The market was mistakenly focused on the French election when it should have been watching Greece. Now, even the slightest Greek headline is moving the market.
Meanwhile, the Spanish Prime Minister announced today that his country’s banking system has collapsed and it hardly caused a whisper.
“Today, the Treasury is practically the only one that finances itself on the markets,” Rajoy said in the Senate. The problem isn’t “theoretical” as it’s “happening to the immense majority of regions, our whole financial sector and most big companies.”
The inability to access credit is cataclysmic for an economy.
Economists expect a 1.5% contraction in Spain in 2012 but it will be several times that magnitude if credit markets stay frozen. Companies use short-term funding to stock inventories and pay wages — unemployment could rise to in a flash 30% from an already-staggering 24%.
Budget deficit forecasts will be blown out of the water.
Greek politicians will continue to babble and squawk but for now but it’s just noise. Spain is on the precipice of a Lehman-like abyss.
