Will Spain beat Greece to the Door?

(eToro Blog) Investors’ growing concerns over Spanish debt are more than legitimate, and some analysts believe that the Spain could, in fact, be the next E.U. member to seek an exit from the Eurozone. There are several reasons that that notion is being supported, including the size of its debt load, which makes it too big for the E.U./IMF to even try to save, and its capacity to survive and thrive outside of the E.U.’s control. Given the right circumstances, many agree that the Spanish economy could once again thrive; Spain has a strong industrial base, and its exports to GDP ratio is at 26%, near the same level as the U.K. or France.

One economic strategist says that moreover, there’s no internal political backlash to be concerned with as a majority of Spaniards are more than disgruntled over the country’s dire fiscal situation. Spain’s economy continues to fall deeper into recession, and its unemployment rate is the highest in the Eurozone, thus the prospect of several years more of E.U.-ordered austerity is not being embraced.

The Spanish government has been working hard to get their fiscal house in order, which includes banking sector reforms and an overhaul of the labor market, though some might say those efforts were largely unsuccessful given the recent rise in bond yields. Yesterday’s Spanish sovereign debt auction saw the spread between Spanish bond and Germany bunds hit 500 basis points; for Greece, Ireland and Portugal that was the breaking point.

It is apparent to some that Spain does not want to be saved by the E.U. as the Spanish Prime Minister Mariano Rajoy has long maintained that they would not defer their sovereignty. Rather than a handout, the Spanish government would have liked a hand up. Madrid has been pushing for the ECB to take on the role act as a lender of last resort, which the ECB (under pressure from Germany) said they would not do.

It was reported yesterday that the ECB had rejected the Spanish government’s plan to recapitalize Spanish bank Bankia; analysts saw that as Spain’s attempt to force the ECB’s – and in turn the E.U.’s – hand as regards the acceptance of Spanish sovereign debt as collateral. Now, however, the ECB says they issued no such rejection and stand ready to offer its advice as and when requested.

The EUR/USD has been under a great deal of pressure from the Eurozone’s various problems with perhaps the largest contributor of that pressure coming from Spain. The EUR/USD is currently lower at 1.2440, and OpenBook sentiment continues to be primarily bearish. French trader Nazoux has had a string of profitable short positions closed in the past 24-hours, with profits that range from 2% to as much as 25%. Over the past several months, the trader has whittled down his portfolio from a handful of currency pairs to a single pair; the EUR/USD and the now 100% allocation has given him and his 6 copiers a 9.9% gain in the past month. The trader appears relatively new to OpenBook but is likely not a novice; his P&L for the last week is a respectable 23.6%, but the respect reaches a new level for the month at 156.1%, and surpasses even that at the quarter mark with a more than 300% profit. For traders looking for a new EUR/USD guru, this trader could be one to keep an eye on.

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