Step by slow step, Spain is heading toward a bailout. The slow and painful path is made worse by the suffering that it imparts on citizen, and there are few signs of recovery any time soon. Valencia's decision to utilize the regional government liquidity fund pushed the Spanish risk premium to 610 basis points and caused the stock market to plummet 5.82% in its worst session since May 2010.
Closing yet another dark Friday, ten-year notes reached 7.27%, showing the Treasury's increased difficulties in getting financing from foreign markets. Euro zone finance ministers and Finnish parliament gave the nod to bailing out the Spanish banking sector, but their decision did not have help markets as expected despite the fact that the first payment of some 30 billion euros from the European Financial Stability Facility was expedited.
With half the country lounging around on the beach and the other half in the streets protesting delayed reforms that are supposed to trim 65 billion in state spending, the government's popularity level is at its lowest level since it took office in mid-December of 2011.
The government has lost credibility inside and outside Spain, its choices are fewer and fewer, and it is plagued with internal squabbles that wear on a very young legislature as it attempts to navigate these tough times. At this point, it makes sense to consider whether it's best to keep plugging along with the status quo or to throw in the towel and admit that we can't get out of this hole without some outside help. Waiting on a miracle from the European Central Bank (ECB) doesn't seem like the wisest choice.
