It seems that for the moment Mr. Market's beast is asleep, or pretending to sleep. The Spanish risk premium is still in the “moderate” 400′s despite the fact that Spain is growing the dwarfs of its circus. Perhaps some events are going somewhat unnoticed by public opinion, but they will be decisive in determining what may happen in the Eurozone in the coming months and years.
On the one hand, the triad (not the Troika) of Eurozone countries that still have their AAA - Finland, the Netherlands and Germany - have backtracked on an agreement they may never have reached in a credible way.
We refer to the fragile consensus that was reached in the early hours of July last year, according to which the rescue of the Spanish banks would be carried out by European rescue funds and not by the Spanish public coffers. At the time, half of Europe was congratulating itself for not transferring Spanish bank insolvency to the state, at least in an immediate and absurd way, plunging it even deeper into misery and bankruptcy.
But it is now obvious that the other half of Europe, the better-off economies, will not allow - and perhaps never did allow - their money to be used to bail out Spanish banks and bankers who are ruined by their bad heads.
So we are back to the pre-September hotspot, where the insolvency of the Spanish state must be multiplied with more money due to prevent most Spanish banks from continuing to falsify their accounts in order to keep their doors open to the public. Without such a bailout, come ESM or at the expense of a bigger hole in the Spanish state, the banks are bankrupt, and therefore Spain will have to inject money it does not have. To do so, the Spanish state will have to ask to be bailed out as such, but not before the Galician and Basque elections, of course! Lest the PSOE draw blood with it and the PP lose some votes and seats... Creepy, yes. Real as life itself, too.
The fact is that the current scenario is one of extreme insolvency of Spain and its banks, and of an imminent bailout by European funds, the conditionality of which we have been witnessing in Portugal and Greece. That is the path we are being forced to take because of our bad head and the fact that we cannot produce our own currency. So we have the hot potato in our hands again and, with the complicity of the ECB, we are trying to conceal the pain so that Mr. Market does not take it out on us as he did a few months ago.
On the other hand, the sovereigntist tension in Catalonia may be going in crescendo further aggravating the economic uncertainty of Spain's public coffers. And it will be curious, to say the least, to see how the EU will handle this issue from the conditionality of the bailout of the Spanish state.
Will it refrain from the conflict by demanding purely the fulfilment of state figures as a whole? This would imply Europe's blessing for the Spanish government's current immobility with respect to Catalan demands, and thus a more than foreseeable aggravation and radicalisation of the situation.
Or perhaps, on the contrary, the Troika and its “Men in Black”, in view of the scope and future complication of the Catalan castling, include in their conditions some solution that allows for a decompression of the internal conflict in the short term. Who knows, and perhaps it will never be known.
The only thing that is certain is that the market has been served on a platter with another compelling reason - one more - to punish and price, not only the insolvency and riskiness of the Spanish economy as such, but also uncertainty that a hypothetical referendum on Catalan independence would entail. After all, just a couple of days ago, London and Edinburgh were agreed to hold of an equivalent consultation for 2014.
Fortunately for Britain - and also for Scotland - the hypothetical secession of the Scots would not entail substantial economic hardship, as it would in the case of Spain.
In short, the banking hot potato that is already burning our hands, the imminent bailout of the State by the ESM, and the hypothetical referendum in Catalonia are all risks and uncertainties that are going to make Spain's share price in all its market variables much worse.
And what is today a periphery sustained and led by two large “unsalvageable” economies such as Italy and Spain, is going to be dangerously divided. On the one hand, we will have the rescued and more problematic periphery with countries like Greece, Portugal and Spain; and on the other, the periphery that has stopped accelerating its deterioration, with countries like Italy and Ireland, which their Central European partners can pull on in a self-interested way: Ireland for being a reference point for the domiciliation of European financial products and being located “on the outskirts” of Great Britain; and Italy for recovering for the Eurozone a founding member, which is a historical European reference without which it is difficult to imagine an EU with a certain amount of substance.
In other words, the EU project with an excluded Italy would be much less faithful to its founding origins, and would make the project of the United States of Europe less credible and unstable.
This clear division of economic fundamentals and figures between Spain and Italy, which did not exist only a few quarters ago, now opens a very dangerous gap for our interests. Because going hand in hand with Italy was for Spaniards a safe conduct against the radical intervention of the MiB, political marginalisation or Greek-style eviction.
And today this brand new Italian companion of pain and toil, with a technocratic president at the helm, unconcerned about the ballot box, is slipping from our grasp, relegating us and pushing us towards the less recoverable periphery.
Mr. Market is still sleeping, or pretending to be asleep for some obscure reason, but it will only be for a short time. And when the Market wakes up, Spain will be clearly harmed by all the aforementioned problems, and who knows if by the growth of some other dwarf in its particular circus... -Virgincita, virgencita, que me quede como estoy... - And possibly Italy will benefit from the opposite effect by comparison and for the convenience of the Europeanist project.
Let us not forget that Italy has been a founding member of the Paris treaty since 1951, and any excuse that allows its economy to appear to be moving closer to the French economy will be welcomed and encouraged by Brussels and Paris, and even by Berlin.
The European and pro-European heart may beat stronger in the near future with the Italians' abandonment of the periphery, while the southern Mediterranean, Greek and Iberian, will be more peripheral, poor and conflictive without Rome (what a paradox in the old continent!). While the southern Mediterranean, Greek and Iberian, will become more peripheral, poor and conflictive without the reference point of Rome (what a paradox that history is repeating itself in the old continent!). the peripheral Limbo we were talking about in this article, to permanently accommodate the southerners until a future - or utopian - re-engagement.
But the worst part of this scenario is that Spain not only has no idea how to prevent this deterioration from happening, but does not even seem to be aware of what is coming and its medium- and long-term consequences.
Perhaps the increasingly divergent prices between Spain and Italy will awaken some from their lethargy, even if it is too late to take advantage of it as an investor or to remedy a break-up of the periphery.