Spain is different as the old advertisement said in the past years, isn't it? Spain Prime Minister Mariano Rajoy must be questioning himself: She loves me, she loves me not as he has been "effeuiller la marguerite" about market and Merkel in the past weeks.
"Spain fear," said Dr. Sivaraman; "Can you smell it? There's PANIC in the air!" claims Nadeem Walayat; "Default by Spain or Italy would be devastating," comments the Wells Fargo analysts team. And it is a clear picture about what is thinking the market about the current situation.
On Friday, the market began the day with speculations on possible bailout to Spain as soon as this weekend, lately, Fabrizio Goria sent the bomb across his twitter account writing that a Spanish diplomat has said to @Linkiesta that the "Spanish formal request for aid will arrive bf Monday markets opening, likely tonight [Friday]".
The past days, today and the next weeks news will focus the Kingdom of Spain and its imminent bailout, the question is not if, but when and it could be as soon as this weekend despite the fact that "top-down" and "bottom-up" informs will be released on June 21 and 31 respectively as Ramon Forcada said.
FXstreet.com has collected experts opinion across the world about this dramatic situation as Spain doesn't have enough forces to calm market, here they are:
Spain fear. After Greece fear now it is turn of Spain fear in EUROZONE. Analysts expect the worst to happen but they are only hypothetical derivations. If we understand that no country is ‘ without crisis ‘.So simply high lighting a specific country crisis is one of the market related induced fear. there is no country in the world including US which is not downgraded by rating agencies. Each time such a news is released there might be euphoric condition in the market, but the next news may give different sentiment to the market discounting the earlier hype .
Fundamentally Spain will be rescued with conditions .It may be a wider plan to tackle the banking and economic systems. This sort of contagion fear one after another is not new to us and to the market. market may react to rumors and make different moves when the actuals are released, discounting/ignoring every time the previous episode.
Ramon Forcada Gallo, analyst at Bankinter:
The "top-down" analysis of Oliver Wyman and Roland Berger will be published on June 21st, while "bottom-up" Deloitte, PWC, E&Y and KPMG auditories on financials institutions will be released in June 31st. There is a rumor where Spain would ask assistant line for banks this weekend, but it seems unfounded that could happen now.
Peter Spiegel, analyst for FT.com
If Spain makes the request, it would come before private auditors hired by the Spanish government to examine its banks’ books make a final judgment on the sector’s needs, now due on June 21. But officials have decided speed would demonstrate their commitment to stabilising the country’s financial sector.
Patrik Urban for AshrafLaidi.com
This weekend could provide some relief to Spain induced market tensions as Reuters reports that Spain is expected to request European aid for its ailing banks. A conference call to discuss the request should take place on Saturday and the announcement is expected Saturday afternoon. This news comes one day after Fitch downgraded Spanish credit rating to BBB from A with negative outlook. Spain is now only two notches above the junk level.
Valeria Bednarik, FXstreet.com Chief analyst
A direct bailout seems unlikely, since Angela Merkel remains opposed to the use of special funds to direct rescue of troubled banks. While market focus changed from Greece to Spain after the costs of government bonds rose to dangerously high levels, market talks are all about a possible Spaniard bailout. Early Friday, comments on a weekend European finance ministers talk were later denied by Deputy PM Saenz, who stated that they won’t be able to determinate the total amount requested at least until June 21st.
Fears Spain will be unable to rescue its banking system keep investors on their toes, and Euro under pressure. Some informal estimates suggest that Spanish banks rescue would cost about 500 billion Euros, so the key question right now, is where would that money come from. The EFSF has about 700 billion, which means a Spain rescue might be too expensive, not to mention that Spain should expand its austerity measures to be able to receive it, something that could be disastrous for an economy already in recession.
David Song, Currency Analyst at DailyFX.com
Speculation for a Spanish bailout sapped risk-taking behavior on Friday and the ongoing turmoil in the euro-area will continue to drag on market sentiment as European policy makers maintain a reactionary approach in addressing the debt crisis. As a result, the Euro continued to give back the advance from earlier this week and the single currency is likely to face additional headwinds in the coming days as European policy makers encouraged Spain to tap the European Financial Stability Facility. In turn, there are expectations that the EU will hold talks over the weekend to discuss a potential bailout, but the measure will only help to buy more time as it fails to lift the fundamental outlook for the region. As a result, we should see the European Central Bank continue to carry out its easing cycle in the second-half of the year, and the Governing Council may ultimately utilize a range of policy tools in the coming months amid the heightening threat for contagion.
Jay Bryson & Tim Quinlan, analysts for Wells Fargo
The banking system of the affected economy probably would collapse due to the significant holdings of domestic government debt that default would make worthless. Due to substantial amounts of cross-border lending, banks in other European countries, especially in France and Germany, would likely suffer large losses as well. The indirect effects on the American banking system and economy could also be significant.
The worst-case scenario of EMU disintegration is not our base-case view, although its probability is not insignificant either. What seems more likely—in our view the probability is somewhat above 50 percent—is that European leaders will do enough to prevent a disintegration of the EMU. However, they probably will not do enough in the short term to completely “solve” the European debt crisis. Reforms that would “fix” EMU would include further fiscal integration, government financing via so-called eurobonds, bank recapitalization, bank regulation, supervision and deposit insurance at the supra-national level, and economic and labor market liberalization in highly indebted countries. In our view, however, domestic political constraints will make it difficult for EU leaders to entirely embrace this complete menu of reforms, at least for the foreseeable future. Consequently, the European debt crisis, which has been waxing and waning for more than two years, will probably continue to fester for some time.
Nadeem Walayat, editor at Marketoracle.co.uk
Can you smell it? There's PANIC in the Air! Whilst the financial mushroom cloud towers over Greece's economy as it prepares for an inevitable GrExit. However the rest of euro-zone has far more to fear than from just a Greek radioactive financial fallout cloud because many of the euro-zone countries have already FLASHED Financial Armageddon detonations themselves that encompasses most of the Euro-zones 330 million population.
Greece will exit the Euro-zone, and sooner rather than later. Spain and Portugal will exit within 6 months of Greece leaving.