However, Spain doesn't pose the same threat as Italy and Greece
We've seen this before: a European country with high debt levels, interest rates on 10-year bonds spiking, and a change in leadership. Add to that
[See why the OECD thinks major economies are headed for a slowdown.]
The Spanish people rejected the ruling Socialist government in favor of the center-right
Yet the results of the election highlight the gap between Spain and its southern European brethren. Markets were unwilling to trust former Italian Prime Minister
"This is the country in Spain with by far the highest unemployment rate, yet in this election the Spanish people overwhelmingly voted for the most fiscally austere and generally pro-reform-minded party," despite the presence of populist alternatives, says
Indeed, though Spain is certainly far from healthy economically -- and markets agree, with the yield in the Spanish 10-year bond at nearly 7 percent -- there are plenty of other reasons why Spain is not the European problem child that markets feared
That willingness to effect change could be doubly good for Spain, says Kirkegaard.
"Even if the [
Assuming many European countries go through with implementing austerity measures, as Spain appears likely to do, the reduction in government spending could further diminish GDP. Earlier this month, the
The hope is that a few quarters of slow or even negative growth will ultimately pay off as countries diminish their debt levels, reform their economies, and hopefully reemerge stronger on the other side.
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