Five Reasons for Spanish Debt Crisis

Alan Clendenning and Harold Heckle for the Associated Press wrote the 5 reasons why Spain is in trouble and why it will be hard for the European country to quickly solve its debt crisis.

They cite the following 5 Reasons:

1. Hurting regional governments
2. Weak growth prospects
3. Bank bailout worries
4. Debt dependency
5. Growing public anger

Here is an excerpt for reason 4. Debt dependency.

The bank bailout has only made investors more worried about Spain’s financial position.

Two-thirds of Spain’s government bonds are held by the country’s banks, pension funds and insurance companies — that’s 50 percent higher than last year. This sharp increase is a sure sign that foreign demand for Spanish debt is falling fast.

Market-watchers are concerned that Spain and its banks are dependent on each other: the government is issuing debt, the majority of which is being bought by its banks, only to use the funds from the sale to prop up its banks so that they can buy more government debt.

Spain has so far this year issued €59 billion in bonds out of a total €86 billion planned for 2012. But as the banks’ condition deteriorates, there is growing concern that they won’t be able to buy up much more government debt.

via AP

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza