The Eurozone saga continues with both Greece and Spain reported to be facing serious financial distress. CityAm claims that Greece could default by the end of the month. Whilst we feel that Greece’s default is inevitable it is unlikely to occur as early as next month. Early indications suggest that France and Germany began to lose faith in Greece back in January. It will take several months to develop an exit plan and to print money should Greece adopt an orderly withdrawal from the Euro. Default in the latter part of the year is more likely unless other factors such as Spain trigger a collapse.
Spain is the latest Eurozone member to be under scrutiny. This is not surprising given the exceptional levels of unemployment which exceeded 25% last month. Spain have been forced to bail out Bankia, the country’s third biggest bank which has fallen into distress. Investors and Eurosceptics are now monitoring Spain with uncertainty over its solvency. The Eurozone may be able to cope with a bail out of Greece but Spain is simply too big. The repercussions will be significant.
The election of Socialist French President Francois Hollande has further fuelled concerns over the stability of the Eurozone as it is unclear what his stance will be over austerity and whether he can maintain a relationship with Angela Merkel.