The pain in Spain gets worse by the day with news that Standard & Poor’s has just downgraded the country again. This is serious because Spain is Europe’s fourth biggest economy and the world’s 14 largest. Spain is not Greece and the shock waves from Spain could drag down markets around the world and the global economy. Standard & Poor’s last downgraded Spain in January so to do it again four months later tells us that the ratings agencies can’t see Spain recovering any time soon, if at all. The downgrade to BBB-plus from A moves Spain into new territory, we’re in unchartered waters.
Even worse is the alarming news that one in four Spanish workers is now unemployed with the unemployment rate there now at a whopping 24.4 per cent. Spain is home to more than a third of the eurozone’s jobless and more than half of young people have no work. That means the Spanish government won’t be getting much tax revenue to pull it out of the hole.
The big problem in Spain, as I point out in blog entry here, is the number of zombie banks. The economy had been built around a booming housing market and now that it’s collapsed, the banks are left with bad loans. Spanish investors can’t repay the loans.
That’s why it’s alarming to read reports that the Spanish government is looking to offload those worthless properties on to foreign investors and foreign exchange funds. In their dreams!