Sign in
Become a MarketWatch member today
Brett Arends' ROI
April 12, 2011, 12:02 a.m. EDT
View all Brett Arends' ROI "º
"¹ Previous Column
Is America the next Portugal?
First Take "º
Cisco flips on the Flip but more is expected
By Brett Arends
LONDON (MarketWatch) "” Political leaders in Europe have spent the last few days telling everyone who will listen that the credit crisis here is over.
Portugal, they say, will be the last country to need a bail out. And Spain, the next weak link in the chain, will be OK.
"Spain isn't a problem," French finance minister Christine Lagarde told my colleagues at The Wall Street Journal. Read "EU Finance Ministers Expect Spain Won't Follow Portugal."
"Now I do not see any risk of contagion," said Spain's Finance Minister Elena Salgado. "I think we are totally out of this."
WSJ's Phil Izzo has the results of a Journal survey of economists showing optimism toward a continued economic recovery in 2011.
And Olli Rehn, the European commissioner of economic and monetary affairs, said he was "certain" Spain's tough budget measures would ensure it avoided a bailout. It "will not need external financial assistance."
Are they right?
They had better be.
Europe cannot afford a Spanish bailout.
Forget Greece. Ireland. Portugal. Those are tiddlers. Spain is a big economy. The fourth biggest in the eurozone. Its government debts exceed all those of Greece, Ireland and Portugal put together.
If Spain breaks, the system probably breaks.
Take a look at the numbers. From the International Monetary Fund, Greece's gross government debts total 324 billion euros -- about $470 billion. Ireland's 154 billion euros, and Portugal's 150 billion euros.
Spain? It's 747 billion euros, $1.1 trillion.
What are the prospects?
As usual, nobody really knows.
For the moment, there's an uneasy calm in the markets. Spanish bonds cost about 2% of principal a year to insure against default, according to market data firm CMA DataVision. (By contrast, Irish and Portuguese bonds cost more than 5%, and Greek bonds more than 9%.)
Allan Von Mehren, strategist at Danske Bank, noted that on the surface things look OK. "If you look at the public finances at the moment, and how the market is trading, it seems sustainable," he said.
But, he added, that may not mean very much. "There's one big unknown in Spain," he said. "That's how big the losses will be in the banking sector. And it depends on how much further house prices have to fall."
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co.
Cisco Systems made the first big move to address some of its growth issues, but Wall Street wants the company to address the issues in its core business
12:54 p.m. Today12:54 p.m. April 12, 2011
"Why Europe's debt crisis isn't over http://on.mktw.net/gKcxCj" 11:08 p.m. EDT, April 11, 2011 from MKTWArends
"Is America the next Portugal? http://on.mktw.net/gf7KHk" 11:48 p.m. EDT, April 7, 2011 from MKTWArends
"The truth about hedge funds http://on.mktw.net/fdx311" 12:02 a.m. EDT, April 6, 2011 from MKTWArends
"Is Ireland really going bust? http://on.mktw.net/e5cXGm" 11:36 p.m. EDT, April 4, 2011 from MKTWArends
"Ponzi scheme hits mystery hedge funds http://on.mktw.net/i8iZju" 12:00 a.m. EDT, March 29, 2011 from MKTWArends
Writing on the Wall
Bailouts for banks, free markets for us
Behavioral Economics
Lazy Portfolio winners battle 11 newcomers
The Technical Indicator
S&P 500 drops to major technical test
The Economist's Corner
Cutting budget deficit is harder than it looks
What Wall Street Won't Tell You
Why Europe's debt crisis isn't over
Read Full Article »