Investors breathed a sigh of relief when the conservative New Democracy Party won the recent elections. This party has pledged to work with EU leaders to ensure their nation can remain in the Eurozone. The party won the elections by a whisker, which helped inspire new confidence in European leaders’ ability to keep the Eurozone together. Markets were lifted significantly throughout Europe and the United States. Many stock indexes rose the most they had in a month.
However, that confidence was shorted lived. Investors quickly started getting nervous about the Eurozone’s abilities to resolve the financial challenges it is facing. Spain’s borrowing costs reportedly increased above 7%, which many economists deem too high to be sustainable. As the crisis on the mainland continues to unwind, people are starting to become concerned that time may be running out for the single currency union.
The Eurozone has a number of challenges it is currently facing. One of the key problems it needs to address is the fact that Spain is dealing with a major real estate crash which has crippled its banking industry. This is part of the reason that the country needed to ask for a 120 billion euro rescue loan last week. Meanwhile, there are reports of slow motion banks runs underway in Greece and Spain. Without real solutions, consumers and investors are not going to be able to maintain confidence in the ability of European Union leaders to fix the credit crisis.
Investors are encouraged by the fact that Spain is large enough to sustain higher borrowing costs and has a lower debt-GDP ratio than the other struggling Eurozone countries. However, if Spain’s crisis reaches its tipping point, the fallout will be much worse than anything caused by a fallout from Greece.
Investors are anxiously waiting to see what is going to happen in the Eurozone and what impact it will have on the global economy. It could possibly have an impact on the economies in the United Kingdom as well as Asia and the United States.