Doubts about Spain Put Pressure on Forex Traders

If the Euro has not been under enough pressure recently, the growing doubts about the stability of the Spanish economy have added their bit to the mix. Europeans are wondering if the country is on its way for an IMF- EU bailout in spite of valiantly doing without it for so long. The recent downgrades to this economy have set off a fresh wave of doubts about Spain’s ability to hold its head above water.

Crisis Cabinet Meeting Underline Seriousness

Spanish Premier Mariano Rajoy has reacted quickly to the recent Moody’s credit rating downgrade by announcing an emergency cabinet meeting to discuss the plans for the country’s immediate future. While it remains to be seen what damage control mechanisms come into existence as an outcome of this meeting, it shows that the politicians are giving the situation the attention it deserves. One of the critical points that are expected to be discussed is the increased bond yields.

For those who are invested in Spanish currency or the Euro, this is highly relevant because the hike in interest rates will have the effect of adding to the pressure on the economy and also on the currency, in particular.

A Possible Silver Lining?

To get an accurate picture of what the future could hold for the Spanish currency, it is also important to view what may be the only silver lining in the entire dark scenario. In a Reuters report, it has been mentioned that Spain banks may be brought back to even keel with an infusion of €60 to €70 billion. While this amount is larger than the IMF estimates that made the rounds last week, it is lower than the initial figure requested by Spain’s government.

An audit has revealed that the €100 billion that was the original amount requested for may not be required. Does this show that the government still has some aces up its sleeve? Only time will tell whether this trust placed on the beleaguered economy is misplaced.

Are Earlier Mistakes Proving Costly?

Late last month, Mario Draghi, president European central Bank made his opinion public that Spain failed to correctly estimate the impact of allowing Bankia to get mired in deep trouble. This seven bank conglomeration suffered heavy losses when the housing/ real estate market collapsed in Spain. This mistake could have paved the way for the current scenario in this economy, some believe. Hopefully, Spain will learn from previous mistakes to emerge a stronger economy after the crisis is past.