Spain-one part Ireland, one part Greece

Spain, pain, Spain, pain and the saga goes on. Below some “spot on” points by Blackrock.

• Spain brings European sovereign risk back in focus: European risk again dominates the outlook for global financial markets. Whether policy makers have learned the critical lessons of past mistakes in Greece will determine the near-term outlook.
• One part Ireland… and one part Greece. Spain’s economic problems bear both resemblance and critical differences to aspects present in both prior crises in Ireland and Greece.
• The pain in Spain falls mainly on…Germany. The lesson of the failures of the Greek intervention at its core was to fail to recognize that Greece’s problems were not limited to Greece.

Spain brings European sovereign risk back in focus: European risk again dominates the outlook for global financial markets. Whether policy makers have learned the critical lessons of past mistakes in Greece will determine the near-term outlook. Spain’s larger size and obvious spillover effects to Italy argue for a faster policy response. However, the bitter experience of this past year’s crisis response highlights policy makers in Europe tend to let events be dictated to them rather than proactively dictate the outcome. Caution clearly is warranted in April given that experience. Yet panic belies critical differences in Spain from previous episodes of sovereign risk that suggests a more limited potential for spillover. While some reduction in portfolio risk appears prudent, we are maintaining our longer-term credit recommendations and have moved down our non-USD recommendation to neutral from overweight.

One part Ireland…and one part Greece: Spain’s economic problems bear resemblance to aspects present in both prior crises in Ireland and Greece. However, Spain differs in that the size and scope of these problems appear much more manageable. And the ECB liquidity support today means much greater room for flexibility to navigate the crisis as the banking sector can support the sovereign to an extent not previously present.

The pain in Spain falls mainly on…Germany: Failure to recognize that Greece’s problems would not be limited to Greece was a key policy mistake. If policy makers have learned that lesson (and that is a big if), recent volatility emanating from Spain could be limited.

Full must read article here.