Is ‘Spexit’ a word yet? We've already got ‘Grexit’ – a reference to the widely expected Greek exit from the Eurozone. But the appearance of Spexit in the headlines would herald an altogether bigger crisis – an impending Spanish exit from the Eurozone.
Writing for EconoMonitor, Michael Pettis argues that Spain will soon have no choice but to leave. The basic problem is as follows:
If Spain can’t continue to borrow its way out of trouble (due to the interest rates demanded by the money markets), then it must earn its way out of trouble – which would require one of three things to happen:
The first option means a massive transfer of wealth from northern to southern Europe, so the Germans won’t agree to it. The second option is even worse (from a Spanish viewpoint) as it amounts to deliberate deflation – disastrous for any economy, but suicidal for one as debt-laden as Spain’s. That just leaves the third option – depart (the Eurozone), devalue (the currency) and default (on Spanish debt).
So, unless the Germans give in and give away their money, a Spexit looks unavoidable – with all that implies for anyone the Spanish owe money too. Time (and not much of it) will tell.
But, for now, one final thought from Mr Pettis:
‘Frexit’, anyone?