First Greece, now Greece Spain. The Madrid virus is responsible for the sharp depreciation of the single currency between Tuesday and this morning. In fact, the continental currency fell to its lowest level in the last two years in the wake of the Spanish difficulties in restructuring the banks, devastated by the bursting of the real estate bubble.
Le resignation di Miguel Angel Fernandez Ordonez, Governor of the Bank of Spain, reinforced gloomy expectations about the future of the Spanish economy, fueling investors' rush for safer overseas assets.
Spanish spreads have increased so much that it is now impossible for Madrid to finance itself sustainably, and the probable collapse of many credit institutions will force the government to seek funds for nationalisation, as it has already done with the giant Bankia.
But how Madrid can bail out the banks without exceeding the deficit limits imposed by Germany is far from clear.
Added to the strong uncertainty on the Athenian front, the Spanish scenario pushed the single currency this morning to a new two-year negative record. The euro settles, in fact, below quota 1,2450 at the opening of the stock exchanges, consolidating a rapidly declining negative trend that has now lasted for almost a month.
Even against the yen, the single currency lost ground, falling around its level 98,80, on the annual lows.
On a monthly basis, the European currency lost the 5,9% of its value against the dollar, the steepest drop since last September, but it depreciated even more against the yen, blaming a drop in the 6,5%.
At this point, a further slide towards altitude seems quite probable 1,20, fueled by the news from Athens but above all by the growing fear that behind Bankia there is a long line of lenders on the verge of bankruptcy: a much more unstable situation than initially estimated.
The total exposure of the Madrid credit sector to the real estate sector, in fact, amounts to approx 320 billion euros, and according to the Institute for International Finance the bad debts would amount to approx 280 billion, almost the 90% of the total exposure.
