of internal contradictions built into it that propagated as fractures.Early on they were ignored, painted over until they could be ignored no longer.Now they're gaping cravasses.There's no way to fix it or save it but EU political leaders and many Europeans refuse to accept that

  • rate this

    Comment number 513.

    How the debate on here has gone from Spains economy to the Russian navy and Nasa and space travel is surreal. Kalingrad was once german tenious link I suppose . By the way first diplomatic incident of the Olympics someone up at Hampden got their North Korean and South Korean flags mixed up.

  • rate this

    Comment number 512.

    496"Russia is about to lose its last naval base in the ME -TARSUS.

    Once homicidal Assad regime in Syria is toppled. Cyprus could be a replacement"

    It might matter...if they had a navy.

    "Boris, how many times do I have to tell you? First you open the hatch cover, then you fire the torpedo.Hatch first, torpedo second. Hatch first, torpedo second.What is our education system coming to?"

  • rate this

    Comment number 511.

    ToneP:The most successful space nation is the US and the most succesful space agency is NASA

    USA wants to be the best we can be+show the world what we are made of which is: a whole lotta heart!!! :)

    Marg: ADIDAS

    Made in USA!

    USA Rowing Team also wearing American

    America is coming back!!!

  • rate this

    Comment number 510.

    Daniel K: US is known for 2 things: its stinginess& its delusional self-deceit

    Average Americans donated millions to Haiti+Japan after earthquakes
    Peyton Manning donates millions to fund children's hospitals
    Bill Gates donates millions to poor people around the world, especially Africa
    Charlie Sheen is donating millions to USA soldiers (a percentage of his new show's profits)

  • Comment number 509.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 508.


    By near Earth I mean cargo/men deliveries to and fro ISS, small telecom satellites launches and commercial tourist orbital flights.

    In other words something which can be profitable, but does not expand our scientific knowledge much.

    Btw. In my book even NASA's mission to Pluto is near Earth.

    Really valuable new info obtainable only in other solar systems.
    With new propulsion.

  • rate this

    Comment number 507.

    Unbelievable, the EU are whining about an inflation busting 2.8% rise for the EU budget, while the Greek pensioners are told to keep smiling when their pensions are cut by 40%.

  • rate this

    Comment number 506.

    484"Please remind me where was it that Russia wanted to send its probe?"

    I think it was intended for downtown Tbilisi Georgia.

    Reminds me of a British wit who, when von Braun claimed his actual motivation always was just to send rockets to other planets, remarked:

    "I aim for the stars but often hit London."

  • rate this

    Comment number 505.

    #502 PMK

    You seem to get carried away: here is a website describing the private funding of Near Earth Object searches.

    Obviously, there will be collaboration with NASA in the use of the Deep Space Network. Launch is planned for 2018, but such dates are known to slip...

  • rate this

    Comment number 504.

    499.D Bumstead
    @496 What on earth would Russia need a naval base in the Med for- the Black Sea Fleet?


    You might just as well ask why Moscow threatens to deploy Iskander missiles in Russian military/mafia controlled region of Kaliningrad.
    [ethnically/geographically Lithuania/Poland]

    And why, once at it, still calls Koeningberg/Kralevec by the name of the Bolshevik thug.

  • rate this

    Comment number 503.

    I am sure our dear margaret will soon explain why Russian miracle SLBM missile Bulava (Russian: Булава, lit. "mace"; designation RSM-56, NATO reporting name SS-NX-30, GRAU index 3M30) , a multi-billion multi-year project has been such a failure so far. Just as a nuclear sub which was suposed to launch it?

    So far 1:0 to American imerialists and their imperial system

    [not to mention AMD]

  • rate this

    Comment number 502.

    I'm still waiting for your beloved margaret howard to explain whether this recent 1.5 billion rubles fiasco was due to putinesque Russia using imperial system or a metric one?

    P.S. Do EU posters know that more and more near Earth programs are financed by PRIVATE US citizens, VOLUNTARILY, and not by US government/NASA/forced taxpayers?


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