Spain reported today that rather than its economy growing at 0.2% for the 2Q/12 it actually shrank 0.4% for the quarter. Also, 7 more of the 17 regional governments are expected to do as Valencia has done and ask for government aid to meet regional deficits.
Spain was just given a bank bailout costing over $100 billion. Now, more investors are worrying that it may need a full-fledged bailout like Greece and Ireland have. The new rates on Spanish 10-year debt reflect that to some extent, rising to 7.5%, about the same as Greece when it first started asking about bailouts.
Investors often lump Italy together with Spain and Italian bond rates, while lower, have followed the same course as Spain’s since the crisis started. Everyone seems to agree that together, Italy and Spain are too large for the rest of Europe to bail out.
Accordingly, European stock markets lost about 3% today. The US market is down only 1% , likely because some money that might normally be invested in Europe might be coming to the US as a relatively safer haven, especially since emerging markets are not exactly on fire either.