The bad news from Spain has just gotten worse: EU efforts to stave off a massive bailout for Spain have been unable to calm markets or renew faith in Spanish banks. The euro has taken a massive beating over the past week, falling to €1.24 against the dollar, down from €1.32 one month ago. Meanwhile, as the Guardian reports, Spanish interest rates have risen to 6.6 percent, close to the rates that ravaged Portugal and Greece. All the while, Spain’s housing and unemployment crisis has continued unabated, and its troubled banks have been reluctant to lend.It looks increasingly likely that the Eurozone will soon be forced to perform a Greek-style bailout of its fourth-largest economy. It’s not clear whether there is enough money to get the job done. Even if the money is there, there is no guarantee that Spain can or will comply with all of the conditions. If it can’t, the Spanish experience will look much like the Greek one—albeit larger and more threatening to the euro project.The first whisperings of trouble in France are even more worrying than the news from Spain, however. Amid pages of advice for Spain and criticism of the Rajoy government, a European commission report warned President Hollande that France’s fiscal health may be worse than his numbers indicate:
It described Paris’s budget projections as “optimistic” and called for tax, labour market and pension reforms, and liberalisation and deregulation of rail and electricity networks.“France’s track record when it comes to meeting expenditure targets is mixed,” the commission said. “It cannot be ensured that the excessive deficit will be corrected by 2013.”
Naturally, the commission advises Hollande to bring his country’s finances into line with the EU’s fiscal requirements. Perhaps they weren’t paying attention to his recent campaign: most of Hollande’s campaign promises pointed in the other direction.It’s still too early to predict how this will all play out, but over the past month it has become increasingly clear that the gravest threats to the Eurozone may not be in Greece.