Gonzalo Lira: Spain to leave Euro first, this year

[pmbug]

...
I now think that Spain will exit the eurozone first—precipitously and without warning—and that the impact on the euro will be much more sudden and dramatic than I had earlier thought.

In this SPG Supplement, I will explain my thinking. First I will discuss the general European situation; then the Greek debacle, and how the European leadership has lost sight of what salvaging Greece was supposed to be about; then the current Spanish situation, how it is unsustainable, and how the new Rajoy government’s only escape—politically and economically—is to default and then exit the eurozone.
...
Why will Spain exit the eurozone? Because you can’t squeeze blood from a stone. With a 24% unemployment rate that is rising, and over half of the young people unemployed, no politician in his right mind—especially a nationalist—will decide that even more austerity is the cure for the disease. One thing is cutting off the fat—it’s quite another to be cutting to the bone.

For Rajoy and de Guindos, it will be simpler to exit the eurozone, go back to the peseta, and devalue by 20% to 30% right off.

It is always easier for a politician to cut expenditures via devaluation than via nominal spending cuts. Since the Eurocrats won’t allow a 20-30% devaluation of the euro, and since Spain cannot really cut any more or find any more money in the bond markets, then the only thing left for it to do is devalue a currency that it controls:

The New Peseta: Coming to Spain before the end of the year.
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More: http://gonzalolira.blogspot.com.au/2012/04/spain-will-exit-eurozone-firstthis-year.html

Pro tip - type Ctrl-A when you visit his blog to highlight all the text on the page. It's hard to read otherwise because of the background image he uses.

 

[ancona]

The southern part of the union should be dissolved immediately. I think that move would do more to strengthen the Euro than to weaken it. After all, if you eliminate the welfare cases, then you are left with the parts of the union that can actually support themselves.

 

[swissaustrian]

He's entitled to his opinion, but given that German and French banks have huge amounts of Spanish bonds on their balance sheets I rather expect a Greek style tragedy with continuosly deteriorating economic conditions in Spain. They won't allow them to get their own currency. Eventually another former Goldmanite will be instaled if necessary. The true reason why they're trying to hold every country in the Eurozone is the banks, plain and simple.

 

[ancona]

I thyought the technocrats were already firmly in control?

 

[rblong2us]

Agree with swissaustrian.

Ive spent the last 5 years reading articles explaining about why its all about to fall over and even in 08, when it came close, the fix was in.

If there is a predictable problem it will be 'managed' and blurring the G10 currencies with 'swaps' will fix anything that 'money' can fix.

It will take a genuine, unforseen, black swan event and that could be a while ......

Alternatively, they really are planning a reset and a new gold backed currency .....