It was just a week ago that Spain’s prime minister Jose Luis Rodriguez Zapatero declared the Eurozone crisis finished, particularly for Spain. “I believe that the debt crisis affecting Spain, and the euro zone in general, has passed,” he said.
In his favour, Spanish government bond yields have diverged from other European ‘PIIGS’ nations such as Ireland or Greece, and are nowhere near their 2010 highs. The 10-year yield is relatively tame at 4.22%, showing how bond markets aren’t treating Spain like one of the PIIGS anymore.
However, according to a poll of money managers, Spain’s top Aaa credit rating is about to be cut by Moody’s, and the question is whether it will be reduced by one or two notches. Moody’s concurs. Its senior credit office Stephen Hess saying Spain would likely lose the rating according to Bloomberg.
At the same time, Spanish unions are now engaging in the first general strike in eight years, in opposition to the very government spending cuts that are needed to shore up Spain’s finances and creditworthiness. The car industry is reportedly ‘paralysed’ today and buses in Madrid are ‘extremely scarce’, with protesters blocking certain markets and factories.
One has to wonder if Mr. Zapatero could soon regret his earlier optimism.