Who knew that the most recent EU summit for rescuing the European economy would have achieved absolutely nothing to keep ailing countries from collapsing further? Today, the Spanish government has banned the short-selling of shares in order to arrest price moves. The decision comes after European markets dived today over worries that Spain will need a full sovereign bailout from the IMF. Given that the country is the EU’s fourth-largest economy, that amounts to a pretty serious worry.
The fears about the country’s financial future are reflected quite starkly in the FTSE 100, which has dropped 2.3% this afternoon in response to the escalating crisis. The US’s Dow Jones opened down 200 points this morning, and Nasdaq has fallen around 2.5%, too. Whilst markets are short-termist by default, it is worth noting that falls like these tend not to be just jitters: Spain’s sovereign finance situation is genuinely dire, and government action to prevent short-selling is a serious alarm bell for investors.
Furthermore, Spain’s borrowing costs have hit a euro-era high, with yield on 10-year bonds reaching 7.5%. Part of the problem is that geographic regions in Spain have begun asking the central government for financial assistance because they are themselves highly indebted. Murcia today became the second region after Valencia to ask for the support.
Once again – and as Angela Merkel reminded us several months ago – there is no ‘silver bullet’ solution for the economic woes just over the English Channel. With banks and governments so highly leveraged and struggling to recover bad debts all over the place, we can’t see any quick fixes emerging. The saga continues…