After some brief optimism early on, it has all gone pear-shaped for the single currency, with a new 2yr low just above 1.25 recorded.
Apparently the president of Catalonia has pleaded for federal assistance, as his region is struggling to obtain debt financing from the market. Although Catalonia’s financing plight has been known about for some time, nevertheless it has unsettled the euro at a time when there is already acute sensitivity to the Spanish situation.
This follows an announcement earlier today that Bankia would need EUR 15bn in fresh capital, much higher than last week’s estimate of EUR 9bn. Worryingly this EUR 15bn is in addition to last week’s capital injection into Bankia of EUR 4.5bn by the Spanish government. Such has been the loss of confidence in Spanish banks recently that numerous bank shares have had to be suspended today, amidst speculation that soon many of them will need to be nationalised. New co-head of Deutsche Bank Juergen Fitschen contributed to the Spanish flight by claiming that the numbers being mentioned to recapitalise Spanish banks are staggering. He is, of course, not wrong.
Greece may be the straw that breaks the camel’s back, but it’s the weight of Spain that will do the most damage.