Wednesday, June 16, 2010

European Contagion Ready To Leap To Spain

It's not official yet, but the IMF and ECB are about to get a lot busier crafting a bailout for Spanish government debt:

The head of the International Monetary Fund is to visit Spain amid reports Madrid is seeking a bailout while the government bit the bullet and approved crucial reforms of its rigid job market. 

The cabinet agreed the sweeping labour reforms, deemed essential for reviving the economy and fending off a Greek-style debt crisis, despite a union call for a general strike against them.
 

Lots of luck with that one!  The bond market will never tolerate a bailout of the size required to save Spain.  The best case scenario is a narrow passage of an austerity package in Spain, with all its attendant deflationary effects.  Throw any growth projections for Europe out the window.