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Spain could test the euro to its limit

Bruno Waterfield
London Telegraph [1]
June 19, 2010

As the euro has continued to plunge on foreign exchanges, Spain has become the main focus of fears that economic and debt imbalances between southern and northern Europe will tear the single currency apart.

News that the head of the International Monetary Fund was in the country fuelled swirling rumours that Madrid is about ask for help.

Spain has been hammered by collapse of its construction sector and the bursting of a property bubble built on cheap credit that has contaminated financial institutions. One in five workers is unemployed burdening already strained state expenditure further.

Markets have not been reassured by a savage package of Spanish spending cuts and there are growing rumours that Spain needs an urgent EU-IMF cash injection, £200 billion is one rumoured figure. Panicky German officials too have been accused of destabilising Spain amid concerns in Berlin that Madrid is not cutting enough, leaving banks in Germany exposed to market contagion because they own hundreds of billions in Spanish debt.

Full article here [1]