A worrisome widening in Spanish and Italian bonds is making the news again.
WSJ: Spanish bonds extended a slide that was triggered earlier this month after the country was chided by euro-zone authorities over the government's unilateral decision to revise up its budget deficit target for this year. With concerns over Greece abating after a crucial debt exchange went through, Spain is increasingly being seen as the next flashpoint in the euro zone.
The economy is stuttering, unemployment is rampant, and the market is losing confidence in the government's ability to mend its finances. If the sell-off in Spanish bonds were to accelerate, Italy might not be left unscathed either.
|Spanish and Italian 5yr bond spreads to Germany|
All of a sudden economists and forecasters (such as this CS forecast) are realizing they've underestimated the level of the periphery recession. One can see the forecast mistakes coming through the latest Eurozone manufacturing PMI.
|Eurozone manufacturing PMI|
It is difficult to imagine anything but a depression-style economy in Spain for example, when nearly a quarter of the population is out of work.
|Spain's unemployment (Bloomberg)|
And the news media is only now catching on...
BW: Europe’s economy may struggle to regain strength after shrinking 0.3 percent in the fourth quarter as governments toughen budget cuts, rising oil prices erode consumers’ purchasing power and global demand weakens.