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Debt in Spain: What Investors should know about Spain’s Bailout
Pinnacle Digest writes: Spain's walls have cracked as bailout money from the EU floods its banks and cities. Spain was originally said to get up to $125 billion from the EU to shore up its collapsing banking system. This came three weeks after Bankia, Spain's 4th largest bank asked the government for a $24 billion bailout. Early reports are suggesting Spain will receive $100 billion initially. Debt in Spain has spiraled out of control since its real estate bubble burst and economy slipped into a recession.
What's interesting is that this $125 billion is 270% more than the amount estimated by the IMF. This proves once again that the IMF and other international bodies continue to underestimate the size of this expanding debt crisis. The aid money will come from two funds - the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). This gamble that the economy of these broken EU nations will turn around continues to get bigger and bigger. Each passing bailout raises the stakes of which no one can afford to lose. If or when the house of cards comes down it will be the citizens of Spain who pay as inflation takes over.
EconMatters tallies it up and explains that Spain marks the fourth bailout during this Euro Zone debt crisis saga, after Ireland, Portugal and Greece, while Italy is looking good to be the fifth bailout candidate. America has to be worrying as Spain is still, from a federal debt standpoint in better shape than the US. BusinessWeek has reported that, the bank bailout could add up to 10 percentage points to Spain's debt ratio, which should peak at about 100% of GDP in 2015. If those stats are indicative of any past predictions it will most likely breach the 100% ratio much sooner.
As European leaders work on the ability to issue joint euro bonds to rescue its falling currency the world has to be getting weary of these printing press tactics.
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