The global economic recovery is on a very tenuous footing. While determined optimists can string together enough positive threads in the latest economic data to make an argument that the downturn is bottoming out, the realist in me isn’t biting. Encouraging signs aside, the world’s largest economies are still far too vulnerable to withstand the next major setback, which could seemingly come from almost anywhere but will most probably originate in Spain, the fourth largest economy in Europe and the twelfth largest in the world.
In fact, I now believe that some kind of Spanish debt default is all but inevitable.
When the European Central Bank (ECB) launched its Long-Term Refinancing Operation (LTRO), which allowed euro-zone banks to pledge (and leverage up) suspect quality debt in exchange for three-year loans with a fixed 1% interest rate, it looked like Spain might have at least bought itself some time.