Spain's financial crisis could send the entire world into recession, warns
Washington Post opinion writer Robert J. Samuelson. That would mean a weaker U.S. economic recovery, less chance of President Barack Obama being re-elected, more social unrest in Europe, and growing nationalism and protectionism.
Like Greece, Portugal and Ireland, Spain is seeing interest rates on its government debt soar as investors begin questioning its ability to repay loans.
Like other eurozone countries, Spain may need emergency loans from the European Central Bank, and the IMF, and other European countries, Samuelson warns.
But Spain's economy is twice as big as Greece's, Ireland's and Portugal's combined, he points out.
And Spain's banks, suffering severe losses in the wake of country's real estate bust, need more capital. Plus, economically troubled Italy has an economy that's 50 percent larger than Spain's.
Who is going to bail out these countries, Samuelson wonders.
"The truth is no one has a neat solution to end Europe's financial nightmare," he writes.
A growing recession in Europe will hurt investor confidence, reduce imports, and squeeze credit to businesses and households, he warns. Europe, he reminds readers, is about a fifth of the world economy, about the same as the U.S., the 27-member European Union is the world's largest importer.
Unemployment is at 24 percent and youth unemployment at about 50 percent. Spain's country's central bank has admitted that economic growth fell 0.4 percent in the first quarter.
Still, ECB Governing Council Member Ewald Nowotny says the situation is improving and Spain will not need more international aide.
“For the time being I don’t see this,” he told CNBC, noting that Spain has implemented structural reforms to its labor market.
“I will say that in half a year time, at the end of this year, the results will show,” he told CNBC.
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