Over the past few months, the Spanish economy has been in critical condition. Now, a full bailout could be closer than expected. Further steep declines in bonds and shares have led Spain’s market regulator to impose a three-month ban on short-selling shares. In second quarter results, its economic output has dropped again.
Pedro Schwartz is an economics professor at San Pablo University in Madrid, and he says that the country's economic woes are visible in the streets, as shops close and houses go up for rent or sale. "The property market and the retail market are suffering very heavily," he says. The recent budget cuts are also extremely unpopular, as study pensions and unemployment benefits are being scaled back. Civil service workers have also lost their annual year-end bonus.
"That is making people angry," Schwartz says. "One feels that there's more anger among ordinary people." The popularity of the reigning Popular Party is also falling due to the austerity measures.
Europe's economic woes reach well beyond Madrid. The euro fell to its lowest value in two years and as a result, global stocks are also suffering.
Chris Morris is a Europe correspondent for BBC, and believes that a German bailout of Spain would be very difficult to achieve. "It would really strain the system," he says. If Spain received a bailout, Morris believes that Italy would be next in line, and bailouts of those two economies would be more than Germany could handle.
"Six months ago, people were talking, [saying] 'We're going to ring-fence this in Greece; it's going to go no further. Didn't work," Morris says. "Now there's people saying that we've got to draw a line in Spain; that's pretty difficult too, and I think that's why the markets and politicians [are] pretty worried about this."
"[Spain] doesn't really need to borrow any money immediately," Morris says. "But over the next couple of years, it needs to borrow an awful lot of money. And if these interest rates it would have to pay to borrow money for 10 years, or five years, or even just for two years remain as high as they are now, it simply won't be able to afford it."
"That's where it becomes a problem for the euro zone, and a big problem for the euro zone becomes a problem for everyone because it's such a big part of the global economy."
Germany's credit rating was threatened by Moody's, a financial rating group, due to Greece's inability to meet its agreed-upon conditions for the bailout. "Time and again, Greece is not meeting its targets," Morris says. "Patience, each time, gets a little thinner. This time, it really feels like we're pretty close to the edge of the cliff."